Competition in the life insurance industry JACOBA. BIKKERANDMICHIEL vA NLEUvENSTEIJN
The lack of available prices in the Dutch life insurance industry makes competition an elusive concept that defies direct observation. Therefore, this chapter investigates competition by analysing several factors which may affect the competitive nature of a market and various indirect measurement approaches. After discussing various supply and demand factors which may constitute a socalled tight oligopoly, we establish the existence of scale economies and the importance of cost X-inefficiency, since severe competition would force firms to exploit available scale economies and to reduce X-inefficiencies. Both scale economies and X-inefficiencies turn out to be substantial, although more or less comparable to those found for insurers in other countries and for other financial institutions. Further, we measure the effects of competition, applying the PCS indicator. This indicator points to moderate competition in comparison to other sectors in the Netherlands. Further investigations of submarkets should reveal where policy measures in order to promote competition might be appropriate.