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Efficiency, Productivity and Returns to Scale Economies in the Non-Life Insurance Market in South Africa

  • Abdul Latif Alhassan
  • Nicholas Biekpe
Original Article

Abstract

This paper undertakes a comprehensive analysis of efficiency, productivity and returns to scale economies in the non-life insurance market in South Africa from 2007 to 2012. The data envelopment analysis technique is employed to estimate efficiency and returns to scale while productivity growth is analysed with the Malmquist index. Truncated bootstrapped regression and logistic regression techniques are used to identify the determinants of efficiency and the probability of operating under constant returns to scale. The results indicate that non-life insurers operate with about 50 per cent inefficiencies, while about 20 per cent of insurers operate at an optimal scale. We also observe productivity improvements attributable to technological changes. The results of the regression analysis reveal a non-linear effect of size on efficiency and constant returns to scale. Product line diversification, reinsurance and leverage also have a significant relationship with efficiency and constant returns to scale. A major contribution of this paper is the analysis of efficiency convergence using the growth convergence theory. Implications for management and industry regulation are drawn from the findings.

Keywords

efficiency productivity returns to scale convergence insurance South Africa 

Notes

Acknowledgements

We thank two anonymous reviewers and the guest editor for their helpful comments. We also acknowledge the assistance of the Insurance department of the FSB in providing the data for this study and Africagrowth Institute for sponsoring the research. All normal caveats apply.

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Copyright information

© The International Association for the Study of Insurance Economics 2015

Authors and Affiliations

  • Abdul Latif Alhassan
    • 1
  • Nicholas Biekpe
    • 1
  1. 1.Graduate School of Business, University of Cape TownCape TownSouth Africa

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