Antecedents of Efficiency: Empirical Evaluation of the Life Insurance Sector in India

Aparna Bhatia and Megha Mahendru

Chapter 13 in Handbook on Data Envelopment Analysis in Business, Finance, and Sustainability:Recent Trends and Developments, 2024, pp 401-426 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The purpose of this chapter is to identify the attributes affecting the cost, revenue, and profit efficiency of life insurance companies in India from 2013–2014 to 2018–2019. A two-phase analysis is applied in the study. In the first phase, the cost, revenue, and profit efficiency scores of all the life insurance companies are calculated using the technique of data envelopment analysis. In the second phase, a panel tobit regression model is run to estimate the antecedents of efficiency. The results of the study emphasize that capital adequacy, asset quality, reinsurance and actuarial issues, management soundness, and liquidity have a positive relationship with cost, revenue, and profit efficiency. However, “earning and profitability” has a negative impact on all the efficiency scores, depicting that Indian life insurance companies are not getting much return from their investments, which is their major source of revenue. Low revenues do not seem to be sufficient to cover the cost of insurance and, consequently, generate low profits. In order to improve efficiency, insurers should focus on balancing the input–output mix, taking into consideration their prices. Also, modern virtual platforms should be adopted, which can lead to cost savings and higher profitability.

Keywords: Data Envelopment Analysis; Business; Finance; Banking; Accounting; Sustainability; Efficiency; Performance; Productivity; Total Factor Productivity; Frontier Analysis (search for similar items in EconPapers)
JEL-codes: C44 C5 (search for similar items in EconPapers)
Date: 2024
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