Market Concentration Of Insurance Industry And Financial Stability

Since the reform and opening up of the insurance industry,the development achievements of China’s insurance industry have attracted worldwide attention.Especially after China joined the World Trade Organization in 2001,the insurance market has extended its opening level,the number of market entities has gradually increased and the scale of the industry has been continuously expanding.The process of increasing the scale of premiums is accompanied by a trend of increased industry competition and declining market concentration.From the perspective of competition patterns,China’s insurance market has undergone the development stage of “monopoly – disordered competition – ordered competition”.It can be seen that the structure of China’s insurance market has undergone a process of dynamic evolution.The concentration of the insurance market is gradually descending.Does this affect the financial stability of the insurance company? If we conduct an empirical study on China’s insurance market concentration and financial stability,would its results support the hypothesis of “concentration-stability” or “concentration-fragility”? This paper regards it is interesting and important to probe on such topic,and its results to some extend can provide references to regulators for policy making of the insurance market development.This paper focuses on property insurance,because the financial status of such companies is more sensitive to external environment and internal operation,especially to the insurance risk.Based on the classic theory of industrial organization,this paper explores the relationship between the market concentration of property insurance industry and the financial stability of property insurance companies based on the panel data of 43 property insurance companies in China from 2008 to 2017.In this paper,the Z-score is used to measure the overall financial stability of the insurance company,and the five-year rolling standard deviation of the combined ratio is used to measure the financial stability of the insurance business.The Durbin-Wu-Hausman(DWH)is used to test the market concentration variable whether is the endogenous variable,and this paper applies instrumental variable to solve endogenous problems.For the sake of robustness,in addition to OLS,this paper uses 2SLS,LIML and GMM for regression,and uses different market concentration calculation indicators and ROA five-year rolling standard deviation to conduct robustness test to enhance the reliability of research results.Furthermore,according to different ownership characteristics,different business scales,different geographical diversification,and different auto insurance ratios,group regression is carried out to extend this research.The results show: 1.The market concentration and the financial stability of property insurance company are negatively correlated,the more concentrated of the market,the weaker of the financial stability,which supports the “concentration-fragility” hypothesis.2.Chinese property insurance companies,companies with higher ratio of auto insurance,and property companies with larger business scales all support the “concentration-fragility” hypothesis;while foreign-funded property insurance companies,companies with lower ratio of auto insurance,and property companies with smaller business scales,their financial stability demonstrates no significant correlation with market concentration.3.Other factors also influence the financial stability of property insurance company,including the size of company,the underwriting leverage,the auto insurance premium ratio,the geographical diversification,reinsurance ratio,asset growth ratio,safety investment ratio,whether is a group insurer and interest rate changes.The conclusions of this paper have significant references for construction of regulatory system,it illustrates that increasing the market share of small and medium-sized market entities and reducing market concentration will help enhance the financial stability of market participants and promote the steady development of the entire insurance industry.Thus,small and medium-sized enterprises should be encouraged to march on the path of professionalization and specialization,and to insist on opening-up to in and abroad markets,foreign-funded property insurance companies should be developed and the number of market entities should be stably increased.Meanwhile,it is necessary to differentiate the development of various insurance types to optimize the insurance structure of property insurance.