Takaful, Insurer type and Efficiency: An Application of Parametric Approach

Muhammad Jam e Kausar Ali Asghar, Abdul Zahid Khan and Hafiz Ghufran Ali Khan
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Muhammad Jam e Kausar Ali Asghar: Assistant Professor,Department of Management Sciences, University of South Asia, Lahore, Punjab, Pakistan.
Abdul Zahid Khan: Assistant Professor, Department of Technology Management, International Islamic University Islamabad, Pakistan.
Hafiz Ghufran Ali Khan: Assistant Professor,Department of Management Sciences, International Islamic University Islamabad, Pakistan.

Global Regional Review, 2018, vol. 3, issue 1, 234-252

Abstract: This study is conducted in two steps. Firstly, Stochastic Frontier Approach (SFA) is applied to estimate efficiency of the Takaful and conventional insurance firms in Pakistan from 2005 to 2010. It is found that life insurers are performing poor in comparison to general insurers. In addition, Takaful firms are found less cost efficient in comparison to conventional insurance firms. Secondly, the Tobit results imply that the size, investment and claim are found negatively related with the efficiency of insurance companies which suggests that larger size raise the cost of doing business whereas, due to financial crises the investment of large firms are also dropped. Moreover, improvement in minimum capital requirement is found fruit full both for cost and profit efficiencies. Therefore, it is suggested that the regulators should keep continue this policy to further improve financial health of the insurance industry.

Keywords: Insurance; Takaful; Value added approach; SFA; Tobit (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:aaw:grrjrn:v:3:y:2018:i:1:p:234-252

DOI: 10.31703/grr.2018(III-I).17

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