Examining Market Competition and Financial Stability: An Econometric Analysis of India’s Life and Non-Life Insurance Industry

Abstract

Using the panel data analysis, this study investigates the evolution of competition over the study period and subsequently examines the relationship between competitiveness and financial stability within the Indian insurance segment. Adopting the methodology proposed by Boone (2008), competition is measured using the Boone indicator, while financial stability is quantified using the Z-score. Spanning over 15 years, i.e., 2009 to 2023, the study assesses both the life and non-life insurance segments within the Indian market. Throughout the study period, a decline in competition is observed across both segments, owing to the increased concentration among major insurers. Nevertheless, the study’s results support the Boyd and De Nicolo (2005) competition-stability hypothesis, suggesting that which suggests that increased market competition is associated with increased financial resilience. Additionally, the results using the Boone indicator highlight efficiency as the main mechanism by which competition fosters better financial stability. With their insights into the dynamics of competition and stability within the Indian insurance landscape, these findings have important ramifications for insurance companies, academics, and policymakers alike.