Efficiency Measurement of Indian Life Insurance Industry in Post-Reforms Era

Abstract

India initiated reforms in the insurance sector with the passage of the Insurance Regulatory and Development Authority Bill by the Parliament in December 1999 and by opening up its insurance market to private competitors by the year 2000. However, the public sector company, Life Insurance Corporation of India, has overwhelmingly dominated the domestic life insurance market. As the market is still underdeveloped and the demand for life insurance is rising exponentially, there exists huge potential, opportunities as well as challenges (insurers have to focus on underwriting discipline and reduction in costs so as to remain profitable) for the managers of the insurance companies. Efficiency is the key concern of policymakers to encourage further development of the insurance industry as well as for the managers of the insurance companies to exist profitably in the business in the long run. This article focuses on this important issue. It uses a panel dataset of 14 life insurance companies over the period 2004–09, to evaluate their efficiency scores by applying Data Envelopment Analysis and calculating the scale efficiency. The results render light on policy design and implementations for future development of the life insurance industry in India.