An Empirical Analysis On Efficiency Based On Three-Stage DEA Method In China’s Life Insurance Industry

Since reforming and opening,the rapid development of China’s insurance industry has made an important contribution to economic growth and has given full play to the functions of economic "shock absorbers" and "stabilizers".However,the insurance industry still faces the dilemma of lack of competition,low productivity and inefficiency.Since the year of 2006,China started to realize its promise that foreign-funded insurance companies could enjoy the national treatments,same as the local insurance companies.However,the challenge after joining WTO,threatened the domestic insurance industry in many ways.Therefore,the assessment of efficiency of the insurance industry,the study of the constraints of insurance efficiency,seeking ways to improve the efficiency of the insurance industry,are very important both theoretically and practically.Life insurance is an integral part of China’s insurance market and also very important in the development of insurance market.After reading so many articles,we found that DEA(Data Envelopment Analysis)was mostly used in both domestic and foreign papers to study the efficiency of the life insurance industry.However,the biggest challenge of traditional DEA method is that it cannot remove the influence of environmental factors and also random errors,leading to the inaccuracy of the research results generated.Therefore,this paper selects 33 life insurance companies to evaluate the efficiency of China’s life insurance market in 2010-2016 by using the Three-Stage DEA Method which can overcome the influence of environmental factors and random errors as well.The general idea of Three-Stage DEA Method is like this:First,put the input and output items into the traditional DEA Model to obtain the initial measure of efficiency and we found that,pure technical efficiency of foreign-funded insurance companies is a little bit higher than Chinese-funded insurance companies but the economies of scale of foreign-funded insurance companies are much lower than the one of Chinese-funded insurance companies.However,since the DEA Model does not remove the impact of environmental and random errors on efficiency,the obtained efficiency value does not fully reflect the real situation of technical efficiency,pure technical efficiency and scale efficiency of China’s life insurance market.Then on the second stage,use the SFA model to separate the environmental factors and random errors that affect the efficiency,and remove the impact on the input values.Finally,the adjusted inputs and outputs are re-imported into the DEA model,and the efficiency value obtained at this time is the real efficiency value of China’s life insurance market that has environmental factors and random errors removed.The study found that the pure technical efficiency of the foreign-funded life-insurers is a little bit higher than that of the Chinese-funded life insurers,but the scale effect is much lower than that of the Chinese-funded life insurers.After removing the environmental factors,most of the companies have witnessed a decline in the overall technical efficiency level,indicating that the environmental factors have brought certain favorable factors to the foreign-funded life insurance companies.Through DEA Three-Stage empirical analysis,we also found that most of our life insurance companies are in the stage of increasing returns to scale,presenting a good momentum for the overall development of China’s life insurance industry.In view of the above findings,this paper puts forward the following suggestions:from the regulatory perspective,the correct guidance and policy support should be strengthened.From the point of view of life insurance companies,we should combine the macroeconomic situation of China to develop the innovative products that meet the needs of society;to increase resource utilization,balance the relationship between scale development and technological efficiency;and actively cultivate high-quality talents that meet the needs of society and strengthen the use of human capital to improve the overall quality of employees.