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Cost stickiness and the firm’s organizational form: evidence from the property-liability insurance sector

Zeitschrift für die gesamte Versicherungs-Wissenschaft, 2021-12, Vol.110 (2-3), p.189-206 [Peer Reviewed Journal]

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Title:
Cost stickiness and the firm’s organizational form: evidence from the property-liability insurance sector
Author: Gores, Timo ; Rauch, Jannes
Subjects: Abhandlung ; Commercial Law ; Economics and Finance ; Finance ; Investments and Securities ; Macroeconomics/Monetary Economics//Financial Economics ; Public Health
Is Part Of: Zeitschrift für die gesamte Versicherungs-Wissenschaft, 2021-12, Vol.110 (2-3), p.189-206
Description: We examine the existence of cost stickiness in the German property-liability insurance sector by analyzing if the percentage increase in administrative costs for a rise in premiums is larger than the percentage decrease in administrative costs for an equivalent drop in premiums. In addition, we analyze if sticky cost behavior depends on insurance firms’ organizational form. Using company-level data from German property-liability insurance firms for the years 2001–2017 and regression analyses, we find that administrative costs are sticky in the insurance sector, as administrative costs increase on average 0.82% per 1% increase in premiums but decrease only 0.6% per 1% decrease in premium income. Moreover, we find that stock insurers exhibit lower levels of cost stickiness, indicating better monitoring mechanisms.
Publisher: Berlin/Heidelberg: Springer Berlin Heidelberg
Language: English
Identifier: ISSN: 0044-2585
EISSN: 1865-9748
DOI: 10.1007/s12297-021-00506-z
Source: Springer Nature OA Free Journals

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