ECONOMIES OF SCALE IN LIFE AND HEALTH INSURANCE INDUSTRY

D.K. Malhotra
Raymond R. Poteau
Philip S. Russel
Thomas Jefferson University

ABSTRACT

The insurance industry plays a vital role in the US economy. In 2015, the U.S. life and
health insurance industry generated total revenue of $848.2 billion The economic crisis of 2007-
2009 had a major negative impact on many financial institutions, including the life and health
insurance industry. The industry continues to face growth challenges even eight years after the
crisis. Many firms in the life and health insurance industry have responded to this challenge by
restructuring through mergers and acquisitions, while some have filed for bankruptcy. In addition,
firms have ventured into emerging markets to boost their revenue stream or diversify their
product offerings. Whether such growth has led to cost efficiencies is an important empirical
questions with implications that extend beyond the firm and the consumer. This study examines
evidence on cost efficiencies through economies of scale for a sample of firms in the life and
health insurance industry using firm level data for the years 2012 to 2015. Results suggest that
growth strategies have led to significant cost efficiencies due to economies of scale.

Keywords: Economies of scale, cost efficiencies, insurance industry, emerging markets