Governance mechanisms and efficiency: Evidence from an alternative insurance (Takaful) market

Abstract

This study examines the relationship between corporate governance attributes and both technical and scale efficiencies of the global Takaful Insurance operators. Using alternative estimators for efficiency, our results show that Takaful operators are inefficient suggesting the presence of widespread managerial lethargy and operational inefficiency. Additional analyses indicate that non-executive directors, audit committees, and product diversification do not improve technical efficiency. Rather, audit committees and regulatory jurisdiction tends to reduce scale efficiency. We also find that CEO/chair duality, board size, organizational age, regulatory jurisdiction and firm size have a positive relationship with technical efficiency. We further report that non-executive directors, Shari'ah board, product diversification and institutional ownership improve scale efficiency. In particular, the study provides new and extended regional evidence on the efficiency of the Takaful industry in the Middle East North Africa (MENA) and the Southeast East Asian (ASEAN) region. Our findings provide important policy implications for investors, regulators, and other market participants.

Does insurance demand react to economic policy uncertainty and geopolitical risk? Evidence from Saudi Arabia

“…Thus, uncertainty in economic policy in Saudi Arabia and GPRS reinforce each other. Lastly, there is a unidirectional Granger causality for characteristics of the board, such as IM or BSIZE, to NPW, supporting the findings of several studies (Hemrit 2020 ; Karbhari et al 2018 ; Najjar 2012 ).…”

“…As the shareholders act as agents on behalf of participants, the relationship between the insured and operators is that of a principal and an agent in the well-known agency problem, where the operators (agent) may not act on behalf of the principal (policyholders). Addressing this issue, Karbhari et al ( 2018 ) suggest that the governance mechanism, by ensuring that managers act in the best interest of operators and policyholders to evade agency costs, is one of many factors to be considered when purchasing insurance policies. Moreover, governance structures and principles ensure that all economic activities and actions of the organisation conform to social norms and any deviation from the true rules of Islam is another cause of the agency problem.…”

“…Moreover, governance structures and principles ensure that all economic activities and actions of the organisation conform to social norms and any deviation from the true rules of Islam is another cause of the agency problem. While corporate governance matters and has garnered a great deal of attention within the conventional insurance sector, there is a relative dearth of empirical research focusing on the corporate governance factors that play a major part in ID in the Takaful sector (Hemrit 2020 ; Karbhari et al 2018 ; Akhter and Khan 2017 ; Kader et al 2014 ).…”

Determinants of Customer Perception about adoption of Islamic Insurance (Takaful) in Pakistan

“…Awareness of Islamic insurance impacts customer acceptance of Islamic insurance products in a significant manner. That outcome is coherent with the findings of earlier literature ( Karbhari et al, 2018). Awareness of Islamic insurance was also consistent with the findings of Hisham, Palil, Nowalid, and Ramli (2019) and Safari (2019).…”

Governance and Performance in Insurance Companies: A Bibliometric Analysis and A Meta-Analysis

“…Studies in developed countries concern almost exclusively the United States, the United Kingdom (Hardwick & Letza, 1999O'Sullivan & Diacon, 1999 and only a few other European countries (Deev & Khazalia, 2017;Eling & Marek, 2014;Genetay, 1999;Lambalk & de Graaf, 2017;Pavi Kramari, Aleksic, & Pejic-Bach, 2018;Pullano, 2011;Venuti & Alfiero, 2016). More recently, the research has been extended to companies following Islamic precepts (Fekadu, 2015;Kader et al, 2010;Kader, Adams, Hardwick, & Kwon, 2014;Karbhari, Muye, Hassan, & Elnahass, 2018;Lee et al, 2019;Markonah, Sudiro, & Rahayu, 2019;Najjar & Salman, 2013;Ng, Chong, & Ismail, 2012) However, a focus on insurance research on governance contributes to enriching the results of the wider research strand with thanks to the specific features of the insurance companies.…”