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JOURNAL OF ACCOUNTING AND FINANCE
A Reexamination of Scale Economies in the Property and Casualty Insurance Industry
Author(s): Tim Mooney, D.K. Malhotra, Raymond R. Poteau
Citation: Tim Mooney, D.K. Malhotra, Raymond R. Poteau, (2020) "A Reexamination of Scale Economies in the Property and Casualty Insurance Industry," Journal of Accounting and Finance, Vol. 20, ss. 7, pp. 87-100
Article Type: Research paper
Publisher: North American Business Press
Abstract:
As the property and casualty insurance (P/C) industry consolidates with mergers and acquisitions, we evaluated whether this consolidation from 2012 to 2017 resulted in cost efficiency gains for P/C companies. We used a translog cost function to evaluate scale economies for U.S. P/C companies, examining the relation between firm size and costs. We employed three measures of size: total assets under management, premium and annuity revenue, and total revenue. We also examined the source of cost savings with three cost measures: total operating costs, policy and benefits expenses, and other operating costs. We found that size does matter, because larger companies have significantly lower operating costs when output is measured in terms of total assets. Both policy benefits and expenses and other operating costs, including selling, general, and administrative expenses, contribute to cost efficiencies for larger companies, but a substantial source of cost efficiency for larger size firms appears to stem from other operating costs.
