Information, Entry, and Regulation in Markets for Life Insurance

Description

117 pages
$7.50
ISBN 0-8020-3385-7

Year

1982

Contributor

Reviewed by Robert W. Sexty

Robert W. Sexty is a commerce professor at the Memorial University of
Newfoundland and author of Canadian Business: Issues and Stakeholders.

Review

This statistical study of the life insurance industry was performed by G.F. Mathewson, a professor of economics at the University of Toronto, and John Todd, a former research officer with the Ontario Economic Council. They claim that the life insurance industry is subject to consumer misconceptions as to the true value of its products, partly explained by consumer ignorance.

Part One is an “Economic Analysis” consisting of seven chapters. Chapters 1, 2, and 3 provide an introduction, a review of the Canadian life insurance industry, and a critique of the existing literature. In Chapter 4, an economic model is developed to examine the industry’s economics of scale and economics of scope, or the bundle of products produced. Data from the years 1956 to 1976 are used and no evidence of any natural monopoly tendencies, including excessive profits, is found in the industry.

Chapters 5, 6, and 7 carry the analysis further, examining whether firms use excessive advertising or are disciplined by the market to reveal only truthful information on products and whether consumers are underinformed on market alternatives. Part Two, “Overview and Policy Recommendations,” summarizes the findings of the study, discusses further aspects of the life insurance market, and presents a number of policy proposals designed to enable the life insurance industry both to serve the consumer better and to lower the cost of life insurance.

The study is not intended as a shopper’s guide to life insurance products and readers should have a good understanding of economic analysis to appreciate it.

Citation

Mathewson, G.F., with the collaboration of John Todd, “Information, Entry, and Regulation in Markets for Life Insurance,” Canadian Book Review Annual Online, accessed March 28, 2024, https://cbra.library.utoronto.ca/items/show/38891.