Life insurance company efficiency: best method and proxies


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Life insurance is a very important segment of the economy of most countries as demonstrated by the investments, premium revenue and numbers employed. Hence, it is paramount to determine accurately how well life insurance companies (LICs) perform and how viable they are for the benefit of both other industries and national economies.
Three papers that investigate LIC efficiency directly analyze how efficiency affects LIC profits. One critical feature is that they show that the inefficiency of LICs can greatly affect their (financial) outcome and ultimately their survivorship. Thus, said research clearly indicates that life insurer efficiency is a crucial area to investigate and assess and that it could greatly enhance the ability to properly monitor and inspect the life insurers.
This article co-ordinates information regarding life insurance efficiency studies to help researchers learn which approaches, methods and output/input proxies to use. While some papers do so for some of the aspects that are important and necessary for life insurance efficiency studies, this is the first to deal with said aspects together. More specifically, this paper especially considers and evaluates the different methods and output proxies used in life insurance efficiency studies, as they seem to be the elements where the most disagreement exists between researchers. In addition, this article is unique in examining how input (proxy) prices are used in life insurance efficiency studies.

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    • Fig. 1. Timeline relating premiums (as outputs) to expenses (as inputs) for life insurers