- Volume 7 Issue 6
DOI QR Code
Measuring the Managerial Efficiency of Insurance Companies in Saudi Arabia: A Data Envelopment Analysis Approach
- NAUSHAD, Mohammad (Management Department, College of Business Administration, Prince Sattam Bin Abdulaziz University) ;
- FARIDI, Mohammad Rishad (Marketing Department, College of Business Administration, Prince Sattam Bin Abdulaziz University) ;
- FAISAL, Shaha (HRM Department, College of Business Administration, Prince Sattam Bin Abdulaziz University)
- Received : 2020.03.29
- Accepted : 2020.05.01
- Published : 2020.06.30
This paper applies the Data Envelopment Analysis (DEA) to compute the managerial efficiency of 30 insurance companies listed on the Saudi stock exchange for the duration of four years from 2015 to 2018. The companies taken as a sample of study included both conventional and Takaful insurance companies. The insurance sector of KSA is one of the largest sectors in the country, contributing a substantial percentage in the non-oil economy. Efficiency measurement and evaluation will provide a venue to introspect and benchmark frontiers to the sector. In the present study, we have utilized the basic Banker Charnes Cooper and Charnes Copper Rhodes models of DEA. Two inputs, namely, general & administrative expenses and policy & acquisition costs, and two outputs (Net premium earned and Investment Income & other incomes) were taken for efficiency calculations. The final outcomes of the study reveal that a good number of insurance companies operating in KSA are found to be efficient on managerial efficiency scale. Three firms remain the leader on the frontier of the managerial efficiency. And no company found with zero (0) efficiency or a negative efficiency. It is expected that the outcome of the study will provide benchmarks to managers and a road map to further improvement.
- Agasisti, T. (2014). Measuring the "managerial" efficiency of public schools: a case study in Italy. International Journal of Educational Management, 28(2), 120-140. doi:10.1108/IJEM-02-2013-0032
- Akhtar Muhammad, H. (2018). Performance analysis of Takaful and conventional insurance companies in Saudi Arabia. Benchmarking: An International Journal, 25(2), 677-695. doi:10.1108/BIJ-01-2017-0018 https://doi.org/10.1108/BIJ-01-2017-0018
- Al-Amri, K. (2015). Takaful insurance efficiency in the GCC countries. Humanomics, 31(3), 344-353. doi:10.1108/H-05-2014-0039 https://doi.org/10.1108/H-05-2014-0039
- Ali, A., & Tausif, M. R. (2019). Assessing profitability and growth of insurance sector in Saudi Arabia: using financials and tangibles. Humanities & Social Sciences Reviews, 7(6), 617-624.
- AlKhathlan, K., & Malik, S. A. (2010). Are Saudi banks efficient? Evidence using data envelopment analysis (DEA). International Journal of Economics and Finance, 2(2), 53-58.
- Almulhim, T. (2019). Analysis of Takaful vs. Conventional insurance firms' efficiency: Two-stage DEA of Saudi Arabia's insurance market. Cogent Business & Management, 6(1), 1633807. doi:10.1080/23311975.2019.1633807
- An, S. B., Ryu, Y. R., & Yoon, K. C. (2020). Managerial Centrality and Shared Growth: Evidence from Korean Service Corporations' Financial Records. Journal of Asian Finance, Economics and Business, 7(1), 249-257. https://doi.org/10.13106/jafeb.2020.vol7.no1.249
- Avkiran, N. K., & Rowlands, T. (2008). How to better identify the true managerial performance: State of the art using DEA. Omega, 36(2), 317-324. doi:https://doi.org/10.1016/j.omega.2006.01.002 https://doi.org/10.1016/j.omega.2006.01.002
- Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management science, 30(9), 1078-1092. https://doi.org/10.1287/mnsc.30.9.1078
- Barros, C. P., Botti, L., Peypoch, N., & Solonandrasana, B. (2011). Managerial efficiency and hospitality industry: the Portuguese case. Applied Economics, 43(22), 2895-2905. doi:10.1080/00036840802600145 https://doi.org/10.1080/00036840802600145
- Barros, C. P., Dumbo, S., & Wanke, P. (2014). Efficiency determinants and capacity issues in Angolan insurance companies. South African Journal of Economics, 82(3), 455-467. https://doi.org/10.1111/saje.12056
- Benyoussef, S., & Hemrit, W. (2019). Measuring the relative efficiency of insurance companies in Saudi Arabia: The case study of Takaful vs cooperative industries. Cogent Economics & Finance, 7(1), 1590818. doi:10.1080/23322039.2019.1590818
- Borges, M. R., Nektarios, M., & Barros, C. P. (2008). Analysing the Efficiency of the Greek Life Insurance Industry. European Research Studies, 11(3).
- Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444. https://doi.org/10.1016/0377-2217(78)90138-8
- Chen, C. F. (2007). Applying the stochastic frontier approach to measure hotel managerial efficiency in Taiwan. Tourism Management, 28(3), 696-702. https://doi.org/10.1016/j.tourman.2006.04.023
- Chen, T. Y. (2002). Measuring operation, market and financial efficiency in the management of Taiwan's banks. Services Marketing Quarterly, 24(2), 15-27. https://doi.org/10.1300/J396v24n02_02
- Choi, J., & Cho, D. (2019). Risk-Seeking Behavior of Financial Institutions due to Deposit Insurance: Evidence from Korea. Journal of Asian Finance, Economics and Business, 6(1), 83-89. http://doi.org/10.13106/jafeb.2019.vol6.no1.83
- Cummins, J. D., & Weiss, M. A. (2013). Analyzing firm performance in the insurance industry using frontier efficiency and productivity methods. In Handbook of Insurance (pp. 795-861): Springer.
