Product Diversification And X Efficiency In Life Insurance Industry: An Empirical Study

Increased competition, consolidation and a changing regulatory environment in the life insurance industry have intensified interest in the analysis of insurer efficiencies. In this situation, many life insurance industries promote the efficiency of the industry by product diversification. Since the end of last century, the trends of financial industries' diversification have deserved the heavy attentions and broad researches of policy makers, researchers and financial press. On the basis of above, this article analyses the situation of product diversification, and proves the relationship between the product diversification and efficiency.Firstly, the article analyses the basic definition of the product diversification, and reviewed the situation of our country for last tow decades, which generalized the main conclusions, indicated the shortcomings and suggested the directions for future research. Then, This paper unites DFA in evaluating the X efficiency of the twelve life insurances from 2000 to 2004. The results indicate that joint ventures of the life insurance in China ate more effective, and Chinese life companies are not so good. At last we recommend some possible ways to correct the problems, so as to improve our national life insurance companies' efficiency.Secondly, using data for the life insurance industry during 2000-2004, we empirically test for a relationship between product diversification and measures of X efficiency. Our empirical evidence suggests that product diversification is an important explanatory variable for X efficiency, and their relationship is a U model. The analysis in this article is life insurance industries are going toward product diversification with a changing regulatory environment, so as to improve our national life insurance companies' efficiency.The research in the article supports the spread of the ralationship between the product diversification and efficiency. However, with only the support on the theory it is not enough to spread this situation. To carry out it well, we need the market to develop and expand continuously, need investors to grow and get mature gradually, need the institutional managers to persevere in the act, and also need the regulation institution to guide with a good direction.