The efficiency analysis of the life insurance industry in China : based on the DEA method



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The life insurance industry in China has developed rapidly at nearly average 30% annual growth rate in premium, since the reform in 1980. The enterprise property, the industry organization and the market size have significantly changed in the last two decades, which can be observed through the four representative categories of companies constituted in different period, including the state-owned enterprises, the large domestic enterprises, the medium domestic enterprises and the joint ventures. How to evaluate the efficiency that the companies make use of the resource and contribute to the economy? How to make possible adjustment for each type of companies to improve the efficiency? In this paper we estimate and compare the efficiency of these four categories, according to the two main roles of the life insurance, (1) risk pooling, risk sharing and risk allocation (2) premium collecting, reinvesting for the high rate of return. We use the DEA method, a popular method for analyzing efficiency in management science, to solve the problem. The method replicates the input and output of the unit company by all the other companies in the industry to establish the ideal efficiency frontier, and ranks the real efficiency of each unit company according to the ideal efficiency frontier. In the empirical test, we attain the evaluation of efficiency for each category of companies. We can make appropriate input & output adjustment to them by the ranking of the efficiency. Based on the theoretical results, we provide some practical approaches, including the scale, expense and investment improvement, to promote efficiency of the life insurance industry in China.