The Determinants of Efficiency and Productivity in the Swiss Insurance Industry

Using state-of-the-art frontier efficiency methodologies, we study the efficiency and productivity of Swiss insurance companies in the life, property/casualty, and reinsurance sectors from 1997–2013. The broad scope of this study provides an opportunity to compare and cross-check the findings from other countries, across different time periods, and across different subsectors. Moreover, we are the first to analyze the internationalization strategies of insurance companies, a topic of high interest in the business and economics literature, but one that has not to date been the focus of efficiency studies in the insurance sector. We find that productivity and efficiency in the Swiss insurance market have improved for the property/casualty and reinsurer sectors, but not in the case of life insurance. The results suggest that the internationalization of the insurance business has a positive impact on insurer efficiency. We also illustrate the importance of analyzing nonlinear and interaction effects in second-stage regressions so as to obtain richer insight into the determinants of efficiency. These tests show that being either a small specialist or a large diversified company is optimal from an efficiency point of view. Our findings are of interest not only for Swiss insurance company managers, regulators, and policymakers, but also for academics in other fields and practitioners in other countries.