Efficiency Analysis of Life Insurance Companies in Ghana

Abstract

Insurance can be seen to be a mechanism of risk transfer as well as a platform for investment to conserve against losses, providing a peaceful mind. In the insurance market, we have non-life and life insurance firms usually referred to as insurers and the individuals who own the insurance policy are called policy holders. Data Envelopment Analysis was used to assess the technical, scale and overall efficiencies of some life insurance firms in Ghana from 2010 to 2013. Commission, management expenses and capital were taken as inputs by insurance firms to yield claims, investment income and net premiums as outputs. This study showed that life insurance firms in Ghana functioned averagely at a technical efficiency of 88%, an average scale efficiency of 93% and an average overall efficiency of 82%.This clearly revealed that scale efficiency was largely responsible for the efficiency of life insurers instead of technical efficiency (managerial skills). The effects of dimension and market share on life insurer efficiency were established using the Mann Whitney U test. The study showed that market share significantly results in high life insurer efficiency, which agrees with previous studies in the insurance industry [1,2]. Large insurers did not automatically lead to greater efficiency than small insurers in terms of capital-this result differs from that of [2] where general insurance firms in Ghana that have larger dimension led to higher efficiencies.