Effect of Group Affiliation, Ownership Structures, and New Entries on Efficiency: Lessons from the Japanese Life Insurance Industry after Deregulation

Deregulation and the succeeding changes, such as forming group affiliation, demutualization, and new entry from foreign countries, are widespread and worldwide phenomenon in the life insurance industry. This study examines impacts of the deregulation and the succeeding changes on efficiency of the Japanese life insurance industry using a Stochastic Input Distance Frontier Approach, a new version of Stochastic Frontier Analysis (SFA), which is the first application to an insurance industry. The main results are as follows. First, a group affiliated life insurer is more efficient than the others. Second, an efficiency difference between mutual and stock life insurers has been getting larger since deregulation. Third, there is not much difference of efficiency between foreign insurers and domestic insurers. We also find that efficiency of life insurers has decreased on average after deregulation.