Corporate, Product and Distribution Strategies in the European Life Insurance Industry

This paper examines corporate, marketing and product distribution strategies in the cost and revenue efficiency across a sample of life insurers that operate in European markets with the highest insurance concentration and density. We predict that these strategies are also affected by segmentation and cross-country differences in regulatory type (“alpine” vs. “atlantic”), which facilitate managerial opportunistic behaviour in choice of distribution strategy. This contrasts with the standard market efficiency hypothesis, which predicts that firms that adopt one of three generic strategies (cost, customer focus and product differentiation) are more efficient than rivals that fail to adopt one of these strategies. Our results support the prediction of the market imperfection hypothesis that firms with non-exclusive distribution systems are less costly and profit-efficient. We also find that firms surviving the recent financial crisis rely on exclusive distribution channels, product differentiation and experience the highest degree of change in cost efficiency over time of increasing deregulation. These findings imply that imperfections in these markets are driven by a combination of tax incentives, regulatory arbitrage and technology transfer of larger firms that exploit their size and dominance to use multiple distribution systems, which are more costly and profit-efficient.