IDEAS home Printed from https://ideas.repec.org/a/ris/isecst/0005.html
   My bibliography  Save this article

Efficiency Measure of Insurance v/s Tak ful Firms Using DEA Approach: A Case of Pakistan

Author

Listed:
  • KHAN, ATIQUZZAFAR

    (International Islamic University)

  • NOREEN, UZMA

    (International Islamic University)

Abstract

This study aims at comparing the Pakistan’s Tak ful and conventional insurance companies in terms of efficiency and productivity for the period 2006-2010. We apply Data Envelopment approach to estimate technical, allocative and cost efficiencies. The results indicate that the insurance industry as a whole is cost inefficient due to high allocative inefficiency. However, technical efficiency components show improving trends. Results further indicate that Takful firms are more efficient as compared to conventional insurance firms. Malmquist productivity index shows a significant improvement in scale efficiency. However, we do not find any considerable contribution of technology to improve overall productivity. The study suggests introduction of innovative and diversified products in insurance industry of Pakistan, particularly for Takful companies.

Suggested Citation

  • Khan, Atiquzzafar & Noreen, Uzma, 2014. "Efficiency Measure of Insurance v/s Tak ful Firms Using DEA Approach: A Case of Pakistan," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 22, pages 139-158.
    • Handle: RePEc:ris:isecst:0005
    as

