Impact of Privatization on Productivity: A Non-Parametric Analysis of Indian Insurance Sector

Abstract

The insurance sector was opened up for private participation on the ground that the interests of the consumers would be better served if there is competition among the insurers, which will ultimately increase productivity of the sector as a whole. The main objective of this article is to analyze the productivity changes of Indian life and non-life insurance business with the application of non-parametric Malmquist indices. Therefore, this study uses ‘expenses related to labour’ ( x1), ‘expenses related to business service and materials’ ( x2) and ‘total investment’ ( x3) as major three inputs; and following the ‘intermediation approach’ and the ‘value-added approach’, this study uses ‘premiums earned’ ( y1) as the output for risk bearing/risk pooling service following the value-added approach and ‘income from investment’ ( y2) as the intermediation output. From the productivity analysis we found that, during the study period (2005–2006 to 2009–2010) total factor productivity decreased in life insurance business but it increased in case of non-life insurance business with different reason behind the change. We can also conclude in overall factor productivity analysis excluding public sector insurers; though the public sector insurers are significantly older in the market but it has an unfavourable impact on the insurance market in terms of factor productivity and technological progress.