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Corporate Insurance Versus Risk Retention: An Empirical Analysis of Medium and Large Companies in Poland

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Abstract

The aim of the article is to identify the determinants of what risk retention technique companies select in the context of property insurance demand. The analysis was based on the assumption that it is possible to seek motives for retention among the determinants of companies’ demand for insurance. Empirical data collected from a survey of a representative sample of medium and large enterprises operating in Poland provided valuable feedback for the research. An econometric model was built to identify factors considered when a company is deciding to employ partial insurance or total non-insurance, and determinants of the selection of risk retention technique. It considers not only company financial figures, but also information on the current insurance programme it has in place and the satisfaction it expresses with regard to its insurance services.

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Notes

  1. AON (2013, p. 61).

  2. Ehrlich and Becker (1972).

  3. Courbage (2001).

  4. Michel-Kerjan et al. (2011).

  5. Main (2000, p. 248).

  6. Aunon-Nerin and Ehling (2008).

  7. Pannequin et al. (2014).

  8. Main (1982); Main (1983); Main (2000); Smith (1986); MacMinn (1987); Skogh (1989); Mayers and Smith (1990); Grillet (1992); Davidson et al. (1992); Grace and Rebello (1993); Han (1996); Core (1997); Ashby and Diacon (1998); Yamori (1999); Hoyt and Khang (2000); Zou et al. (2003); Regan and Hur (2007); Krummaker and Von der Schulenburg (2008).

  9. Main (2000).

  10. Main (1983); Main (2000); Core (1997); Yamori (1999); Zou et al. (2003); Regan and Hur (2007).

  11. Krummaker and Schulenburg (2008); Michel-Kerjan et al. (2011).

  12. Core (1997); Hoyt and Khang (2000).

  13. The authors are aware that in choosing only medium and large firms they are limiting the selection of companies in Poland.

  14. Lloyd’s (2014).

  15. At the end of 2014, there were 28 life insurance companies and 31 non-life insurance companies in the Polish insurance market.

  16. PIA—the Polish Insurance Association—is a local trade organisation representing all insurance companies operating in Poland (www.piu.org.pl).

  17. Germany is the biggest foreign investor in both the life and non-life industries.

  18. For more information about the Polish insurance market, see Sliwinski et al. (2013).

  19. PFSA – the Polish Financial Supervision Authority oversees the entire Polish financial market, including the insurance market.

  20. Rejda (2008, p. 13).

  21. Vaughan and Vaughan (2014, p. 19).

  22. Baranoff (2000, p. 265).

  23. Denning (1978, p. 786).

  24. Vaughan and Vaughan (2014, p. 66).

  25. For example: Denning (1978); Vaughan and Vaughan (2014); Rejda (2008); Kunreuther et al. (2013).

  26. Cf.: Duvall and Allen (1973), Head (1965); Schkade and Menefee (1966).

  27. Cummins (1976, p. 593).

  28. Sprecher and Pertl (1980, p. 283).

  29. Baranoff (2000, pp. 266–267).

  30. A positive correlation was found with a relatively low statistical significance.

  31. Doherty and Schlesinger (1985).

  32. Brockett et al. (1986, p. 243).

  33. Both insurance and self-insurance are pre-loss financing methods. Self-insurance fulfils the conditions of pre-loss financing technique if it involves accumulating relatively liquid special funds to cover future losses. The next stage is post-loss financing, which means organising funds after a fortuitous event occurs (e.g. open credit lines, loans conditioned by a specific event that will occur in the future). Cf. Brockett et al. (1986).

  34. Brockett et al. (1986, pp. 244–245).

  35. Annual Report on the Insurance Industry (2015, pp. 18–31).

  36. Brockett et al. (1986, p. 255).

  37. Arrow (1971).

  38. Mossin (1968).

  39. Mossin (1968, p. 6).

  40. Gollier (2003, p. 21).

  41. Certain sections were merged due to their small sizes.

  42. The code list of the classification of business activities in Poland PKD 2007 available on https://www.biznes.gov.pl/tabela-pkd (4 June 2015).

