Efficiency Measure of Insurance v/s Takaful Firms Using DEA Approach : A Case of Pakistan

Abstract

This study aims at comparing the Pakistan’s Tak ful and conventional insurance companies in terms of efficiency and productivity for the period 2006-2010. We apply Data Envelopment approach to estimate technical, allocative and cost efficiencies. The results indicate that the insurance industry as a whole is cost inefficient due to high allocative inefficiency. However, technical efficiency components show improving trends. Results further indicate that Tak ful firms are more efficient as compared to conventional insurance firms. Malmquist productivity index shows a significant improvement in scale efficiency. However, we do not find any considerable contribution of technology to improve overall productivity. The study suggests introduction of innovative and diversified products in insurance industry of Pakistan, particularly for Tak ful companies.

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