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Technical, allocative and cost efficiency in the Australian general insurance industry

Author

Listed:
  • Andrew C. Worthington
  • Emily V. Hurley

Abstract

Data envelopment analysis is used to calculate technical, allocative and cost efficiency indices for a sample of fifty-three Australian general insurers. The inputs used are labour, physical capital (in the form of both information technology and plant and equipment) and financial capital. The outputs are net premium revenues for housing-related insurance, transport-related insurance, indemnity-related insurance and other insurance, along with investment revenue. The results indicate that the major source of overall cost inefficiency would appear to be allocative inefficiency, rather than technical inefficiency, and that the largest twenty percent of insurers are significantly more efficient than the remaining firms. A second-stage analysis uses limited dependent variable regression techniques to relate efficiency scores to financial and non-financial information. Cost efficiency appears to be closely related to asset size, the proportion of non-premium income, and participation in compulsory third party (CTP) markets, but not to stock exchange listing or product range.

Suggested Citation

  • Andrew C. Worthington & Emily V. Hurley, 2000. "Technical, allocative and cost efficiency in the Australian general insurance industry," School of Economics and Finance Discussion Papers and Working Papers Series 074, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:074
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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2000/Worthington_Hurley_74.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Kathleen Goffey & Andrew Worthington, 2002. "Motor Vehicle Usage Patterns in Australia: A Comparative Analysis of Driver, Vehicle & Purpose Characteristics for Household & Freight Travel," School of Economics and Finance Discussion Papers and Working Papers Series 117, School of Economics and Finance, Queensland University of Technology.
    2. Don U.A. Galagedera, 2004. "A Survey On Investment Performance Appraisal Methods With Special Reference To Data Envelopment Analysis," Finance 0406013, EconWPA.

    More about this item

    Keywords

    Data envelopment analysis; Technical; allocative and cost efficiency; general;

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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