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The IUP Journal of Applied Finance
Efficiency and Productivity Analyses of General Insurance Firms in India: A Malmquist Approach
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The present study compares 12 general insurance companies in India in respect of technical and scale efficiencies, in addition to their Total Factor Productivity (TFP) scores, in a two output-two input framework for the period 2006-07 to 2015-16 using the non-parametric Data Envelopment Analysis (DEA) and Malmquist TFP index. The results revealed that the observed public sector general insurers exhibited higher mean technical efficiency and scale efficiency scores than the sampled private sector general insurers, when ‘net premiums earned’ and ‘income from investments’ were considered as output indicators covering all the years of the study period, both under the assumptions of constant returns to scale and variable returns to scale. But a comparison of the TFP scores reflected a marginally higher mean TFP growth rate in favor of the observed private sector general insurers than their public sector counterparts, in respect of both the output indicators over the study period.

 
 
 

Since 1973, the government had a monopoly in the country’s general insurance sector. The General Insurance Corporation of India (GICI)1 was incorporated as a company that commenced its business with effect from January 1, 1973. The state-owned general insurance firms thus dominated the Indian general insurance sector with a market share close to 100%, till the introduction of reform measures in the country’s insurance sector. The situation drastically changed with the enactment of the Insurance Regulatory and Development Authority of India (IRDAI) Act in 1999. With the IRDAI in place, the country’s insurance sector was opened up for private and foreign players following the recommendations of the R N Malhotra Committee Report on Insurance Deregulation, 1994. This has eventually led to an abrupt rise in the footfall of private players in the country’s general insurance sector since the beginning of the year 2000. As a result, the monopoly of the state-owned players suffered a setback owing to a sharp decline in their market shares during the post-reform period. At the end of FY 2015-16, there were 29 general insurance companies in India, with six public sector2 and 23 private sector firms. However, the increase in the number of new entrants in the country’s general insurance sector, against the backdrop of insurance sector reforms, has eventually raised concerns about the efficiency and productivity of the general insurance firms in safeguarding the consumers’ interest and timely payment of assured returns to the policyholders. The present study makes an attempt to compare the efficiencies and Total Factor Productivity (TFP) growth of the four public sector and eight private sector general insurance firms in India, engaged in multi-line businesses, who have been consistently in operation during all the years of the study period from 2006-07 to 2015-16. The present study would help the researchers, potential investors, regulators and policy makers in making sound investment decisions and to correct any shortcomings for future improvement in the operational health of the general insurance firms in India.

 
 
 

Applied Finance Journal,Total Factor Productivity (TFP) scores, Data Envelopment Analysis (DEA) , General Insurance Corporation of India (GICI), Insurance Regulatory and Development Authority of India (IRDAI).