    Download full text from publisher

    File URL: http://www.irti.org/English/Research/Documents/IES/005.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cummins, J. David & Rubio-Misas, Maria, 2006. "Deregulation, Consolidation, and Efficiency: Evidence from the Spanish Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 323-355, March.
    2. Cummins, J. David & Tennyson, Sharon & Weiss, Mary A., 1999. "Consolidation and efficiency in the US life insurance industry," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 325-357, February.
    3. Andrew M. Yuengert, 1993. "The measurement of efficiency in life insurance estimates of a mixed normal-gamma error model," Research Paper 9308, Federal Reserve Bank of New York.
    4. Hao, James C.J. & Chou, Lin-Yhi, 2005. "The estimation of efficiency for life insurance industry: The case in Taiwan," Journal of Asian Economics, Elsevier, vol. 16(5), pages 847-860, October.
    5. Dr. Waheed Akhter & Ali Raza & Orangzab & Muhammad Akram, 2011. "Efficiency and Performance of Islamic Banking: The Case of Pakistan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 2(4), pages 54-70, February.
    6. Karl C. Ennsfellner & Danielle Lewis & Randy I. Anderson, 2004. "Production Efficiency in the Austrian Insurance Industry: A Bayesian Examination," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(1), pages 135-159, March.
    7. Vivian Jeng & Gene C. Lai, 2005. "Ownership Structure, Agency Costs, Specialization, and Efficiency: Analysis of Keiretsu and Independent Insurers in the Japanese Nonlife Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 105-158, March.
    8. Norashikin Ismail & Prof. Dr. Datuk Syed Othman Alhabshi & Prof. Obiyathulla Bacha, 2011. "Organizational Form And Efficiency: The Coexistence Of Family Takaful And Life Insurance In Malaysia," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 122-137, July.
    9. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
    10. Ray Rees & Ekkehard Kessner, 1999. "Regulation and efficiency in European insurance markets," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 14(29), pages 364-397.
    11. Fukuyama, Hirofumi, 1997. "Investigating productive efficiency and productivity changes of Japanese life insurance companies," Pacific-Basin Finance Journal, Elsevier, vol. 5(4), pages 481-509, September.
    12. William Greene & Dan Segal, 2004. "Profitability and Efficiency in the U.S. Life Insurance Industry," Journal of Productivity Analysis, Springer, vol. 21(3), pages 229-247, May.
    13. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    14. Vivian Jeng & Gene C. Lai & Michael J. McNamara, 2007. "Efficiency and Demutualization: Evidence From the U.S. Life Insurance Industry in the 1980s and 1990s," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 74(3), pages 683-711, September.
    15. Philip Hardwick, 1997. "Measuring cost inefficiency in the UK life insurance industry," Applied Financial Economics, Taylor & Francis Journals, vol. 7(1), pages 37-44.
    16. Cummins, J. David & Xie, Xiaoying, 2008. "Mergers and acquisitions in the US property-liability insurance industry: Productivity and efficiency effects," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 30-55, January.
    17. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    18. Yuengert, Andrew M., 1993. "The measurement of efficiency in life insurance: Estimates of a mixed normal-gamma error model," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 483-496, April.
    19. Fenn, Paul & Vencappa, Dev & Diacon, Stephen & Klumpes, Paul & O'Brien, Chris, 2008. "Market structure and the efficiency of European insurance companies: A stochastic frontier analysis," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 86-100, January.
    20. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    21. J. David Cummins & Giuseppe Turchetti, 1996. "Productivity and Technical Efficiency in the Italian Insurance Industry," Center for Financial Institutions Working Papers 96-10, Wharton School Center for Financial Institutions, University of Pennsylvania.
    22. Hale Abdul Kader & Mike Adams & Philip Hardwick, 2010. "The Cost Efficiency of Takaful Insurance Companies," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 35(1), pages 161-181, January.
    23. Gardner, Lisa A. & Grace, Martin F., 1993. "X-Efficiency in the US life insurance industry," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 497-510, April.
    24. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    25. J. David Cummins & Mary A. Weiss, 1998. "Analyzing Firm Performance in the Insurance Industry Using Frontier Efficiency Methods," Center for Financial Institutions Working Papers 98-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Noreen, Uzma, 2020. "The Estimation of Risk Management Efficiency and its Determinants," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(1), pages 69-79.
    2. Alshammari, Ahmad Alrazni & Alhabshi, Syed Musa & Saiti, Buerhan, 2019. "The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: Evidence from a stochastic frontier analysis," Economic Systems, Elsevier, vol. 43(3).
    3. Wise William, 2020. "The Importance of the Efficiency of Mutual Life Insurers: A Comparison to Stock Life Insurers," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 474-505, June.
    4. Ilyes Abidi & Mariem Nsaibi & Boutheina Regaieg, 2020. "Challenges of Islamic Insurance," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 69-79.
    5. Reza Sanei & Farhad Hosseinzadeh lotfi & Mohammad Fallah & Farzad Movahedi Sobhani, 2022. "An Estimation of an Acceptable Efficiency Frontier Having an Optimum Resource Management Approach, with a Combination of the DEA-ANN-GA Technique (A Case Study of Branches of an Insurance Company)," Mathematics, MDPI, vol. 10(23), pages 1-21, November.
