In order to improve the trade balance between Taiwan and the U.S.A. as well as to liberate Taiwan's financial market, Taiwan since 1986 has been gradually opening its financial market to foreign companies. In the years since 1988, there have emerged thirty-two life insurance companies, including sixteen foreign companies, competing in the market. The new competitors provide many new products and services and create many new dimensions in the industry. The new entries changed the industry dramatically. The purpose of this research is to examine how those local incumbent life insurers have adapted their strategies to face the new market structure and competition after deregulation. This research focuses on comparing the changes of life insurers' efficiency and productivity before and after deregulation. This research applies Data Envelopment Analysis (DEA) to measure efficiency scores.; The statistical results in this research reject the null hypothesis that there was no efficiency change after deregulation as well as the three sub-hypotheses that there was no overall efficiency change, no pure technical efficiency change, and no scale efficiency change after deregulation. The statistical results indicate that after deregulation measured overall efficiency and scale efficiency declined but the pure technical efficiency measure increased. The trend of efficiency measures provides some explanations of the changes of efficiency scores. The grand frontier approach finds that the low efficiency scores are concentrated between 1989 and 1994, which coincides with the first and second wave of deregulation, when many new foreign and local new insurers were permitted to join Taiwan's life insurance industry. New entrants need to input more resources to enter a new market while incumbents try to protect their market share and invest in more resources too. The finding also explains why the mixed results have been found in many empirical studies related to deregulation. The results confirm the argument of Berger and Humphrey (1997) that if the impact on efficiency of deregulation is measured over a longer time period, the efficiency measures may eventually show a net improvement. Efficiency comparison among new entrants and incumbents indicates that incumbent insurers have the highest overall efficiency score. The new foreign insurers have the highest pure technical efficiency score. The results suggest that the foreign insurers with their global experience do have some advantage with respect to technology. However, the growing trend of increased pure technical efficiency shows that incumbent insurers learned from their rivals and finally overtake the foreign insurers after 1995.; On the other hand, the statistical results reject the null hypothesis that there was no change in the Malmquist productivity indexes. However, only the sub-hypothesis that there was no technological change after deregulation has been rejected. The finding suggests that for incumbents, innovation is the major factor leading to productivity improvement after deregulation.
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