Assessing the Productivity of Insurance Companies in Indonesia: A NonParametric Approach

Abstract: This study empirically explores the contributions of technical and efficiency changes to the growth of productivity in the Indonesian insurance industries by applying the generalized output-oriented Malmquist index based on the non-parametric approach of Data Envelopment Analysis (DEA) during the period 2012 to 2015. In measuring the productivity of nine general insurance firms, two inputs (i.e., commission and management expenses) and two outputs (i.e., premium and net investment income) were utilised. The study documented that, on average, the total factor productivity of the insurance companies in Indonesia was mainly contributed by the technical change rather than the efficiency change. The study also found that the main source of the efficiency change was due to the pure efficiency rather than scale efficiency. These findings implied that in order to enhance the productivity of the firms, the manager should be able to selectively combine the existing inputs to produce outputs in the least cost way, supported by the adoption of the advanced technology. Keywords: efficiency; insurance; data envelopment analysis; Malmquist index; Indonesia