The Cost Efficiency of Takaful Insurance Companies

Hale Abdul Kader (), Mike Adams () and Philip Hardwick ()
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Hale Abdul Kader: Centre for Risk & Insurance Studies (CRIS), Nottingham University Business School, University of Nottingham, Jubilee Campus, Nottingham NG8 1BB, U.K.
Mike Adams: School of Business and Economics, Swansea University, Singleton Park, Swansea SA2 8PP, U.K.
Philip Hardwick: Business School, University of Bournemouth, Fern Barrow, Poole BH12 5BB, U.K.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2010, vol. 35, issue 1, 181 pages

Abstract: This study examines the cost efficiency of non-life Takaful insurance firms operating in 10 Islamic countries. Non-parametric data envelopment analysis is used to compute cost efficiency scores and a second-stage logit transformation regression model is then estimated to test the influence of corporate characteristics on these efficiencies. We find that non-executive directors and separating the Chief Executive Officer and Chairman functions do not improve cost efficiency. However, board size, firm size and product specialisation have positive effects on the cost efficiency of Takaful insurers. In contrast, the regulatory environment is found not to be statistically significant in terms of improving cost efficiency. We conclude that our results could have important commercial and policy implications.

Date: 2010
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