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Cost efficiency and value driver analysis of insurers in an emerging economy

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  • Attiea Marie

    (College of Business Administration, University of Dubai, Dubai, United Arab Emirates)

  • Ananth Rao

    (College of Business Administration, University of Dubai, Dubai, United Arab Emirates)

  • Hossein Kashani

    (College of Business Administration, University of Dubai, Dubai, United Arab Emirates)

Abstract

This study investigated cost inefficiencies and its relationship with value drivers of insurers in United Arab Emirates (UAE). The study revealed that there were 21-33% cost inefficiencies in these insurers under different model specifications of stochastic frontier and DEA; value drivers such as lower leverage risk, lower capital risk significantly improved cost efficiencies consistent with Basel II norms; ROE positively influenced cost efficiencies with further trade off between increased profit margin, decreased asset utilization and|or reduced equity multiplier by the insurer managements to achieve a target-ROE; and the trend of cost efficiency was improving during 2000-2004. The study suggests that stock insurers could overcome their cost inefficiencies through adoption of efficient measures such as risk mapping of clients, risk prioritization besides ALM techniques. The study has direct implications for individual and institutional investors in making their portfolio investment decisions in insurance sector, policymakers, and regulators to closely monitor inefficient insurers consistent with Basel II norms. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1454
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 4 ()
Pages: 265-280

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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:4:p:265-280

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Cited by:
  1. Hela Miniaoui & Anissa Chaibi, 2014. "Technical Efficiency of Takaful Industry- A Comparative Study of Malaysia and GCC Countries," Working Papers, Department of Research, Ipag Business School 2014-055, Department of Research, Ipag Business School.
  2. Ananth Rao & Hossein Kashani & Attiea Marie, 2010. "Analysis of managerial efficiency in insurance sector in the UAE: an emerging economy," International Journal of Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 6(4), pages 329-343, September.

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