Product Specialization, Efficiency and Productivity Change in the Spanish Insurance Industry

In this paper we analyze the levels of technical efficiency and productivity growth
attained by Spanish insurance companies during a period of deregulation. We compute
Malmquist productivity indexes using the estimates of parametric distance function for
several specialized insurance branches. In this way, we show that branch specialization
matters a great deal and that firms combining two or three product lines (Health,
Property-Liabilities and Life) perform better than firms operating in one insurance line
exclusively. In the light of these results, we recommend that the remaining restrictions
coming from the European Third Directives on the operations of multi-branch firms
should be removed. Moreover, from a management point of view, it would be
appropriate to encourage the creation of multi-branch insurance firms. However, in all
cases, the estimated scores indicate low productivity growth (less than 2% per year)
compared with a huge increase in insurance activity (premiums were multiplied by
nearly 3 in a decade)