Integration and Efficiency convergence in European Life Insurance markets

1 Integration and Efficiency Convergence in European Life Insurance Markets By J. David Cummins and Maria Rubio-Misas June 15, 2016 J. David Cummins Maria RubioMisas* Fox School of Business Departamento de Finanzas Temple University y Contabilidad 1301 Cecil B. Moore Avenue Universidad de Málaga Philadelphia, PA 19122, U.S.A 29071 Malaga (Spain) E-mail: cumm[email protected] Email: [email protected] Phone: (215) 204-8468 Phone: (34)952 131236 *Corresponding author 2 Integration and Efficiency Convergence in European Life Insurance Markets ABSTRACT This study examines the impact of integration on the efficiency of European Union (EU) life insurance markets for the post deregulation period 1998-2007. To assess the effects of deregulation, we first estimate cost and revenue efficiencies by applying the metafrontier data envelopment analysis (DEA) approach, which facilitates efficiency comparisons across countries. In the second stage, we test the degree of inter-country convergence as well as cross sectional dispersion by using panel data models. Our findings show that efficiencies have converged and that the dispersion of mean efficiency scores across countries has been reduced, providing evidence of integration in the EU life insurance market. Results also show the β-convergence and σ-convergence in metatechnology efficiency ratios suggesting that technological discrepancy among the life insurance markets of major EU countries has decreased. We also find that financial market development, legal and governmental systems, as well as competitive intensity affect insurance market performance and integration. JEL classification: G22, D24, F36 Keywords: European Life Insurance Markets, Convergence, Metafrontiers, Cost and Revenue Efficiency, Environmental Factors