An Analysis Of Production Efficiency, Investment Efficiency And Influencing Factors In The China's Insurance Industry

Since the enforcement of open-up policy, China's insurance industry has undergoing extremely fast growth. However, the industry still lags behind others in the world below the average, and it has been in a dilemma of fast growth and low profit. With the increasingly sharp competition, there is a decreasing return during production activities, and particularly, life insurance companies mainly benefit from investment activities. Especially, after China's access to WTO, the industry open increasingly deeply and recently regulative pattern converted from conduct regulation to insolvency regulation. Therefore, in order to enhance the competitive position of insurance companies, it is necessary to study the production and investment efficiency of China's insurance industry.This paper selects 48 insurance companies established before the year 2003, 24 life insurance companies and 24 property-liability insurance companies respectively, as samples and evaluates the production efficiency and investment efficiency of China's insurance industry between 2003 and 2005 using two-stage DEA model. Moreover, the regression models are utilized to explore the relationships between influencing factors and efficiency. The paper is organized as followed. Section 1 is an introduction. Section 2 discusses efficiency and DEA approach. Section 3 gives a brief review of the study of insurance efficiency, and introduces the variables of input and output and two-stage DEA model. Section 4 examines the efficiency of life insurance companies and property-liability insurance companies separately, including technical efficiency, pure technical efficiency, and returns to scale. Section 5 tests factors' influence on efficiency through panel data model. Finally, our conclusions are presented in Section 6. Compared with other domestic study, the features of the paper are followed. In view of the status quo of China's insurance industry, we choose appropriate input and output variables to take life insurance companies and property-liability companies separately, and evaluate their technical efficiency, pure technical efficiency, scale efficiency, and return to scale from production and investment perspective. These indicators are analyzed from some perspectives. After calculation of overall efficiency, the path is provided to achieve efficiency systematically for the insurers involved. Furthermore, on the basis of previous analysis and the status quo of insurance industry, we provide some factors affecting production and investment efficiency, and explore these factors' influence on both efficiency using panel data model.The results show that: (1) The China's insurance industry operated fairly efficiently from production perspective during the examined period, but did very inefficiently from investment perspective. Overall inefficiency was due to low investment efficiency. (2) There were economies of scale in production activities, but not in investment activities. (3) The regression indicates that ownership and company age are positively related to the production and investment efficiency of insurance industry significantly, while firm size has negative impact on production efficiency, especially on investment efficiency.