- Eling, M., & Luhnen, M. (2010). Efficiency in the international insurance industry: A cross-country comparison. Journal of Banking & Finance, 34(7), 1497-1509. https://doi.org/10.1016/j.jbankfin.2009.08.026
- Haque, M. I. a., & Sultan, Z. A. (2019). A structural equation modeling approach to validate the dimensions of SERVPERF in insurance industry of Saudi Arabia. Management Science Letters, 09(04), 495-504.
- Hemrit, W. (2020). Determinants driving Takaful and cooperative insurance financial performance in Saudi Arabia. Journal of Accounting & Organizational Change, [Online First], doi: https://doi-org.sdl.idm.oclc.org/10.1108/JAOC-03-2019-0039
- Hwang, S.-N., & Tong-Liang, K. (2006). Measuring Managerial Efficiency in Non-Life Insurance Companies: An Application of Two-Stage Data Envelopment Analysis. International Journal of Management, 23(3), 699-720.
- Ilyas Ashiq, M. (2019). An empirical investigation of efficiency and productivity in the Indian non-life insurance market. Benchmarking: An International Journal, 26(7), 2343-2371. doi:10.1108/BIJ-01-2019-0039 https://doi.org/10.1108/BIJ-01-2019-0039
- Kaffash, S., Azizi, R., Huang, Y., & Zhu, J. (2019). A survey of data envelopment analysis applications in the insurance industry 1993-2018. European Journal of Operational Research. https://doi.org/10.1016/j.ejor.2019.07.034
- Mandal, S. (2014). A DEA-investigation of efficiency of the Indian general insurance during recession. Journal of Advances in Management Research, 11(1), 115-136. doi:10.1108/JAMR-07-2012-0030. https://doi.org/10.1108/JAMR-07-2012-0030
- Masud, M. M., Rana, M. S., Mia, M. A., & Saifullah, M. K. (2019). How Productive Are Life Insurance Institutions in Malaysia? A Malmquist Approach. Journal of Asian Finance, Economics and Business, 6(1), 241-248. http://doi.org/10.13106/jafeb.2019.vol6.no1.241 https://doi.org/10.13106/jafeb.2019.vol6.no1.241
- Naushad, M. (2019a). Arrays of Intellectual Capital among SMEs in Saudi Arabia. Journal of Advanced Research in Dynamical and Control Systems, 11(Special Issue-8), 2175-2180.
- Naushad, M. (2019b). Intellectual capital and financial performance of Sharia-compliant banks in Saudi Arabia. Banks and Bank Systems, 14(4), 1-9.
- Naushad, M., & Malik, S. A. (2015). Corporate governance and bank performance: a study of selected banks in GCC region. Asian Social Science, 11(9), 226.
- Nourani, M., Devadason, E. S., Kweh, Q. L., & Lu, W.-M. (2017). Business excellence: the managerial and valuecreation efficiencies of the insurance companies. Total Quality Management & Business Excellence, 28(7-8), 879-896. doi:10.1080/14783363.2015.1133244 https://doi.org/10.1080/14783363.2015.1133244
- Pacheco, R., & Fernandes, E. (2003). Managerial efficiency of Brazilian airports. Transportation Research Part A: Policy and Practice, 37(8), 667-680. https://doi.org/10.1016/S0965-8564(03)00013-2
- Rao, A. (2010). Analysis of managerial efficiency in insurance sector in the UAE: an emerging economy. International Journal of Managerial Finance, 6(4), 329-343. doi:10.1108/17439131011074477 https://doi.org/10.1108/17439131011074477
- Rahman, A. M. (2018). Voluntary Insurance for Ensuring Risk-Free On-the-Go Banking Services in Market Competition: A Proposal for Bangladesh. Journal of Asian Finance, Economics and Business, 5(1), 17-27. http://dx.doi.org/10.13106/jafeb.2018.vol5.no1.17 https://doi.org/10.13106/jafeb.2018.vol5.no1.17
- Seiford, L. M., & Zhu, J. (1999). Profitability and marketability of the top 55 US commercial banks. Management Science, 45(9), 1270-1288. https://doi.org/10.1287/mnsc.45.9.1270
- Shyu, J., & Chiang, T. (2012). Measuring the true managerial efficiency of bank branches in Taiwan: A three-stage DEA analysis. Expert Systems with Applications, 39(13), 11494-11502. doi:https://doi.org/10.1016/j.eswa.2012.04.005 https://doi.org/10.1016/j.eswa.2012.04.005
- Sulphey, M., & Naushad, M. (2019). The position of intellectual capital among Saudi banks. Marketing and Management of Innovations, 10(4), 11-21.
- Yang, C., & Liu, H.-M. (2012). Managerial efficiency in Taiwan bank branches: A network DEA. Economic Modelling, 29(2), 450-461. https://doi.org/10.1016/j.econmod.2011.12.004
- Zhu, J. (2000). Multi-factor performance measure model with an application to Fortune 500 companies. European Journal of Operational Research, 123(1), 105-124. https://doi.org/10.1016/S0377-2217(99)00096-X