Efficiency and Total Factor Productivity of China's Insurance Companies under Loss Ratio Constraint

Abstract

Abstract:

SBM (Slack-based Measure) directional distance function is adopted to estimate operating inefficiency of property insurance companies and life insurance companies in China under the constraint of loss ratio from 2006 to 2016. Luenberger productivity index is then used to measure the total factor productivity. The decomposition of operating inefficiency and Luenberger productivity index are pro-vided successively. Accordingly, a comparison is conducted between Chinese-funded companies and foreign-funded companies in terms of operating inefficiency, Luenberger productivity index, and their decompositions respectively. The results show that large state-owned property insurance companies perform best in operating efficiency, and that the Chinese-funded life insurance companies' operating effi-ciency is significantly higher than that of the foreign-funded life insurance companies. As for middle-size or small-size life insurance com-panies and middle-size or small-size property insurance companies, the operating inefficiency is mainly caused by the inefficiency of in-vestment returns. Concerning total factor productivity, large-size property insurance companies perform better than middle-size or small-size companies, while foreign-funded companies stand out from life insurance companies.

Key words: insurance company, operating efficiency, loss ratio, SBM directional distance function, Luenberger productivity index

Guan Rong, Chen Yu, Zheng Haitao, Zhang Wenrui, Wei Yaohan. Efficiency and Total Factor Productivity of China's Insurance Companies under Loss Ratio Constraint[J]. , 2020, 32(1): 68-79.

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