    6. Al-Amri, Khalid & David Cummins, J. & Weiss, Mary A., 2021. "Economies of scope, organizational form, and insolvency risk: Evidence from the takaful industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    7. Muhammad Jam e Kausar Ali Asghar & Abdul Zahid Khan & Hafiz Ghufran Ali Khan, 2018. "Takaful, Insurer type and Efficiency: An Application of Parametric Approach," Global Regional Review, Humanity Only, vol. 3(1), pages 234-252, June.
    8. Alshammari, Ahmad Alrazni & Syed Jaafar Alhabshi, Syed Musa bin & Saiti, Buerhan, 2019. "The impact of competition on cost efficiency of insurance and takaful sectors: Evidence from GCC markets based on the Stochastic Frontier Analysis," Research in International Business and Finance, Elsevier, vol. 47(C), pages 410-427.
    9. Kaffash, Sepideh & Azizi, Roza & Huang, Ying & Zhu, Joe, 2020. "A survey of data envelopment analysis applications in the insurance industry 1993–2018," European Journal of Operational Research, Elsevier, vol. 284(3), pages 801-813.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jarraya, Bilel & Bouri, Abdelfettah, 2012. "Efficiency concept and investigations in insurance industry: A survey," MPRA Paper 53544, University Library of Munich, Germany, revised 2013.
    2. Biener, Christian & Eling, Martin & Wirfs, Jan Hendrik, 2016. "The determinants of efficiency and productivity in the Swiss insurance industry," European Journal of Operational Research, Elsevier, vol. 248(2), pages 703-714.
    3. Eling, Martin & Luhnen, Michael, 2010. "Efficiency in the international insurance industry: A cross-country comparison," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1497-1509, July.
    4. Kaffash, Sepideh & Azizi, Roza & Huang, Ying & Zhu, Joe, 2020. "A survey of data envelopment analysis applications in the insurance industry 1993–2018," European Journal of Operational Research, Elsevier, vol. 284(3), pages 801-813.
    5. Biener, Christian & Eling, Martin, 2012. "Organization and efficiency in the international insurance industry: A cross-frontier analysis," European Journal of Operational Research, Elsevier, vol. 221(2), pages 454-468.
    6. Wanke, Peter & Barros, Carlos Pestana, 2016. "Efficiency drivers in Brazilian insurance: A two-stage DEA meta frontier-data mining approach," Economic Modelling, Elsevier, vol. 53(C), pages 8-22.
    7. Leverty, J. Tyler & Grace, Martin F., 2010. "The robustness of output measures in property-liability insurance efficiency studies," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1510-1524, July.
    8. Chakraborty Kalyan & Dutta Anirban & Sengupta Partha Pratim, 2012. "Efficiency and Productivity of Indian Life Insurance Industry," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 7(1), pages 1-28, December.
    9. Shuji Yao & Zhongwei Han & Dan Luo, 2010. "Performance of the Chinese Insurance Industry under Economic Reforms," Books, Edward Elgar Publishing, number 12788.
    10. Eling, Martin & Jia, Ruo, 2018. "Business failure, efficiency, and volatility: Evidence from the European insurance industry," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 58-76.
    11. Basri Savitha & Subrato Banerjee & Ankitha Shetty, 2019. "Product diversification versus technical efficiency of conglomerate life microinsurance companies: evidence from India," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(3), pages 527-547, July.
    12. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
    13. Andrew C. Worthington & Emily V. Hurley, 2000. "Technical, allocative and cost efficiency in the Australian general insurance industry," School of Economics and Finance Discussion Papers and Working Papers Series 074, School of Economics and Finance, Queensland University of Technology.
    14. Chrysovalantis Gaganis & Iftekhar Hasan & Fotios Pasiouras, 2013. "Efficiency and stock returns: evidence from the insurance industry," Journal of Productivity Analysis, Springer, vol. 40(3), pages 429-442, December.
    15. Sen Subir, 2020. "Analysis of Cost Efficiency of Indian Life Insurers: A comparison of Quantity vs Value based DEA Approach," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(1), pages 1-25, January.
    16. J. Cummins & Hongmin Zi, 1998. "Comparison of Frontier Efficiency Methods: An Application to the U.S. Life Insurance Industry," Journal of Productivity Analysis, Springer, vol. 10(2), pages 131-152, October.
    17. Bingzheng Chen & Michael R. Powers & Joseph Qiu, 2009. "Life‐insurance Efficiency in China: A Comparison of Foreign and Domestic Firms," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(6), pages 43-63, November.
    18. Baharin, Roziana & isa, zaidi, 2018. "Box Cox- Fourier Flexible Functional Forms in Stochastic Metafrontier Analysis: The Cost Efficiency of the Insurance Industry in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(1), pages 135-144.
    19. Adnan Kasman & Evrim Turgutlu, 2011. "Performance of European insurance firms in the single insurance market," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(3), pages 363-378.
    20. Kuan-Chen Chen & Chung-I Lin, 2020. "Studies on the Determinants of Efficiency in Taiwanese Life Insurance Industry - Application of Bootstrapped Truncated Model," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(1), pages 1-4.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:isecst:0005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: IRTI Staff or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/irisbsa.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.