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An empirical investigation of efficiency and productivity in the Indian non-life insurance market

Ashiq Mohd Ilyas (Department of Mathematics and Actuarial Science, B.S. Abdur Rahman Crescent Institute of Science and Technology, Chennai, India)
S. Rajasekaran (Department of Mathematics and Actuarial Science, B.S. Abdur Rahman Crescent Institute of Science and Technology, Chennai, India)

Benchmarking: An International Journal

ISSN: 1463-5771

Article publication date: 21 June 2019

Issue publication date: 13 September 2019

Abstract

Purpose

The purpose of this paper is to analyse the performance of the Indian non-life (general) insurance sector in terms of efficiency, productivity and returns-to-scale economies. In addition to this, it identifies the determinants of efficiency.

Design/methodology/approach

This study employs a two-stage data envelopment analysis (DEA) bootstrap approach to estimate the level and determinants of efficiency. In the first stage, the DEA bootstrap approach is employed to estimate bias-corrected efficiency scores. In the second stage, the truncated bootstrapped regression is used to identify the effect of firm-level characteristics on the efficiency of insurers. Moreover, the bootstrapped Malmquist index is used to examine the productivity growth over the observation period 2005–2016.

Findings

The bootstrapped DEA results show that the Indian non-life insurance sector is moderately technical, scale, cost and allocative efficient, and there is a large opportunity for improvement. Moreover, the results reveal that the public insurers are more cost efficient than the private insurers. It is also evident that all the insurers irrespective of size and ownership type are operating under increasing returns to scale. Malmquist index results divulge an improvement in productivity of insurers, which is attributable to the employment of the best available technology. Bootstrapped DEA and bootstrapped Malmquist index results also show that the global financial crisis of 2008 has not severely affected the efficiency and productivity of the Indian non-life insurance sector. The truncated regression results spell that size and reinsurance have a statistically significant negative relationship with efficiency. It also shows a statistically significant positive age–efficiency relationship.

Practical implications

The results hold practical implications for the regulators, policy makers, practitioners and decision makers of the Indian non-life insurance companies.

Originality/value

This study is the first of its kind that comprehensively investigates different types of robust efficiency measures, determinants of efficiency, productivity growth and returns-to-scale economies in the Indian non-life insurance market for an extended time period.

Keywords

Acknowledgements

The authors are grateful to the editor and two anonymous referees for their valuable comments and suggestions. Only the authors are responsible for the views expressed and mistakes made.

Citation

Ilyas, A.M. and Rajasekaran, S. (2019), "An empirical investigation of efficiency and productivity in the Indian non-life insurance market", Benchmarking: An International Journal, Vol. 26 No. 7, pp. 2343-2371. https://doi.org/10.1108/BIJ-01-2019-0039

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited