Asymmetric Dependence between Efficiency and Market Power: Longitudinal Perspective of the Taiwan Life Insurance Industry

Both market power and efficiency contribute to the viability of the insurer, making these attributes essential to the management of life insurance companies. This study measured efficiency using the stochastic frontier approach based on the translog cost function and then investigated the dependence between efficiency and market power using the interval censored value of the Clayton copula. The results show a strong nonlinear, asymmetric dependence between efficiency and the market power of Taiwan insurers. Restated, the companies with greater market power are not necessarily more efficient. This investigation provides reference for life insurance companies in the formulation of operational strategies.