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Efficiency Decomposition in two-stage Data Envelopment Analysis: An application to Life Insurance companies in India

Author

Listed:
  • Suvvari Anandarao

    (University of Hyderabad)

  • S. Raja Sethu Durai

    (University of Hyderabad)

  • Phanindra Goyari

    (University of Hyderabad)

Abstract

This paper evaluates the efficiency of Indian Life Insurance Industry by employing two-stage Relational data envelopment analysis (DEA) methodology to derive system and divisional efficiency scores. The main advantage of two-stage relational DEA is that it identifies the inefficient stage of the process, where multiple stages are involved and help the firm/decision-making unit (DMU) to concentrate in that stage to improve efficiency. Also, this paper analyses the leader–follower among the stages in two-stage DEA using a non-cooperative approach combined with the Pareto solution to identify the dominant decision stage. The empirical results from the data on 17 life insurance companies for the year 2013–2014 clearly show that the companies that are dominant in investment stage are maintaining relatively higher overall efficiency than the companies that are dominant in the premium stage. This key inference has far-reaching managerial implications for the insurance companies towards improving the overall efficiency.

Suggested Citation

  • Suvvari Anandarao & S. Raja Sethu Durai & Phanindra Goyari, 2019. "Efficiency Decomposition in two-stage Data Envelopment Analysis: An application to Life Insurance companies in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 271-285, June.
    • Handle: RePEc:spr:jqecon:v:17:y:2019:i:2:d:10.1007_s40953-018-0148-1
    DOI: 10.1007/s40953-018-0148-1
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    Cited by:

    1. Nafiseh Javaherian & Ali Hamzehee & Hossein Sayyadi Tooranloo, 2021. "A compositional approach to two-stage Data Envelopment Analysis in intuitionistic fuzzy environment," Operations Research and Decisions, Wroclaw University of Science Technology, Faculty of Management, vol. 31, pages 21-39.
    2. Nafiseh Javaherian & Ali Hamzehee & Hossein Sayyadi Tooranloo, 2021. "A compositional approach to two-stage Data Envelopment Analysis in intuitionistic fuzzy environment," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 31(1), pages 21-39.
    3. Biresh K. Sahoo & Kaoru Tone, 2022. "Evaluating the potential efficiency gains from optimal industry configuration: A case of life insurance industry of India," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3996-4009, December.
    4. Omrani, Hashem & Emrouznejad, Ali & Shamsi, Meisam & Fahimi, Pegah, 2022. "Evaluation of insurance companies considering uncertainty: A multi-objective network data envelopment analysis model with negative data and undesirable outputs," Socio-Economic Planning Sciences, Elsevier, vol. 82(PB).
    5. Siran Fang & Xiaoshan Xue & Ge Yin & Hong Fang & Jialin Li & Yongnian Zhang, 2020. "Evaluation and Improvement of Technological Innovation Efficiency of New Energy Vehicle Enterprises in China Based on DEA-Tobit Model," Sustainability, MDPI, vol. 12(18), pages 1-22, September.
    6. Shoaib Alam Siddiqui & Ali Shaddady, 2023. "How Profit Efficient is Indian Life Insurance Industry: A DEA Study," SAGE Open, , vol. 13(4), pages 21582440231, December.

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    More about this item

    Keywords

    Efficiency; Two stage DEA; Indian insurance; Intermediate measure;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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