Cost Efficiency in the Life Insurance Industry

Abstract

The life insurance industry has pivotal impact on an entire national economy. Under the trend of liberalization and internationalization, operating efficiency is critical to sustainable operations, and cost efficiency improvements positively affect operating efficiency, since integrated utilization of resources can produce maximal economic benefit. This study covers the period from 1997 to 2007, and adopted the Stochastic Cost Frontier Approach (SCFA) to make cost efficiency and economy-of-scale analyses, and studied cost efficiency factors. Some empirical results are as follows: 1) Variable scales and variable patterns in the life insurers enable different economy-of-scale and cost efficiency values. 2) It is recommended to join financial holding company or utilize a horizontal alliance to improve cost efficiency. 3) Based on the Tobit regression analysis, total asset turnover, fixed asset turnover are positively relative to cost efficiency. However, insurance payment to net written premium ratio is negatively relative to cost efficiency.