Efficient Monopolies : The Limits of Competition in the European Property Insurance Market

## Abstract Compares the market for property insurance in five European countries, Britain, Spain, France, Switzerland, and Germany. The comparisons are of particular interest, as the regulatory frameworks vary widely from country to country and so do the market outcomes, both in terms of premium level and in terms of available insurance cover. In particular, the state insurance monopolies in Spain and parts of Switzerland permit property owners to obtain global cover against a wide range of natural damages (including floods) at a very low premium rate. The premiums of private insurance companies are much higher because they typically spend more than one third of premium income on commissions and administrative costs. State monopolies are considerably more efficient in this respect. In several countries, insurance against occurrences such as floods is not available in competitive insurance systems, or it is offered only to the better risks. This is probably due to problems of adverse selection. For compulsory state monopolies, adverse selection is not an issue. This book presents startling evidence that state monopolies can produce better outcomes than the free market. It provides an empirical comparison of the property insurance market in five European countries: Britain, Spain, France, Switzerland, and Germany. The market and cost structures of insurers in each country are described, and particular features of each market and the outcomes for customers examined. The regulatory frameworks vary widely from country to country and so do the market outcomes, both in terms of premium level and in terms of available insurance cover. In view of the increase in major floods and other forms of natural damage (such as subsidence) over the last decades, the non-availability of insurance cover in many competitive insurance systems is likely to become a major political issue. This book shows that state monopoly is an adequate policy response. Competitive insurance systems are shown to provide incomplete cover at a substantially higher cost. In mixed systems, where the private sector can obtain reinsurance from the state (such a system is being tried in France) the state tends to end up paying most of the costs (it reinsures most of the bad risks) while the private insurance companies keep most of the premium income. The book will be of interest to academic economists interested in privatization, regulation, the theory of the firm, and insurance; Policy-makers concerned with regulation and privatization; Insurance companies, regulators, and analysts. "Presenting an empirical comparison of the property insurance markets in five European countries, this book examines insurers' markets and cost structures, the particular features of each market, and the outcomes for customers. Empirical evidence from Britain, Spain, France, Switzerland, and Germany provides a detailed picture of regulatory frameworks that vary widely from country to country. Drawing on that evidence, von Ungern-Sternberg identifies differences in market outcomes, in terms of both premium level and available insurance cover, and can then compare the free market with state intervention. He shows that state monopoly can be the best policy response, as competitive insurance systems are shown to provide incomplete cover at a substantially higher cost. In mixed systems, where the private sector can obtain reinsurance from the state, the state tends to pay most of the costs, while the private insurance companies keep most of the premium income." "In presenting these provocative results this book will be valuable to economists in privatization, regulation, the theory of the firm, and insurance; policy-makers concerned with regulation and privatization; and insurance companies, regulators, and analysts."--BOOK JACKET

this Book Presents Startling Evidence That State Monopolies Can Produce Better Outcomes Than The Free Market. It Provides An Empirical Comparison Of The Property Insurance Market In Five European Countries: Britain, Spain, France, Switzerland, And Germany. The Market And Cost Structures Of Insurers In Each Country Are Described, And Particular Features Of Each Market And The Outcomes For Customers Examined. The Regulatory Frameworks Vary Widely From Country To Country And So Do The Market Outcomes, Both In Terms Of Premium Level And In Terms Of Available Insurance Cover.

Contents......Page 10 List of Figures......Page 11 List of Tables......Page 12 Introduction......Page 14 1 Britain......Page 34 2 Spain......Page 69 3 France......Page 88 4 Switzerland......Page 118 5 Germany......Page 138 References......Page 165 C......Page 169 G......Page 170 P......Page 171 U......Page 172 W......Page 173 This work provides evidence that state monopolies can produce better outcomes than the free market. It provides an empirical comparison of the property insurance market in five European countries - Britain, Spain, France, Switzerland and Germany