An Evaluation of the Efficiency and Productivity of the State Life Insurer and Private Life Insurers in India
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Date
2020
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Faculty of Management, Humanities & Social Sciences JOSEPH SCHOOL OF BUSINESS STUDIES & COMMERCE Sam Higginbottom University of Agriculture, Technology & Sciences (Formerly Allahabad Agricultural Institute) NAINI, PRAYAGRAJ (ALLAHABAD)-211007
Abstract
Insurance is backbone of any economy. Life Insurance sector is a major contributor in the Indian economy. Life Insurance Corporation of India (LIC) is the oldest Life Insurer which is operating since 1956. With the opening up of Life Insurance Sector in 1999, many new companies were granted license by Insurance Regulatory and Development Authority (IRDA) to operate in Life Insurance sector. At present, there are 24 life insurance companies operating in India. IRDA is continuously monitoring all the insurance companies, making rules and regulations for the efficiency and productivity of this sector.
The impact of deregulation has been positive on the Indian life insurance sector as there were only 11 registered life insurers in the year 2000-01 which has increased to 24 life insurers in 2019. The worrisome point is that with a population of about 1.25 billion, our per capita life insurance premium as reported in year 2016 is only $46.5. This is far behind if compared to big economies of the world e.g. in the same year, it was $1724.9 in America, $3033.2 in UK and $2803.4 in Japan.
Something is not right with the Indian life insurance sector, although according to Swiss Re. 2017 report; Indian life insurance sector will grow in the coming year mainly from improved efficiency, expanding business in small towns and villages. It is required that firms need to focus more on reducing expenses and policy lapses. The issue of firm efficiency and productivity will play a major role in a highly competitive deregulated life insurance sector.
This study has assessed the efficiency and productivity of all the life insurance companies operating in India using five years’ panel data (2013-2017) collected from Insurance Regulatory and Development Authority Annual Reports. This study has also explored the causes of inefficiency in the Indian Life Insurance industry.
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This study has used the data envelopment analysis (DEA) method to measure company level efficiency and Malmquist productivity index for dynamic productivity analysis. The study has also investigated the impact of organizational characteristics on the level of inefficiency using a truncated regression.
Findings indicate that the state life insurer i.e. Life Insurance Corporation (LIC) has been efficient and productive throughout the entire study period. Private life insurance companies are comparatively new in life insurance sector and are of different sizes therefore exhibited variations in their performance levels. Some private life insurers operated efficiently during the study period. Some private life insurers were less productive using excessive capital; on the other hand, few life insurers grew fast using technology.
The methodology employed in this study estimates relative efficiencies without assuming any functional form; as a result, the proper comparison of input utilized with the output produced is not possible. Regression analysis has not been used to establish relationship between inputs and outputs. The study brings into light the operating characteristics, efficiencies and productivity of the Indian life insurance companies during the period 2013-2017.
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Ph. D. Thesis
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