The Impact of Market Concentration on Financial Stability in the Korean Non-life Insurance Industry

We investigate the relationship between market concentration and financial stability in the Korean non-life insurance industry over the period 2002-2022. We measure market concentration by using Herfindahl-Hirschman Index (HHI) and four-firm concentration ratio (CR4), and Z-score is employed as a proxy for insurer’s financial soundness. Our evidence shows that market concentration is positively associated with insurer’s financial stability, indicating that higher market concentration may lead to decreased insolvency risk, consistent with the “concentration-stability” view. We also find that there exists an inverse U-shaped relationship between market concentration and financial health in the Korean non-life insurance industry. Lastly, we provide evidence that as market concentration increases, insurers belonging to a financial holding company are more likely to exhibit better financial soundness. Our study has important implications for regulatory authorities as well as industry practitioners who concern about insurer’s financial stability.