Efficiency Analysis of Life Insurance Companies in Indonesia and Malaysia

Abstract

This study focuses on measuring the performance of life insurance companies in Indonesia and Malaysia. Input oriented Data Envelopment Analysis (DEA) uses panel data to extract the efficiency score of 5 life insurance companies from Indonesia and 5 life insurance companies from Malaysia for the year of 2015-2019. DEA-based Malmquist Total Factor Productivity (TFP) Index used to measure the efficiency change along the study period. This study utilizes asset and operating expenses as input variables, as for output variables, this study utilizes premium and investment income. Based on an efficiency score computed by DEA, most of the life insurance companies in both countries perform efficiently during the study period. However, life insurance companies in Indonesia still perform more efficiently than Malaysian life insurance companies. The results of the Malmquist TFP Index for life insurance companies in both countries show that there is 2.5% improvement in technical efficiency change, 1.5% deterioration in technology efficiency change, 0.6% improvement in pure efficiency change, 1.9% improvement on scale efficiency change, and 0.9% increase in TFP change. It shows that the main reason for TFP increased is due to improvement of technical efficiency change.