Efficiencies of health insurance business in India: An application of DEA

Abstract

In order to measure the efficiency, number of methods have been developed and applied. Out of these the principal methods used are: Data Envelopment Analysis (DEA) and Stochastic Frontier. DEA is a non parametric mathematical programming approach for the measurement of efficiencies and inefficiencies. This paper seeks to use DEA to evaluate the efficiencies of health insurance business of general insurance companies in India. The present study is focused upon 10 general insurance companies of India including 4 public sector companies and cover a period of 8 years from 2002-03 to 2009-10. The study uses the equity capital and labour (including commission, agents’ fees, referral and other expenditure) as input and net premium as output. It was observed that overall general insurers carrying health insurance business at an average technical efficiency of 73%, pure technical efficiency of 92% and scale efficiency of 78%. On the other hand sector wise performance analysis has indicated that technical efficiency of all the private sector companies is 77%, which is 10% more than that of public sector Companies. This can be attributable to the fact that private sector companies are operating on increasing return to scale and taking the advantages of pure technical efficiency and scale efficiency.