Analyzing the Evolution of the Efficiency of Takaful Insurance Companies Compared to Commercial Insurance Companies

Abstract

This paper deals with the concept of efficiency. The aim of the practical side is to measure and analyze the efficiency of some Takaful insurance companies and compare it with the commercial insurance companies in the Malaysian market, in order to show the importance of this aspect for the decision-makers in the analysis of inefficiency sources to eliminate undue costs. Due to the difficulty of obtaining Takaful insurers data, the research has included to measure the efficiency of six Takaful insurance companies and five commercial companies, over a period of three years from 2014 to 2016. The study used premiums and investment incomes as outputs and management costs and commissions as inputs, using the input-oriented DEA model (CCR-I and BCC-I) to measure efficiency.

The results obtained show that the Takaful insurance companies studied did not achieve the degree of efficiency ratio 1 in constant returns to scale model, while one, the smallest of these companies in terms of premium value, achieved the efficiency ratio 1 in variable returns to scale model. This means a good use of its resources and the absence of unjustified costs. However, it has to reach the optimal size of its activities in order to benefit from economies of scale.