Corporate governance, firm performance and efficiency: three empirical analyses of the UK insurance industry

Abstract

The purpose of this thesis is to investigate the impact of corporate governance and distribution strategies on firm performance, following the regulatory changes since 1980s, the technological advances, and the customer preferences’ volatility in the UK insurance industry, in order to explore how insurance companies survive in such a changeable environment.

The aim of the first core chapter is to examine the impact of various corporate governance arrangements on the performance of UK life and non-life insurance firms, both listed and non-listed, during the period 2004-2013. The main findings show that longer tenure length and an extra bonus ratio with higher ownership ratio for executives, but a shorter tenure length for independent non?executives, improves firm performance in insurance companies. Furthermore, the findings for the sub-samples indicate the association between corporate governance and firm performance in non?life and listed insurance companies, during the financial crisis of (2007?2009), and even more afterwards, as well as during the soft phases of the underwriting insurance cycle, rather than the hard phases.

The objective of the second core chapter is to assess whether the newly built UK Corporate Governance Index (UKCGI), which has been developed by the researcher, indicates any association between governance structure and firm performance in the UK life and non-life insurance companies, both listed and non?listed, during the period 2004?2013. Moreover, this study investigates the mediating role of agency costs on the relationship between corporate governance and the performance of UK insurance companies. The main findings indicate a significant association between the new corporate governance index (UKCGI) and firm performance, and that the governance?performance relationship is fully mediated by agency costs, suggesting that corporate governance does help to reduce agency costs, which in turn leads to improved firm performance.

Finally, since the choice of distribution channels can determine the success of an insurer and significantly affect its profitability in related markets, the third core chapter compares the efficiency of distribution strategies, whether single or multi-channel, that life and non-life insurance companies, both stock and mutual, implemented in the UK during the period 2004-2013. It then examines the extent to which the choice of a specific distribution strategy, namely independent agents as a complementary corporate governance system, improve firm efficiency, by reducing agency conflicts between policyholders and managers and shareholders. The main findings show that multi?channel insurers have higher scale efficiency compared to other single strategies, in which they have almost reached their optimal size to operate efficiently and utilise their strengths. In the second stage, the association between corporate governance, estimated by the researcher’s newly built corporate governance index (UKCGI), and firm efficiency, measured by the data envelopment analysis (DEA), has been fully confirmed in stock companies. On the other hand, the results also show that independent agency strategy does play a vital role as a complementary corporate governance system, with strong evidence for stock companies, but weaker evidence for mutuals.

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ORCID for Simon Wolfe: orcid.org/0000-0001-9815-9535

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