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Estimating the Technical Efficiency of Korean General Insurance Firms: A Stochastic Frontier Approach

  • Journal of Insurance and Finance
  • 2007, 18(2), pp.3-44
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Hongmin Zi 1

1이화여자대학교

Accredited

ABSTRACT

This study estimates and analyzes the technical efficiency of Korean general insurance firms for the period 1988-2005 by utilizing a recently developed stochastic frontier model. This model differs from traditional stochastic frontier models in that factors affecting efficiency are included in the model in efficiency estimation rather than treated as independent variables. Results show that most general insurers need significant efficiency improvement for future growth and survival in the industry. Most large insurers exhibit higher level of technical efficiency than midium or small insurers. The result implicates the size of insurers play an important role in insurance operation. Marketing channels, asset portfolios, and the diversification of insurance lines are found to be crucial factors for the technical efficiency of general insurers.

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