Measuring efficiency of insurance and takaful companies in Malaysia using Data Envelopment Analysis (DEA)

Abstract

This study investigates efficiency of the life insurance industry in Malaysia during the period  to . To measure their efficiencies, the output-input data consisting of a panel of  life insurance companies is utilized. Both conventional insurances and takaful companies are comparatively analyzed. The most commonly used non-parametric approach, namely, Data Envelopment Analysis (DEA) is adopted to investigate efficiency of the Malaysian insurance companies and takaful operators. In the DEA technique, efficiency is measured by the Malmquist index. The Malmquist efficiency measures are decomposed into two components: efficiency change and technical change index. Efficiency change is further decomposed into pure efficiency and scale efficiency. From this analysis, we hope to compare the performances of takaful operators vis-a-vis their conventional counterparts.

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