An Analysis on Productivity Growth and Efficiency Change in the Korean Life Insurance Industry

신종각

This article measures productivity growth and efficiency change in Korean life insurance industry since the 1991 financial year. DEA and Malmquist productivity index were used to measure efficiency and productivity. To measure productivity and efficiency, both operation income from insurance operations and investment income from investment activities were chosen as output variables, while both operation expense from insurance operations and operation expense from investment activities were chosen as input variables. According to analyses on efficiency and productivity, efficiencies in the Korean life insurance industry has dropped a lot before the financial crisis in 1997, and these low efficiencies has resulted in two times restructuring of the life insurance industry led by the government after the financial crisis. However, overall efficiencies of the industry has risen during recent two years, for the year 2003 the efficiency was 0.630 and for the year 2004 the efficiency was 0.742, respectively. For the period from 1993 to 2004 productivity growth had dropped 5.6%, of which efficiency change had risen 1.3% but frontier change has dropped 4.8%. Foreign owned insurance companies expanded their market shares due to superior technical efficiency, especially in scale efficiency, compared to domestic insurance companies. The difference in market shares between large companies and small and mid-sized companies which consist of both domestic and foreign companies has narrowed recently due to progress in both pure-technical and scale efficiencies led by foreign companies. Of the two effects, scale efficiency was dominant. In conclusion, the Korean life insurance industry needs optimal economies scale by curtailing overcapacity to maintain competitiveness in its already opened domestic market.

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