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Economics Analysis on Insurance Market Exit in China

Author: HeJia
Tutor: JiangShengZhong
School: Nankai University
Course: Insurance
Keywords: insurance industry market exit optimization of industrial organization insurance company’s merger
CLC: F842
Type: PhD thesis
Year: 2012
Downloads: 36
Quote: 0
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Perfect market exit system is an important indicator of the maturity of insurancemarket. Currently, China’s insurance market exit system is not yet perfect; so far,there has been no insurance company exiting from the market. Insurance company’sexit from market affects insurance industrial organization. Many problems in China’sinsurance industry are related to lack of perfect insurance market exit system. In thisdissertation, the author studies the necessity of market exit and market exit behaviorand the choice of the mode of market exit from the viewpoint of optimization ofindustrial organization.In the second part, the author studies the basic theoretical issues of market exit.Through the analysis of the features of insurance industry, the author generalizes thecharacteristics of the barriers to insurance market exit; then summarizes the types ofinsurance company’s market exit. The author analyzes the relations between marketexit and optimization of insurance industrial organization, on this basis, the authordepicts the optimal structure of insurance industrial organization under the conditionof effectively functioning of perfect market exit system: differentiated oligopolymodel, that is, large, medium-size and small companies coexist, relatively highmarket concentration, several large insurance groups or insurance conglomerates withinternational competitiveness; diversified developing modes, multi-level economiesof scale; product differentiation; economic barriers to market entry fully play theirpart, policy barriers to market exit reducing, lower transition costs between differentlevels of economies of scale. Finally, the author defines the concept “insurancemarket exit system” and analyzes the contents of this concept.In the third part, the author outlines the relative economics theories of marketexit. Market exit is the result of competition, in section one, the author generalizes thecompetition theories. Market exit is the basic concept of industrial organization theory,in section two, the author outlines the evolution of industrial organization theories.Exit from the market is the last stage of the firm’s growth, in section three, the author lists the theories of the growth of the firm.In the fourth part, the author discusses the necessity of insurance market exit inChina through the empirical analysis and the theoretical analysis. In the empiricalanalysis, the author firstly analyzes the features of China’s insurance market structure;then, according to the return ratio of equity and the marginal return ratio of equity ofChina’s property insurance market and life insurance market, the author evaluates theefficiency of China’s property insurance market and life insurance market, concludesthat the efficiency of the medium scale and small companies is low, and it’s necessaryfor someone to exit from the market; lastly, the author analyzes the main problems ofChina’s insurance industrial organization, and points out the reasons of theseproblems, that is, the high market barriers and lack of perfect market exit mechanism.In the theoretical analysis, firstly, according to market economy theories andindustrial organization theories, the author finds that market exit helps improve theefficiency of insurance market, optimize the structure of insurance industrialorganization and solve the problem of structural imbalance between supply anddemand in insurance market; on this basis, the author concludes that insurance marketexit is necessary. Secondly, the author analyzes the effect of economy of scale andbuilds a model to find out the influencing factors of the optimal scale of insurancecompany, then concludes that the effect of economy of scale in China’s insuranceindustry is not significant, merger between the medium scale and small companies isan effective way to realize the effect of economy of scale. In the end of this part, theauthor points out that, in substance, China’s insurance market exit is adjustment andoptimization of insurance industrial organization.In the fifth part, through the game theory model, the author studies the decisionof insurance company’s exit from market. Firstly, the author introduces the model ofthe war of attrition, and then builds the analytical framework of the war of attritionbetween insurance companies. Secondly, based on the model built by Fudenberg andTirole in1986, the author analyzes the influencing factors of the decision of marketexit for insurance company, and concludes that in the following three cases, insurancecompany prefers to staying in the market, that is, high expected premium income,insurance laws and insurance regulation being apt to remedy the insurance company in crisis, insurance company being readily to transfer the costs of staying in market.In the sixth part, the author studies the theoretical issues of insurance company’smerger. Firstly, the author analyzes the relation of insurance company’s merger andinsurance industrial organization optimization. Secondly, the author analyzes theefficiency benefits from insurance company’s merger. Through the cases around theinternational insurance market, the author presents the motives of insurancecompany’s merger. Lastly, the author analyzes the anti-competition effect ofinsurance company’s merger, and points out the influencing factors of theanti-competition effect of merger, that is, product differentiation, competition modeand strategic reaction characteristic, market structure. On this basis, the authorconcludes that under the competition of price, merger between medium scale andsmall companies whose products are highly differentiated should be promoted.Finally, in the seventh part, the author studies some issues of insurance marketexit system in China. Firstly, the author analyzes the contents of insurance market exitsystem in our country; and then, in consideration of the present condition of ourinsurance market, the author thinks that, at present, the objective of our government’sintervention in insurance market exit should simultaneously focus on the stability andefficiency of insurance industry; on this basis, the author points out the boundaries ofgovernment’s intervention and some specific policies and measures.

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CLC: > Economic > Fiscal, monetary > Insurance > China's insurance industry
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