Fire insurance in Germany: A comparison of price-performance between state monopolies and competitive regions
Up until 1994 there were two different forms of organizing the fire insurance market in Germany. While a state monopoly applied in 13 regions, a competitive market system combined with government regulation existed in the rest of the country. This study identifies the effects of market forms on the price-performance of insurance companies. It is based on annual company data including premium revenues, damage payments and general expenses for the period 1980–1994. The estimation results indicate that monopolies had a 22 percent lower markup on damage payments compared to companies in competitive regions with an average markup of 42 percent. The difference may be explained by higher selling costs for companies in competitive markets, indicated by a high share of commissions in total expenses.
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