A comparative analysis of productivity and efficiency of life insurance companies in Malaysia and Singapore

Abstract

This research seeks to answer the main question as to whether life insurance companies in Singapore, being a more developed and open economy, are more efficient than those of Malaysia, which has a bigger market. Previous research in other countries has found that less regulation and a more open economy does not necessarily lead to greater efficiencies. Despite the plethora of efficiency studies using frontier techniques on various industries in various countries, there is however a dearth of efficiency studies on insurance companies, particularly life insurance, in Malaysia and Singapore. To bridge this gap, we estimate the efficiency of 16 life insurance companies in Malaysia and 10 in Singapore over a nine year period (1999- 2007) using data envelopment analysis and stochastic frontier analysis. Using the two techniques enables us to investigate the consistency of the results. Data are obtained from insurance returns of Bank Negara Malaysia and the Monetary Authority of Singapore. Adjustments are made for inflation and exchange rates using IMF sources. Insurance premium and investment income are used as outputs, while management expenses and distribution expenses are used as inputs. Technical efficiency scores for each life insurance company for each year are then estimated. The effects of environmental factors on efficiency and productivity changes over time for the insurances companies are also studied. We find that life insurance companies in Singapore are more efficient than those in Malaysia. However, the differences in growth of productivity of the companies in the two countries are not significant. Large companies are found to contribute towards technical efficiency, while mixed results are found for the other environmental factors.