Evaluating Cost Efficiency and Returns to Scale in the Life Insurance Corporation of India Using Data Envelopment Analysis

This paper applies a new variant of data envelopment analysis model to examine the performance of Life Insurance Corporation (LIC) of India. The findings show a significant heterogeneity visible in the cost efficiency scores within 19 years. The decline in performance after 1994-95 can be taken as an evidence of increasing allocative inefficiencies arising from the huge initial fixed cost undertaken by LIC in modernizing the operations. But the significant increase in cost efficiency in 2000-01 is the basis for an optimism that LIC may be beginning to benefit from such a modernization, which will stand in good stead in terms of future competition. The results obtained from the sensitivity analysis are in broad agreement with the main findings of this study