Study On Diversification Of Insurance Company In China

The distinctive characteristics of China’s insurance companies are diversified business operations, exhibiting product diversification, geographic diversification and vertical diversification etc. For most insurance companies, the longitudinal expansion is to achieve professional management, rather than diversified business operation in a strict sense. The vast majority of insurance companies operate multiple types of insurance, ranging from three to five, as many as a dozen. Some companies are very focused on the business, while others are scattered. There are obvious variations in the degree of business diversification of different companies. It is of positive theoretical and practical significance to analyze insurance companies’product diversification motives, causes, and its impact on corporate performance and business development, to make a reasonable explanation for the phenomenon of diversification of China’s insurance companies and to explore the regularity.The paper consists of eight chapters, and the main contents of each chapter are as follows.The first chapter is introduction. It introduces the research background, object, purpose, train of thought, methods, significance, innovation and deficiency of the paper.The second chapter makes a review of enterprise diversification study, introduces the enterprise diversification classification, motivation, relation with performance, measurement methods and ways of realization, focusing on related diversification and Intra-industry diversification which are closely related to this paper, as well as diversification in financial and insurance industries. This chapter summarizes the market structure-conduct-performance theory, resource-based view, synergy effects, economies of scope, the internal market, agent theory, multi-market contacts, co-insurance and other major theories.The third chapter reviews the historical evolution of China’s insurance industry diversification from the perspective of system changes and business practices. The diversified business operations of insurance companies in our country are divided into3stages:1980-1995business recovery and comprehensive management,1996-2002strict separated operation, and2003-2012penetration of property and life insurance, and then the impact of system changes in each stage on the insurance company’s diversified operations is analyzed. On this basis, this chapter analyzes product diversification, regional diversification and vertical diversification in China’s insurance companies, and presents that the core of diversified business operations is product diversification and that vertical diversification of cross industries and industrial chain extension has no significance. Then using methods of product category counts, the Herfindahl Index and the Entropy Measure, respectively from the perspective of property insurance companies, life insurance companies and insurance group, we measure the degree of product diversification in China’s insurance companies from2002to2012, and further summarize the behavior characteristics of diversified business of China’s insurance companies.The fourth chapter analyzes the internal mechanism of the diversification of China’s insurance companies. This chapter proposes the analysis method of inherent insurance correlation, measures and compares the inherent insurance correlation and the actual correlation. Through the comparison, we confirm insurance correlation is the foundation of insurance companies’diversification. Then in view of China’s insurance industry characteristics, based on the insurance categories correlation we propose the mechanism of the insurance company’s diversification of under the joint action of external industry inducement and internal driving. In respect of the industry opportunity inducement, the external environment changes bring about insurance demand changes, affect the size of the insurance industry, market capacity, competitiveness and profitability, cause insurance institutions to adjust business strategy, and bring business types and structural changes, taking the form of the changes in the diversification behavior and diversification degree. In respect of the internal driving, insurance categories correlation provides the basis for the sharing of internal physical resources and the sharing and transplantation of internal intangible resources, which brings the synergy effect of insurance sales, operations, finance and so on, may generate economies of scope, and thereby enhances business performance. Meanwhile insurance categories differences bring about risk diversification and reduce the volatility of the business development and performance.The fifth chapter uses panel data model to systematically and empirically analyze motives and influencing factors of with a sample of more than100insurance companies in China from2002to2012, respectively from the perspective of property insurance companies, life insurance companies and insurance groups. The results indicate that the insurance companies’diversified business operations have the motivation to pursue financial synergies and profitability, sales synergies and scale expansion, operational synergies, risk diversification and so on, and are affected by equity structure,ownership characteristics and other factors. These intrinsic motivations combined with the industrial characteristics of insurance operations such as industry concentration, market capacity, profitability and growth influence the diversification behavior of insurance companies and bring the changes of diversification degree. Specific factors include industry factors such as the concentration degree, size, growth rate, loss rate of insurance categories industry, operation factors such as company profitability, business growth and fluctuations, and company characteristic factors such as equity nature and structure.The sixth chapter empirically analyzes the correlation among product diversification and performance by using the two stage least square method (2SLS) with pooled regression, fixed effect and random effect estimation, with the sample of98,89insurance companies in China from2003to2012. The results indicate that there is a significant positive relationship between product diversification and insurance companies’performance in China. The diversification and balanced development of insurance categories have positive impact on companies’performance. However, the correlation between product diversification and performance is sensitive to the selection performance indicators, which is significant positive by using return on assets(ROA) to measure performance while is not by using return on equity(ROE). Moreover, there is significant positive correlation among performance and capital structure, asset size, insurance fund application rate.While the correlation among listed insurance companies, Chinese-funded insurance companies and performance is significant negative. The correlation among geographic diversification, insurance group, company cost control and performance is not significant.The seventh chapter uses system GMM estimation of dynamic panel model to analyze the impact of insurance diversification on business development with a sample of about100insurance companies in China from2004to2012, taking health insurance and casualty insurance for example, which are the two most widely operated insurance categories. The results indicate that diversified business operations can promote the development of health insurance, while casualty insurance plays a limited role in the diversification. The overall situation of diversification, especially the main business of the company, has no significant role in the casualty insurance development, but the main business can promote the health insurance development. Health insurance and casualty insurance can promote each other. Professional management can contribute to the health insurance development, but the professional level of China’s health insurance is not high. Casualty insurance does not require very high professional management level and is more suitable for property insurance companies. Health insurance and casualty insurance both have a strong continuity affected by the development of the previous period.The eighth chapter summarizes the main conclusions and proposes the policy recommendations for the business operation and regulation of insurance according to the theoretical analysis and empirical results, combined with the development stage and future direction of China’s insurance industry. At the same time this chapter points out the possibilities and directions for further research in view of the defects of present research.The main innovations of the paper include the following aspects. Firstly, this paper conducts a quantitative analysis of insurance companies’diversified business operations, measures the inherent insurance correlation and the actual correlation and confirms insurance correlation is the foundation of insurance companies’ diversification through the comparison, respectively from the perspective of property insurance companies, life insurance companies and insurance group. Secondly, this paper proposes the mechanism of the insurance company’s diversification under the joint action of industry opportunity inducement internal driving and analyzes factors of the industry opportunity inducement. Then we analyze synergies, risk diversification effect of the insurance company’s diversified operations and their interaction mechanism. Thirdly, this paper empirically analyzes the motivations and factors of diversification respectively from the perspective of property insurance companies, life insurance companies and insurance groups.On the basis, this paper empirically analyzes the relationship between diversification and performance with the sample including property and life insurance companies.Then we analyze the impact of insurance diversification on business development, taking such typical insurance as health insurance and casualty insurance for example.