Efficiency and Productivity of the Life Insurance Industry in Malaysia

By using Data Envelopment Analysis (DEA) and Malmquist Total Factor Productivity (TFP) Index approach, this study aims to benchmark the technical efficiency and the productivity change measurement of the 12 life insurance companies in Malaysia. A balanced panel data collected from the annual report of the 12 life insurance companies in Malaysia for the 5 years period from 2014 to 2018 is used in the DEA approach. The effect of input variables (Commission and Management Expenses) and output variables (Premiums and Net Investment Income) on the efficiency scores evaluated using DEA is examined using the Tobit model. The efficiency scores of the life insurance companies evaluated using DEA show that Great Eastern Life Assurance (Malaysia) Berhad, Hong Leong Assurance Berhad and Manulife Insurance Berhad are the life insurance companies with the best efficiency, while Allianz Life Insurance Malaysia Berhad is the least efficient life insurance company. According to the Malmquist index evaluated, there is a deterioration of 0.9 percent in technical efficiency, 2.4 percent progression in technology, a change of -0.4 percent in pure technical efficiency, a change of - 0.5 percent in scale efficiency and an improvement of 1.5 percent in TFP in the life insurance industry in Malaysia throughout the 5 years study period from 2014 to 2018. The result also reveals that the technological progression has caused the positive change in TFP. According to the result of Tobit analysis, premiums are found to have significant positive effect on the efficiency score. In contrast, both commission and management expenses have significant negative effect on the efficiency score. The only variable found to have no major effect on efficiency score is net investment income.