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Mutuality as a control for information asymmetry: A historical analysis of the claims experience of mutual and stock fire insurance companies in Sweden, 1889 to 1939

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  • Mike Adams
  • Lars-Fredrik Andersson
  • Joy Yihui Jia
  • Magnus Lindmark

Abstract

We test two competing arguments regarding the influence of organisational form on underwriting performance using data from the Swedish fire insurance industry for the years 1889 to 1939 -- a period of both economic growth and stagnation. Since mutuality is a response to information asymmetry problems, mutual insurers are expected to report lower annual claims relative to premiums than stock insurance companies. However, an alternative view is that stock insurers seek to reduce information asymmetry problems by issuing non-participatory rights insurance contracts with high deductibles that induce risk-sharing between the insurer's shareholders and policyholders. This implies that stock insurers are likely to report lower annual claims than mutual insurers. Our results show that organisational form is an important determinant of the claims experience of Swedish fire insurers, suggesting that mutuality acts as an effective control for information asymmetries in the market.

Suggested Citation

  • Mike Adams & Lars-Fredrik Andersson & Joy Yihui Jia & Magnus Lindmark, 2011. "Mutuality as a control for information asymmetry: A historical analysis of the claims experience of mutual and stock fire insurance companies in Sweden, 1889 to 1939," Business History, Taylor & Francis Journals, vol. 53(7), pages 1074-1091, December.
    • Handle: RePEc:taf:bushst:v:53:y:2011:i:7:p:1074-1091
    DOI: 10.1080/00076791.2011.582577
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    References listed on IDEAS

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    1. Robert L. Carter & Peter Falush, 2009. "The British Insurance Industry Since 1900," Palgrave Macmillan Studies in Banking and Financial Institutions, Palgrave Macmillan, number 978-0-230-23952-4.
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    Cited by:

    1. Pablo Gutiérrez González & Lars†Fredrik Andersson, 2018. "Managing financial constraints: undercapitalization and underwriting capacity in Spanish fire insurance," Economic History Review, Economic History Society, vol. 71(2), pages 567-592, May.
    2. Antti Talonen & Harri Talonen & Jari Stenvall & Iiro Jussila, 2020. "Communicating the economic value of customer ownership in insurance: A qualitative analysis of annual reports," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 23(3), pages 243-267, September.
    3. Jakša Krišto & Antti Talonen & Hrvoje Pauković, 2021. "Analysis of community‐owned mutual insurers' prospects of development in CEE countries: Outlining research agenda," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(3), pages 243-261, September.
    4. Eva Vriens & Tine De Moor, 2020. "Mutuals on the Move: Exclusion Processes in the Welfare State and the Rediscovery of Mutualism," Social Inclusion, Cogitatio Press, vol. 8(1), pages 225-237.

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