Empiric analysis of efficiency, competition and profitability in Turkish insurance sector

This study intends to examine empirically the performance of Turkish insurance sector and insurance companies using "structure-conduct-performance" paradigm. To this end, first the market structure of the Turkish insurance market is estimated, then the determinants of profitability in the sector is investigated and in the end efficiency scores of the insurance companies and the determinants of efficiency in the Turkish insurance sector are determined empirically. In empirical analysis, the Turkish insurance sector data for the period 2009Q4-2019Q3 following 2008 crisis, and considering the recent developments in the Turkish economy and the Turkish insurance sector, for the pre-policy change period of 2009Q4-2013Q4 and for the post-policy change period of 2014Q1-2019Q3 have been analyzed separately. In the first empirical section, the market structure of the Turkish insurance sector has been estimated using the Panzar Rosse model. Two different Panzar-Rosse models, in which dependent variable is net premium and net income, have been formulated and estimated. The results show that the current marekt structure of the Turkish insurance market is characterized as monopolistic competition. In the second empirical section of the study, the macaroeconomic and firm specific determinantas of profitabitliy in the Turkish insurance market are examined using panel data analysis. The results indicated that although the market structure of Turkish insurance sector is far from being competitive, this situation has no direct connection with the efficiency of the companies in the sector. In the last empirical section, the technical efficiency of 30 non-life insurance companies has been calculated using the data envelopment analysis and the determinants of efficiency have been estimated using random effect Panel Tobit model. The esitmation results show that the insurance companies listed in the stock exchange are less efficient than the companies not listed. Moreover, while liquidity and financial risk have a negative effect on efficiency, profitability has a positive effect on the efficiency of insurance companies. It has also been found that economies of scale of insurance companies are inadequate and insurance companies can increase their efficiency by increasing their scale. Finally, the study indicates that the companies having a high loss ratio are relatively less efficient in the insurance sector. Key Words: Insurance, Efficiency in Insurance Sector, Competition in Insurance Sector, Profitability in Insurance Sector