Analyzing efficiency in the Chinese life insurance industry

Abstract

PurposeThe purpose of this paper is to examine the efficiencies of China's foreign and domestic life insurance providers and to explore the relationship between ownership structure and the efficiencies of insurers while taking into consideration other firm attributes.Design/methodology/approachThe data envelopment analysis (DEA) method is used to estimate the efficiencies of the insurers based on a panel data between 1999 and 2004.FindingsThe results indicate that the average efficiency scores for all the insurers are cyclical. Both technical and scale efficiency reached their peaks in 1999 and 2000 and gradually reduced for the rest of the period under examination until 2004 when average efficiency were improved again. The Tobit regression results show that the insurers' market power, the distribution channels used and the ownership structures may be attributed to the variation in the efficiencies.Research limitations/implicationsBased on the research findings and the discussion, the study provides several recommendations for policy makers, regulators and senior executives of insurers.Practical implicationsThe research results highlight the importance of deregulating the sector to allow a further expansion of each individual insurer or encourage mergers and acquisitions of insurers so more efficient resource utilization can be achieved through economies of scale. It also suggests that it is imperative for insurers to recruit motivated insurance agents and offer them on‐the‐job training as a part of the management strategies for gaining technical efficiency.Originality/valueThe paper reports the development within China's insurance industry and is one of the few studies analyzing the efficiencies of China's insurers.

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