One unusual feature of the U.S. property-casualty insurance industry is the coexistence of stock and mutual companies. This paper explores the performance of these forms in the industry through a dynamic assessment of how mutual and stock insurance companies respond to differences in their underwriting environment. Agency theories suggest that the stock company may be more 'opportunistic' and less obligated to their insureds than mutuals. This article assesses the responses by stock and mutual firms to changes in the underwriting environment from 1984 to 1991, using measures of individual firms' performance, by state and by line, in eight different lines of insurance. Stock companies are more likely than mutuals to reduce their business in unprofitable situations, and have higher losses than mutuals for a given amount of premiums.

Given the infinite variety of risks throughout history, it is perhaps unsurprising that insurance - the world's primary risk mitigation industry - developed a wide range of organisational forms by which it was delivered. Yet we know little about how and why different forms were chosen in the past, or why they survived or disappeared. This book is the first to examine the development of multiple organisational forms in insurance from an historical and international comparative context, and to relate historical analysis to modern organisational theory. Thirteen chapters cover eight major markets, US, UK, Germany, Japan, Spain, Sweden, Australia, South Africa, which together account for over half of all world insurance today. Each chapter is authored by an expert in their field, and several include new datasets. Major themes covered are the variety, choice, governance and regulation of organisational forms in insurance, the experience of mutual insurance in frontier economies and uncertain political environments, the long-run business performance of different organisational forms, and the problems surrounding the demutualization of modern insurance companies. The book suggests the need for important revisions to current organisational theory, and it highlights several explanatory factors that have received little attention from scholars. These include the importance of regulation and the role of the state in shaping the organisational landscape of insurance at different times and places; the role of entrepreneurship in organisational choice; the utility of organisational forms as a risk management device, and the significance of cultural preferences in the selection of organisational forms.

The Economics of Property-Casualty Insurance presents new research and findings on key aspects of the economics of the property-casualty insurance industry. The volume explores the industrial organization, regulation, financing, and taxation of this business. The first paper, on external financing and insurance cycles, contains a wealth of information on trends and patterns in the industry's financial structure. The last essay, which compares performance of stock and mutual insurance companies, takes a fresh look at the way a company's organizational structure affects its responses to different economic situations. Two papers focus on rate regulation in the auto insurance industry, and provide broad overviews of the structure and economics of the insurance industry as a whole. Also addressed are the system of regulating insurance companies in the United States, who insures the insurers, and the effects of tax law changes in the 1980s on the prices of insurance policies.

Many studies have focused on the insurance industry in the US and other developed countries. Few studies have investigated the efficiency and organizational form in developing countries. This is particularly true for the Takaful insurance industry. Takaful insurance is mutual insurance based on Islamic principles. The rapid growth of Takaful insurers in many countries around the world and their long existence make it important to examine them. Chapter 1 discusses the history and the practice of insurance during the time of ancient Arabs tribes. I discuss the conduct of the Holy Prophet (SAW) relating to insurance practice. I also briefly outlines the development of Islamic insurance in the fourteenth to the seventh centuries, nineteenth century, and the development in the twentieth century. Chapter 2 investigates economies of scope and agency problems for Takaful insurance companies operating in 19 countries. I test the conglomeration hypothesis, which holds that firms can optimize by diversifying across businesses, versus the strategic focus hypothesis, which holds that firms improve by focusing on core businesses. More specifically, I analyze whether it is advantageous for insurers to offer both property-liability insurance and family insurance (life insurance), or to specialize in one major industry segment. I also test for agency problems, which imply that firms must motivate the agent to ensure compliance with the principal's wealth maximization objectives. That is, I analyze whether it is advantageous for insurers to operate under a Mudharaba (profit sharing) model or operate under a Wakala (fee based) model. I estimate cost efficiency utilizing data envelopment analysis (DEA). Then, I test for scope economies and agency problems by regressing efficiency scores on control variables and indicators for strategic focus and the operating model. The results show that the Wakala operating model is cost inefficient and focused Takaful insurers are associated with higher cost efficiency. Chapter 3 investigates the relationship between insolvency risk and efficiency for Takaful insurers. I measure the insolvency risk by computing the z-score which measure distance to default. I calculate the efficiency scores using Data Envelopment Analysis (DEA). I find that efficient firms have a higher distance to default. I also find that firms which operate in multiple lines are penalized for diversification by being more likely to become insolvent. In addition, I show that investing in sukkuk and real-estate increase the insolvency risk. Chapter 4 analyzes the coexistence of Takaful and conventional insurance. I analyze the efficiency of different organizational forms in 13 countries. Technical, allocative, cost, and revenue frontiers were estimated using data envelopment analysis. I test the expense preference hypothesis and efficient structure hypothesis. I find evidence for the efficient structure hypothesis which claims that the two organizational forms serve different market segments due to differences in managerial discretion and access to capital. I also find evidence for the expense preference hypothesis which states that mutual insurers are less cost efficient than stock insurers due to unresolved agency conflicts (e.g., higher bonus consumption by mutual managers). The results provide insight into the competitiveness of conventional and Takaful insurers from different countries. Finally, chapter 5 concludes the main results of the study.