Efficiency of Insurance Firms With Endogenous Risk Management and Financial Intermediation Activities

Georges Dionne, J. David Cummins, Robert Gagné, Abdelhakim Nouira
2007 Social Science Research Network  
Risk management is now present in many economic sectors. We investigate the role of risk management and financial intermediation in creating value for financial institutions by analyzing U.S. property-liability insurers. Our main goal is to test how risk management and financial intermediation activities create value for insurers by enhancing economic efficiency through cost reductions. We consider these two activities as intermediate outputs and estimate their shadow prices. Insurer cost
more » ... ency is measured using an econometric cost function. The econometric results show that both activities significantly increase the efficiency of the property-liability insurance industry.
doi:10.2139/ssrn.900384 fatcat:e7kpyczedjanpbkhdcqbmme2uu