Underwriting Efficiency of Non-Life Insurance Industry in India

Abstract

Purpose: Insurance companies earn their profits through underwriting of premium from various policies and investing in various securities. If, premiums collected will not be adequate to cover the cost of coverage, insurance companies will confront underwriting loss. The purpose of this paper is to assess underwriting efficiency of non-life insurance industry in India.

Design/methodology/approach: DEA models have been applied on two inputs (Share Capital and Total Investment) and three outputs (Profit, Net Premium and Investment Income). This study focuses upon nineteen non-life insurance companies operating in India over a period of five years from 2011-12 to 2015-16.

Findings: Underwriting efficiency of non-life insurance industry has declined on both BCC model and CCR model from 2011-12 to 2014-15. However, it slightly improved in the year 2015-16. The study further highlights that during all years under study, four (21 per cent) to eight (42 per cent) non-life insurers have been found on the CRS frontier and seven (37 per cent) to twelve (63 per cent) non-life insurers have been found on the VRS frontier. With regard to scale efficiency issues, four (21 per cent) to eight (42 per cent) companies have been operated at their most productive scale over the study period.

Research limitations/implications: Paper has successfully developed underwriting model for insurance companies. Taking clue from findings, insurance companies could deal with various underwriting related challenges in their respective companies.

Originality/value: The paper uses DEA models to assess underwriting efficiency of insurance companies not discusses so far in previous studies.

Keywords: Data Envelopment Analysis, Technical Efficiency, Pure Technical Efficiency, Scale Efficiency, Underwriting Efficiency

JEL Classification: G22 E44