Technology investment and insurer efficiency

Abstract

We examine the role of technology expense and asset data items with insurer efficiency. We show that insurers increasing investment in technology classified as expenses, experience increases in allocative efficiency the following year. Insurers that increase expenditures classified as technology assets realize decreases in cost and allocative efficiency the next year. In addition, we find that expensed technology contains different information than those classified as assets with the association of expenditures in assets with efficiency dominating expensed technology. Our findings support that expensed technology items are for innovative applications and technology assets are used to support general business operations. We also explore the possibility that the reduction of commissions to agents is a mediator through which technology expenses affect efficiency, but do not find support for this mediation.