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Efficiency, Productivity and Returns to Scale Economies in the Non-Life Insurance Market in South Africa

Author

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  • Abdul Latif Alhassan

    (Graduate School of Business, University of Cape Town, Private Bag X3, Rondebosch, 7701, South Africa, Cape Town. E-mails: lateef85@yahoo.com; alhabd004@myuct.ac.za; nicholas.biekpe@gsb.uct.ac.za)

  • Nicholas Biekpe

    (Graduate School of Business, University of Cape Town, Private Bag X3, Rondebosch, 7701, South Africa, Cape Town. E-mails: lateef85@yahoo.com; alhabd004@myuct.ac.za; nicholas.biekpe@gsb.uct.ac.za)

Abstract

This paper undertakes a comprehensive analysis of efficiency, productivity and returns to scale economies in the non-life insurance market in South Africa from 2007 to 2012. The data envelopment analysis technique is employed to estimate efficiency and returns to scale while productivity growth is analysed with the Malmquist index. Truncated bootstrapped regression and logistic regression techniques are used to identify the determinants of efficiency and the probability of operating under constant returns to scale. The results indicate that non-life insurers operate with about 50 per cent inefficiencies, while about 20 per cent of insurers operate at an optimal scale. We also observe productivity improvements attributable to technological changes. The results of the regression analysis reveal a non-linear effect of size on efficiency and constant returns to scale. Product line diversification, reinsurance and leverage also have a significant relationship with efficiency and constant returns to scale. A major contribution of this paper is the analysis of efficiency convergence using the growth convergence theory. Implications for management and industry regulation are drawn from the findings.

Suggested Citation

  • Abdul Latif Alhassan & Nicholas Biekpe, 2015. "Efficiency, Productivity and Returns to Scale Economies in the Non-Life Insurance Market in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 40(3), pages 493-515, July.
    • Handle: RePEc:pal:gpprii:v:40:y:2015:i:3:p:493-515
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    Citations

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    Cited by:

    1. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Insurance Policy Thresholds for Economic Growth in Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 32(3), pages 672-689, July.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2021. "Information Asymmetry and Insurance in Africa," Journal of African Business, Taylor & Francis Journals, vol. 22(3), pages 394-410, July.
    3. Simplice Asongu & Nicholas M. Odhiambo, 2020. "Financial access, governance and insurance sector development in sub-Saharan Africa," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(4), pages 849-875, February.
    4. Simplice A. Asongu, 2020. "Technology, Education, Life and Non-life Insurance in Africa," International Journal of Public Administration, Taylor & Francis Journals, vol. 43(11), pages 915-925, August.
    5. Zhang, Tidong & Cao, Jingsheng, 2023. "Impact of regulatory policy adjustments on insurance company costs and cost efficiency," Finance Research Letters, Elsevier, vol. 58(PD).
    6. Simplice A. Asongu & Nicholas M. Odhiambo, 2020. "Insurance and Inequality in Sub-Saharan Africa: Policy Thresholds," Research Africa Network Working Papers 20/005, Research Africa Network (RAN).
    7. Ali Shaddady, 2022. "Business environment, political risk, governance, Shariah compliance and efficiency in insurance companies in the MENA region," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 861-904, October.
    8. Simplice Asongu & Joseph Nnanna & Paul Acha-Anyi, 2019. "Information technology, governance and insurance in Sub-Saharan Africa," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 16(8), pages 1253-1273, September.
    9. Daniel Ofori-Sasu & John Kuwornu & Gloria Clarissa Dzeha & Baah Aye Kusi, 2022. "Risk behaviour and insurance efficiency: the role of ownership and regulations from an emerging economies," SN Business & Economics, Springer, vol. 2(7), pages 1-30, July.
    10. Alhassan, Abdul Latif, 2023. "Financial Health of Medical Schemes in South Africa," Finance Research Letters, Elsevier, vol. 51(C).
    11. Pius Babuna & Xiaohua Yang & Amatus Gyilbag & Doris Abra Awudi & David Ngmenbelle & Dehui Bian, 2020. "The Impact of COVID-19 on the Insurance Industry," IJERPH, MDPI, vol. 17(16), pages 1-14, August.
    12. Qiao-Ming Lim & Hui-Shan Lee & Wai-Mun Har, 2021. "Efficiency, productivity and competitiveness of the Malaysian insurance sector: an analysis of risk-based capital regulation," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(1), pages 146-172, January.
    13. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Enhancing ICT for insurance in Africa," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 9(2), pages 16-27.
    14. Kwaku Ohene-Asare & Jones Kofi Anyimadu Asare & Charles Turkson, 2019. "Dynamic cost productivity and economies of scale of Ghanaian insurers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(1), pages 148-177, January.
    15. Gustavo Ferro & Sonia León, 2018. "A Stochastic Frontier Analysis of Efficiency in Argentina’s Non-Life Insurance Market," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(1), pages 158-174, January.
    16. Lan Nguyen & Andrew C. Worthington, 2021. "Industry regulation, fund characteristics, and the efficiency of Australian private health insurers," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 781-801, March.
    17. Ram Pratap Sinha, 2019. "Total Factor Productivity Growth of Indian General Insurance Companies in the Recent Period: A Bootstrapped Approach," Journal of Infrastructure Development, India Development Foundation, vol. 11(1-2), pages 59-80, June.
    18. Abdul Latif Alhassan & Nicholas Biekpe, 2018. "Competition and Risk-Taking Behaviour in the Non-Life Insurance Market in South Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(3), pages 492-519, July.
    19. Patricia Born & Douglas Bujakowski, 2022. "Economic transition and insurance market development: evidence from post-communist European countries," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(1), pages 201-237, March.
    20. Qiao-Ming Lim & Hui-Shan Lee & Wai-Mun Har, 0. "Efficiency, productivity and competitiveness of the Malaysian insurance sector: an analysis of risk-based capital regulation," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 0, pages 1-27.
    21. Ram Pratap Sinha, 2021. "Profit Benchmarking of Indian General Insurance Companies," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 73-92.

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