Revenue efficiency evaluation of life insurance companies in India: identification of leaders and laggards

Abstract

PurposeThe purpose of this article is to evaluate revenue efficiency performance of life insurance companies in India. The study also compares if private or public insurance sector is more “revenue efficient”. Furthermore, the study determines the nature of return to scale (RTS) and identifies the leaders and laggards amongst insurance companies operating in India.Design/methodology/approachRevenue efficiency is calculated by employing data envelopment analysis – a non-parametric approach, on a data set of 24 insurance companies over the period 2013–2014 to 2017–2018.FindingsThe empirical results suggest that life insurance companies in India could generate only 34.4% of revenue, which is very less than what these are expected to generate from the same inputs. Majority of life insurance companies operating in India are operating at decreasing return to scale (DRS). There is a reduction in leaders and the highest proportion of companies is falling in the category of laggards.Originality/valueAs per the best knowledge of researchers, no empirical work has been carried out with respect to measuring the revenue efficiency of Indian insurance companies. The current study appropriately fills the gap by not only calculating the revenue efficiency scores of insurance companies in India but also provides insights into the causes of revenue inefficiencies. It also gives implications for efficient and effective management of insurance companies.

Determinants of Financial Performance – A Comparative Analysis of Public Sector Non-Life Insurers in India

“…Various efficiencies such as technical, purely technical and scale efficiencies are focused on in the existing research works (Bhatia and Mahendru, 2021). The environmental variables impact the efficiency scores of life insurers (Shieh et al, 2020).…”

“…General insurance companies should focus on labor development and technology adoption to achieve better efficiency (Ofori-Boateng et al, 2022). Technical efficiency ignores cost incurred and revenue generated analysis of the insurance companies (Bhatia and Mahendru, 2021). So, many researchers focused on the revenue efficiency of insurance companies (Bhatia and Mahendru, 2021;Morara and Sibindi, 2021;Muthulakshmi, 2018).…”

“…Technical efficiency ignores cost incurred and revenue generated analysis of the insurance companies (Bhatia and Mahendru, 2021). So, many researchers focused on the revenue efficiency of insurance companies (Bhatia and Mahendru, 2021;Morara and Sibindi, 2021;Muthulakshmi, 2018). Revenue efficiency denotes the capability of insurers to provide services to customers with the resources available (Bhatia and Mahendru, 2021).…”

“…Measurement and analysis of the efficiency of the insurers are important because efficiency measures reveal the competence of the insurance companies to face the challenges (Amanti and Siregar, 2019). Efficiency refers to the choice of alternatives that produce the outputs using given resources (Bhatia and Mahendru, 2021). In simple words, efficiency exhibits the ability of an organization to use its resources in the best possible way in comparison to the most efficient organization in the given industry.…”

“…In simple words, efficiency exhibits the ability of an organization to use its resources in the best possible way in comparison to the most efficient organization in the given industry. Efficiency compares inputs given and outcomes produced and efficiency is a strong indicator of the performance of the insurers (Bhatia and Mahendru, 2021). Operating efficiency is generally measured by technical efficiency (Sinha, 2007).…”