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An Examination of the Relative Efficiency of Fraternal Insurers

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  • Lih Ru Chen
  • Michael J. McNamara

Abstract

We examine the efficiency of fraternal insurers as compared to mutual and stock insurers in the U.S. life insurance industry. We test the hypothesis of equal efficiency across fraternal, mutual, and stock insurers. We find that mutual and stock insurer technology is dominant for producing the fraternal outputs. Additionally, stock insurers have higher profitability than fraternals. Given the characteristics of the organizational structure, fraternal policyowners may be willing to accept this lower level of efficiency because of attenuated incentives to monitor. Although fraternals are less efficient, policyowner affiliation helps to keep fraternals in business.

Suggested Citation

  • Lih Ru Chen & Michael J. McNamara, 2014. "An Examination of the Relative Efficiency of Fraternal Insurers," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 37(1), pages 1-31.
    • Handle: RePEc:wri:journl:v:37:y:2014:i:1:p:1-31
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    Cited by:

    1. Radojko LUKIC & Miro SOKIC & Dragana Vojteski KLJENAK, 2017. "Efficiency Analysis Of Banking Sector In Republic Of Serbia," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 7(4), pages 5-17, December.

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