Title: Efficiency and scale economies in the Japanese non-life insurance industry

Authors: Yap Yin Choo

Addresses: Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, V6T 1Z2, Canada.

Abstract: This paper studies efficiency and scale economies in the Japanese non-life insurance industry using Data Envelopment Analysis (DEA) with inclusion of input prices in the model. Japanese non-life insurers generally score quite high in technical efficiency but low in allocative efficiency, which implies that they are not good at using the best cost-minimising input mix. The efficiency gap among the insurers increased tremendously after deregulation. However, it decreased gradually soon after and has become stable in recent years. The findings also reveal that cost and scale efficiency increase with larger size but diminish when beyond the minimum efficient scale. In addition, insurers that are more diversified are found to be more cost efficient. Against the recent background of mergers and acquisitions among the big insurers, this paper offers a cautionary note to these mega insurers that seek benefits of economies of scale.

Keywords: data envelopment analysis; DEA; economies of scale; technical efficiency; allocative efficiency; Japan; non-life insurance industry; line-of-business diversification; cost efficiency.

DOI: 10.1504/IJFSM.2012.046950

International Journal of Financial Services Management, 2012 Vol.5 No.3, pp.239 - 255

Published online: 15 May 2012 *

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