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    DEA and Insurance

    On this page, we have provided all the information about DEA and Insurance that may be interesting and useful to users. This page contains the following sections:

    1. Background

    2. Key papers

    3. New interesting papers

    4. Related subject

    5. Statistics

    6. References






    Insurance, a financial concept designed to manage risks, seeks to provide security for economic growth or to hedge against uncertain loss (Kaffash, 2019). Insurance industry extends the productivities and services with providing safety and confidence. These companies have positive effects on economics growth of the country. Efficiency measurement in the insurance companies increases the quality of their activities and also assists them to identify and solve the problems (Pawar, 2015). Data envelopment analysis (DEA) is a technique that is widely applied to measure the relative efficiency of a set of production systems. Fecher, Kessler, Perelman, and Pestieau (1993) is the first study that applies DEA in evaluating the performance of insurance firms. Thereafter, many researchers studied insurance business by using DEA techniques. Cummins and Weiss (2000), Cummins and Weiss (2013), Eling and Luhnen (2010), Liu, Lu, Lu, and Lin (2013a) and Kaffash, Azizi, Huang and Zhu (2019) reviewed the efficiency of insurance firms for which frontier efficiency methods are used.
    Types of Insurance: Life insurance and non-life insurance.

    Frequently used inputs:
    Labor, Number of employees/specialist
    Capital, Capital debt
    Equity, Equity capital
    Materials and business services

    Frequently used outputs:
    Short- and long-tailed personal lines
    Losses and incurred losses
    Investment income/gain, return on investment

    This section introduces key papers in the DEA and insurance. These papers have had a significant impact on the DEA and its application in insurance sector.

    Productive Performance of the French Insurance Industry
    Authors: E. Fecher, D. Kessler, S. Perelman, P. Pestieau
    Journal: The Journal of Productivity Analysis
    Published: 1993
    Abstract: The purpose of this paper is to provide for both life and non-life insurance an assessment of the relative productive performance of French companies.
    We use parametric and nonparametric approaches to construct a frontier to be used as a yardstick of productive efficiency. Our data basis covers 84 life and 243 non-life companies for the period 1984-1989. The main findings show a high correlation between parametric and nonparametric results and a wide dispersion in the rates of inefficiency across companies. This dispersion can be reduced when controlling for variations in scale, ownership, distribution, reinsurance, and claims ratios.





    Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan
    Authors: Chiang Kao , Shiuh-Nan Hwang
    Journal: European Journal of Operational Research
    Published: 2008
    Abstract: The efficiency of decision processes which can be divided into two stages has been measured for the whole process as well as for each stage independently by using the conventional data envelopment analysis (DEA) methodology in order to identify the causes of inefficiency. This paper modifies the conventional DEA model by taking into account the series relationship of the two sub-processes within the whole process. Under this framework, the efficiency of the whole process can be decomposed into the product of the efficiencies of the two sub-processes. In addition to this sound mathematical property, the case of Taiwanese non-life insurance companies shows that some unusual results which have appeared in the independent model do not exist in the relational model. In other words, the relational model developed in this paper is more reliable in measuring the efficiencies and consequently is capable of identifying the causes of inefficiency more accurately. Based on the structure of the model, the idea of efficiency decomposition can be extended to systems composed of multiple stages connected in series.


    Frontier Efficiency Methodologies to Measure Performance in the Insurance Industry: Overview, Systematization, and Recent Developments
    Authors: Martin Eling and Michael Luhnen
    Journal: The International Association for the Study of Insurance Economics
    Published: 2010
    Abstract: The purpose of this paper is to provide an overview on frontier efficiency measurement in the insurance industry, a topic of great interest in the academic literature during the last several years. We provide a comprehensive survey of 95 studies with a special emphasis on innovations and recent developments. We review different econometric and mathematical programming approaches to efficiency measurement in insurance and discuss the choice of input and output factors. Furthermore, we categorise the 95 studies into 10 different areas of application and discuss selected results. While there is a broad consensus with regard to the choice of methodology and input factors, our review reveals large differences in output measurement. Significant need for future research can be identified, for example, with regard to analysis of organisational forms, market structure and risk management, especially in the international context.


    Consolidation and efficiency in the US life insurance industry
    Authors: J. David Cummins, Sharon Tennyson, Mary A. Weiss
    Journal: Journal of Banking & Finance
    Published: 1999
    Abstract: This paper examines the relationship between mergers and acquisitions, efficiency, and scale economies in the US life insurance industry. We estimate cost and revenue efficiency over the period 1988±1995 using data envelopment analysis (DEA). The Malmquist methodology is used to measure changes in efficiency over time. We find that acquired firms achieve greater efficiency gains than firms that have not been involved in mergers or acquisitions. Firms operating with non-decreasing returns to scale (NDRS) and financially vulnerable firms are more likely to be acquisition targets. Overall, mergers and acquisitions in the life insurance industry have had a beneficial effect on efficiency


    The using of the DEA technique in the insurance sector is increasing over time. This section introduces new articles that present a new method or significant results in this area.




    In this section, we list a series of selected descriptive statistics involving the numbers and distributions of papers, journals and keywords of DEA and insurance related articles during the years 1983 to 2018.
     1. Statistics involving publications by year


    2. Statistics involving publications by journal



    3. Statistics involving keywords used
    The following table lists the most popular keywords by number of publications.



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