Efficiency of the Insurance Industry in Pakistan : An Application of Non-Parametric Approach

The study applied non-parametric Data Envelopment Analysis (DEA) to estimate the efficiency of insurance companies in Pakistan over the period 2003 to 2007. Value added approach is followed to determine the output variables and selected gross premiums and investment incomes as outputs whereas, labor, business services, equity capital and debt capital were used as input variables. Technical efficiency, allocative efficiency and cost efficiency of the insurance companies were estimated to determine the real contributors of efficiency in the insurance industry of Pakistan. It was found that the insurance companies were on average 92.7 percent technical efficient, 81.12 percent allocative efficient and 75.44 percent cost efficient. Moreover, the study has also found that allocative and cost efficiencies are improved from 2003 to 2005 but significantly decreased in 2006 whereas; technical efficiency is increased over the study period