A Stochastic Frontier Model on Investigating Efficiency of Life Insurance Companies in India

R. Chandrasekaran; R. Madhanagopal; K. Karthick

doi:https://doi.org/10.14445/22315373/IJMTT-V4I10P3

International Journal of Mathematics Trends and Technology

Research Article | Open Access | Download PDF

Volume 4 | Issue 10 | Year 2013 | Article Id. IJMTT-V4I10P3 | DOI : https://doi.org/10.14445/22315373/IJMTT-V4I10P3

A Stochastic Frontier Model on Investigating Efficiency of Life Insurance Companies in India

R. Chandrasekaran , R. Madhanagopal , K. Karthick

Citation :

R. Chandrasekaran , R. Madhanagopal , K. Karthick, "A Stochastic Frontier Model on Investigating Efficiency of Life Insurance Companies in India," International Journal of Mathematics Trends and Technology (IJMTT), vol. 4, no. 10, pp. 207-215, 2013. Crossref, https://doi.org/10.14445/22315373/IJMTT-V4I10P3

Abstract

The present paper attempts to investigate the efficiency of life insurance companies in India for the year 2011. An insurance company is said to be efficient if it produce maximum profit using minimum level of available resources. Due to new policies of Government of India, many new insurance companies emerged in Indian market which created a high competition among themselves, which made administrators to monitor their company’s efficiency level over a period of times to make improvement or changes in their strategy to survive. Studying efficiency of an organization became pioneering area of research during the last several years. Among many frontier techniques Stochastic Frontier Analysis (SFA) is one of the best known techniques to determine the efficiency. The SFA results indicate that the efficient scores lie between the values 0.1244 to 0.9992; and the average efficient score for all 24 life insurance companies is 0.5767. The life insurance company LI03 is ranked first with the efficiency score of 0.9992 followed by LI11 with efficiency score of 0.9881. LI24 stands last with the efficiency score of 0.1244 (rank 24). The variables investment and net claims considered in the present study differ significantly at 5% level.

Keywords

Stochastic Frontier Analysis, Profit Efficiency, Insurance Sector, Cobb-Douglas Function .

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