Measuring The Cost Efficiency In The Life Insurance Industry Of China

This study compares several cost function and selects the translog cost function as a analytical model. Furthermore, the disquisition classifies the outputs of insurers into two groups according to lines of business: premiums of life insurance policies, premiums of accident and health policies; defines three inputs, that is, labor price, capital price, and materials price. At last, the function is assumed to satisfy the following conditions: continuity, first and second derivatives, symmetry, linear homogeneity in input prices, monotonicity in inputs and outputs, and concavity. The model is applied to a balanced panel of life insurance companies over the period from 1999 to 2003. The data set is composed of 60 observations are analyzed for 12 typical companies. In order to analyze how to control the outputs and inputs to save cost, the article does three case studies: First, the cost of producing life insurance and A&H by one life insurance company is less costly than the combined costs of production of two specialty companies, Economies of scope exists. Second, as output increases one percent, the percentage increases in total cost is more than one, this implies that increasing return to scale prevails in life insurance industry. Third, labor price and capital price are substitutes, labor price and materials price are substitutes too, but capital price and materials price are complements. The value of cost inefficiency in every company is estimated. By comparison, find that the efficiency of joint-stock life insurance companies was better than foreign companies', and the efficiency of foreign life insurance companies was better than that of domestic company. Using the value of cost inefficiency, analyze seven attributions that effect cost can not be efficient. what have done will help the decision-maker in life insurance industry to draw right strategy and tactic.