An Analysis of Channel Distribution Efficiency in the Korean Insurance Market : Single versus Multi-Channel

The aim of this paper firstly, is to analyze the reasons for the development of the market shares of single insurers and multi-channel insurers in the Korean general insurance industry by comparing the performance of the both distribution systems. Insurers’ performance is measured by market share and concentration. Secondly, we test the following hypotheses to be derived: single channel insurers show a higher level of cost efficiency compared to multi-channel insurers in terms of the combined ratio. And finally, we analyze the efficiency of single and multi-channel distribution firms in the Korean general insurance by using a non parametric approach. The empirical results show the following findings. Firstly, market concentration, measured by HHI, indicates that the multi-channel insurers’ market dominance was weakened because of the entry of auto single channel insurers. Secondly, single channel insurers have managed less efficiency than the multi-channel insurers rejecting our hypotheses that direct insurers show a higher level of cost efficiency compared to multi-channel insurers. Thirdly, The single channel insurers operated at the same efficient levels throughout the data period compared to multi-channel insurers. Finally, for the single channel insurers, the technical inefficiency of single channel insurers aries from the scale inefficiency.