Relative efficiencies of Ghanaian life insurance companies.
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Date
2016-10-17
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Abstract
Insurance acts as a risk transfer mechanism and investment platform to protect against losses and to provide peace of mind. Insurance penetration which is defined as the contribution of total insurance to GDP is still 1%.The players of the insurance market consist of insurance companies (insurers) and policy holders. The insurance market is divided into Non-Life and Life insurance companies. This study focuses on the efficiency of the life insurance industry in Ghana. Data Envelopment Analysis was employed to evaluate the efficiencies of fourteen life insurance companies in Ghana for the period 2010to 2013. Data Envelopment Analysis, a non-parametric mathematical programming tool, has the capability of evaluating the relative efficiencies of companies or firms that use similar multiple inputs to produce similar multiple outputs. We used capital, commission and management expenses as inputs that are used by life insurers to produce net premiums, investment income and claims as outputs. The results of the study revealed that Ghanaian life insurance companies operated at an average overall efficiency of 82%, average scale efficiency of 93% and an average technical efficiency of 88%. This shows that the efficiency the of life insurers is largely due to their scale efficiency that is scale of operations rather than technical efficiency (managerial skills).The study also tested hypotheses relating to the roles dimension and market share play in the efficiency of Ghanaian life insurers. The study showed that large insurers in terms of capital do not necessarily tend to have higher efficiencies than smaller insurers. Also, the study revealed that life insurers with higher market shares tend to be more efficient than those with lower market shares.
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Thesis submitted to The Department of Mathematics, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirement for the degree of Master of Science in Industrial, 2015