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Analysis of managerial efficiency in insurance sector in the UAE: an emerging economy

Author

Listed:
  • Ananth Rao
  • Hossein Kashani
  • Attiea Marie

Abstract

Purpose - This study sets out to analyze the efficiency and productivity issues of the insurance sector from both the policymakers' and investors' points of view to insulate the business and financial risks of UAE corporate houses. Design/methodology/approach - The paper uses two inputs of “administrative and general expenses”, and “equity and change in legal reserves”, versus two outputs of rate of “return on investments” and “liquid asset to total liabilities ratio” to assess the allocative efficiency of the companies using DEA. Using the the Malmquist productivity index the efficiency is broken down into technical and scale efficiency to evaluate the performance of the insurers. Findings - While the scale of operation of insurers is, by and large, acceptable, there is a considerable degree of managerial inefficiency among the insurers, with the least efficiency in 2000, and higher efficiency in 2004. Further, the insurers on average achieved a mere 0.8 percent annual gain in total factor productivity over the period in question. Research limitations/implications - The data set is narrow with 19 insurers in the region, which is the limitation. Practical implications - The results have policy implications for the regulators and managerial implications for the existing insurers to face the growing competition in the region. Originality/value - This is the first study to investigate the productivity changes of insurance sector operations in a developing economy: the UAE in the Middle‐East region. The study findings help the insurers to take appropriate managerial steps to improve the efficiency of their operations.

Suggested Citation

  • 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 Limited, vol. 6(4), pages 329-343, September.
    • Handle: RePEc:eme:ijmfpp:v:6:y:2010:i:4:p:329-343
    DOI: 10.1108/17439131011074477
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    References listed on IDEAS

    as
    1. Andrew M. Yuengert, 1993. "The measurement of efficiency in life insurance estimates of a mixed normal-gamma error model," Research Paper 9308, Federal Reserve Bank of New York.
    2. Mette Asmild & Joseph Paradi & Vanita Aggarwall & Claire Schaffnit, 2004. "Combining DEA Window Analysis with the Malmquist Index Approach in a Study of the Canadian Banking Industry," Journal of Productivity Analysis, Springer, vol. 21(1), pages 67-89, January.
    3. Attiea Marie & Ananth Rao & Hossein Kashani, 2009. "Cost efficiency and value driver analysis of insurers in an emerging economy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(4), pages 265-280.
    4. Yuengert, Andrew M., 1993. "The measurement of efficiency in life insurance: Estimates of a mixed normal-gamma error model," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 483-496, April.
    5. Fenn, Paul & Vencappa, Dev & Diacon, Stephen & Klumpes, Paul & O'Brien, Chris, 2008. "Market structure and the efficiency of European insurance companies: A stochastic frontier analysis," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 86-100, January.
    6. Trevor Fitzpatrick & Kieran McQuinn, 2005. "Labour Cost Efficiency in UK and Irish Credit Institutions," The Economic and Social Review, Economic and Social Studies, vol. 36(1), pages 45-66.
    7. Yukiko Hirao & Tomoo Inoue, 2004. "On the Cost Structure of the Japanese Property‐Casualty Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 501-530, September.
    8. Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April.
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