Impact of regulatory policy adjustments on insurance company costs and cost efficiency

This study is conducted based on the quasi-natural experiment of the "China Risk Oriented Solvency System" (Solvency II) regulatory policy that took effect in 2016. Using a Stochastic Frontier Analysis (SFA) to calculate cost efficiency and a Difference-in-Difference (DID) model to explore the impact of regulation on the operating burden of insurance companies, this work finds that regulation has a significant positive impact on both the absolute costs and cost efficiency of insurers. These results indicate that although regulation increases the absolute costs of insurers, it improves the output and operational efficiency.