Frontier Efficiency Methodologies to Measure Performance in the Insurance Industry : Overview and new Empirical Evidence

The purpose of this paper is to provide an overview and new empirical evidence on frontier effi-ciency measurement in the insurance industry, a topic of great interest in the academic literature during the last several years. In the first step, we review 87 studies and put them into a joint evalu-ation of efficiency measurement in the field of insurance. In the second step, a broad efficiency comparison of 3,555 insurers from 34 countries is conducted. Different methodologies, countries, organizational forms, and company sizes are compared, considering life and non-life insurers. We find a steady technical and cost efficiency growth in international insurance markets from 2002 to 2006, with large differences across countries. Denmark and Japan have the highest average effi-ciency, whereas the Philippines is the least efficient. Furthermore, the analysis shows that mutuals are more efficient than stock companies. Only minor variations are found when comparing differ-ent frontier efficiency methodologies (data envelopment analysis, stochastic frontier analysis). The results give valuable insights into the international competitiveness of insurers in various coun-tries.