  43. The criterion of number of employees was assumed: medium enterprises have from 50 to 250 employees, while large ones have over 250; for more details, see Information Resources Management Association (Ed.). (2013). Small and Medium Enterprises: Concepts, Methodologies, Tools, and Applications. IGI Global.

  44. Babbie (2015).

  45. http://www.bisnode.pl/.

  46. http://www.infobrokering.com.pl/.

  47. REGON is a Polish state register of business entities, mainly for statistical purposes.

  48. In the 2013 edition, 16,000 CATI interviews brought the response percentage to 35 per cent (results were similar in the 2011 and 2012 editions). Source: Polish Agency for Enterprise Development (2013).

  49. Polish Agency for Enterprise Development (PAED).

  50. Main (2000).

  51. Briys et al. (1991).

  52. Meaning the respondent picked up the two most important benefits from a closed list of 10 potential benefits selected by the authors of the survey.

  53. Baranoff (2000, p. 266); Rejda (2008, p. 13); Vaughan and Vaughan (2014, p. 17).

  54. Baranoff (2000).

  55. Brockett et al. (1986, p. 255).

  56. The average exchange rate USD/PLN of the Central Bank of Poland (NBP) of 11 June 2015 was applied in the article. It was 3.6817.

  57. StataCorp. (2013a).

  58. StataCorp. (2013b).

  59. p value = 0.001.

  60. The reference group in the case of the INS_ADV1 variable was the respondents who selected the response “insurance gives a better protection in case of catastrophe” as the main insurance advantage over retention.

  61. Yet it is not a clear trend.

  62. P value = 0.0001.

  63. Briys et al. (1991).

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Author information

Authors and Affiliations

  1. Department of Risk Management & Insurance, The Cracow University of Economics, 27 Rakowicka Street, 31-510, Kraków, Poland

    Grzegorz Strupczewski

  2. Department of Theory of Economics, The Cracow University of Economics, Kraków, Poland

    Michal Thlon

  3. Department of Statistics, The Cracow University of Economics, Kraków, Poland

    Kamil Fijorek

Authors
  1. Grzegorz Strupczewski
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  2. Michal Thlon
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  3. Kamil Fijorek
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Correspondence to Grzegorz Strupczewski.

Appendix

Appendix

The list of interview questions:

  1. (1)

    Does your company has an insurance policy?

  2. (2)

    Please indicate your level of satisfaction with the following elements of insurance services provided for your firm by insurance company: insurance premium, scope of insurance cover, quality of service, loss adjusting process.

  3. (3)

    What is the estimated cost of insurance coverage paid by your company in a year?

  4. (4)

    What percent of premium increase compared to the current premium paid would encourage your company to abandon the purchase of insurance and to make the decision to retain all company risks?

  5. (5)

    What value of property damage is your company able to self-finance without jeopardising liquidity and solvency (in relation to annual turnover)?

  6. (6)

    Does your company make a formal decision on the level of risk retention?

  7. (7)

    What part of your company’s insurable risk is retained?

  8. (8)

    Does your company intends to increase the level of risk retention in the medium term (within the next 3–5 years)?

  9. (9)

    Please specify how important for your company are the following reasons for risk retention: lower cost of risk retention relative to insurance premiums, unavailable adequate insurance cover on the market, unavailability of insurance cover due to high company’s loss experience, too high insurance premiums, no need for costly implementation of the safety recommendations of an insurer, avoiding the risk of refusing the indemnity payment by insurance company, short time of claims settlement and waiting for payment, no fluctuations of insurance premiums resulting from market cycles, other reasons.

  10. (10)

    What are the most important advantages of insurance in comparison with risk retention?

  11. (11)

    Does your company uses alternative risk transfer?

  12. (12)

    Some characteristics of a company (turnover, employment, type and field of business activity, legal form, number of years in business, the share of equity in total liabilities, structure of equity ownership, number of property losses in the last 5 years).

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Strupczewski, G., Thlon, M. & Fijorek, K. Corporate Insurance Versus Risk Retention: An Empirical Analysis of Medium and Large Companies in Poland. Geneva Pap Risk Insur Issues Pract 41, 626–649 (2016). https://doi.org/10.1057/s41288-016-0005-4

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