Efficiency and Productivity of Ethiopian Insurance Industry
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Date
2006-07
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A.A.U
Abstract
This paper attempted to analyze efficiency and productivity growth of
Ethiopian insurance industry in the period 1996-2005. Towards this aim,
a three-stage analysis is carried out. Firstly, a Data Envelopment Analysis
(DEA) approach is used to estimate technical efficiency scores. Secondly,
DEA-based Malmquist indices are calculated to analyze productivity of the
industry. Thirdly, a Tobit regression analysis is carried out to identify the
reasons for the differences existing among the insurers in terms of
technical efficiency. The inputs used are labor, business service and
material, dept capital and financial capital. The outputs used are earned
premium and investment income. The results indicate that the overall
technical efficiency of the general insurance market was found on average
80.50 and 93.20 percent under assumption of constant return to scale
and variable return to scale. The average scale efficiency for the sample .
period was 85.50 percent. The result of Malmquist productivity analysis
revealed that the industry analysis showed that the industry the industry
experienced productivity deterioration over the sample period, with an
average decline of about 5 percent. The productivity decreased due to
technological regress. Finally, a second-stage analysis highlights that
technical efficiency appeared to be closely related to the company size,
loss ratio and solvency ratio, partly explain inter-company differences in
efficiency. To improve efficiency and productivity of the industry human
resource development, revising minimum capital requirement and
prudential regulation of supervisory authority could be important.
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Keywords
Ethiopian Insurance Industry