Longitudinal Effects of Sectoral Concentration on the Brazilian Insurance Market Performance

Abstract

ABSTRACT Objective: to evaluate the concentration in different Brazilian insurance lines of business (LOB) and analyze effects on premium revenues and profitability. There is evidence that the Brazilian insurance market holds the main characteristics of an oligopoly. Theoretical approach: it is based on Industrial Organization, a field of Economics that is dedicated to studying the market structure, importance, and arrangement of firms, in addition to impacts derived from concentration on competition. Method: regression models for panel data are used. The data are official from the Brazilian insurance market, arranged monthly between Feb./2003 and Dec./2018, totaling 82,443 observations from 135 insurers operating in 17 segments. For each segment, the main concentration indices in the literature were calculated and their effects on premiums and profits were estimated. Results: increases in concentration indices are related to reductions in insurance companies’ premiums revenues, but without a reduction in profits. However, if an insurer is among the market's largest, and is part of an economic group, the effects are nullified and the concentration can generate increases in premiums’ revenues and profits, suggesting that it exercises some market power by raising premiums, reinforcing the structure-conduct-performance hypothesis. Conclusions: the sectorial concentration is greater in life than in non-life LOB, with evidence pointing to the four largest insurance companies, with the highest collections between 2003 and 2018, holding 90% of the market share. In addition, the collection in the life LOB, is more than 80% of the average, concomitant with a drop in the total number of players.