Productivity of the Indian non-life insurance sector

Abstract

Purpose The purpose of this paper is to analyse the performance of the Indian non-life (general) insurance sector in terms of total factor productivity (TFP) over the period 2005–2016. Design/methodology/approach This study utilises Färe‒Primont index (FPI) to access the change in TFP and its components: technical change, technical efficiency and mix and scale efficiency over the observation period. Moreover, it employs the Mann–Whitney U-test to scrutinise the difference between the public and the private insurers in terms of growth in productivity. Findings The results reveal that the insurance sector possesses a very low level of TFP. Also, the results divulge an improvement of 11.98 per cent in TFP of the insurance sector at an annual average rate of 12.41 per cent over the observation period. The growth in productivity is mainly attributable to the improvement of 10.81 per cent in the scale‒mix efficiency. The progress in scale‒mix efficiency is mainly the result of improvements in residual scale and residual mix efficiency. The results also show that the privately owned insurers have experienced a high productivity growth rate than the state-owned insurers. Practical implications The results hold practical implications for the regulators, policymakers and decision makers of the Indian non-life insurance companies. Originality/value This study is the first of its kind to use FPI, which satisfies all economically relevant axioms and tests defined by the index number theory to comprehensively access the change in TFP of the Indian non-life insurance sector.

Estimating Revenue Efficiency in Indian General Insurance Companies: A Semi-parametric Econometric Approach

“…The first study [17] found that the Indian non-life insurance industry was moderately technical, scaled, cost-effective, and allocatively efficient. The second study [18] found (using the Fare-Primont index) that the non-life insurance sector exhibited a very low level of total factor productivity. The total factor productivity growth observed during the observed period (2005-2016) is mainly attributable to scale-mix efficiency.…”

“…In a second study, Sinha [16] estimated the efficiency of Indian general insurance companies for 2013-14 using the conditional performance benchmarking method. Ilyas and Rajasekharan [17,18] estimated the efficiency, total factor productivity and returns to scale of the Indian non-life insurance industry over the period 2005-2016. The first study [17] found that the Indian non-life insurance industry was moderately technical, scaled, cost-effective, and allocatively efficient.…”