Impact of insurers' product variety on performance across underwriting cycles

Abstract

Purpose

This study sets out to focus on understanding the linkage between product variety and performance of property/casualty insurers during underwriting cycles.

Design/methodology/approach

The study sample is based on 4,597 property/casualty (PC) insurers from the time period 2000‐2004. Insurers are categorized into two groups based on performance: insurers whose performance is above 0.1 standard deviation of the mean, and insurers whose performance is below 0.1 standard deviation of the mean. Later logistic regression models are used to determine the influence of product variety on the likelihood of an insurer falling into one of these groups.

Findings

Study findings indicate that insurers with greater product variety had lower performance than focused insurers during both phases of the cycle. Insurers with great product variety fared relatively better than focused insurers during the hard markets compared with soft markets.

Originality/value

Extant research has presented significant evidence for the existence of underwriting cycles and factors causing such cycles. However, very little is known about factors that influence performance differentials across property/casualty insurers during underwriting cycles. Using real options theory, the study initially develops a rationale explaining how product variety reduces performance during an underwriting cycle and tests for the same. Study findings show that product variety aids performance of insurance firms in hard markets and soft markets, though more so in the former. In this particular instance, for firms seeking to reduce performance, it could well be that “not putting all your eggs in one basket” may not be a bad idea after all.

Citation

Elango, B. (2009), "Impact of insurers' product variety on performance across underwriting cycles", Management Decision, Vol. 47 No. 2, pp. 359-374. https://doi.org/10.1108/00251740910938966