ARE NON-LIFE INSURANCE COMPANIES TECHNICALLY EFFICIENT AND PRODUCTIVE: A CASE STUDY OF PAKISTAN

Abstract

Insurance sector plays a vital role in the economic development of an economy. Presence of big insurance firms ensure the risk coverage to corporations and promotes escalated economic activities. This study attempts to analyze the technical efficiency and productivity of insurance companies of Pakistan. The data of 27 non-life insurance companies for the period 2007 to 2017 is collected. Total assets and number of employees are taken as input, while investment income,net premium earned and other income are used as output variables. The study has applied Data Envelopment Analysis and Malmquist- Productivity indices to calculate the results. The author has found mixed results regarding technical efficiency and productivity. Some firms are efficient while others are not. Similarly, some firms are productive while others are not. But overall results are pleasing and insurance industry is growing in Pakistan. The study has found that ACE Insurance Limited, Adamjee Insurance Company Limited are found the most technically efficient firms in Pakistan. Both firms get technical efficiency score ‘1’ nine times during the study period. In 2010, the non-life insurance companies in Pakistan obtained highest technical efficiency score 0.79. Considering the productivity analysis by exercising Malmquist Productivity Index, it is found that that 16 out of 27 companies are productive in nature. Out of 16 firms, 8 are productive owing to efficiency change and technical change, while 7 companies are productive only due technical change.