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A Study of the Efficiency of Life Insurance Industry using Undesirable Outputs

  • Journal of Insurance and Finance
  • 2008, 19(2), pp.109-135
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

정재욱 1,  김재현 2

1세종대학교
2상명대학교

Accredited

ABSTRACT

Firms, in general, produce not only desirable outputs, but also undesirable outputs such as toxic wastes and pollutants. While the standard DEA has been widely used employing only desirable outputs to measure firms' efficiency, modified DEAs were developed to simultaneously deal with both desirable and undesirable outputs of the firm. This paper analyzes and compares the efficiency of life insurance companies using the standard DEA as well as a modified DEA model considering undesirable outputs: lapse and surrender refunds and loan loss reserve. The empirical results show that the number of efficient life insurance companies between the two models is different from year to year. In the meantime, the results find that the performance gap between efficient groups and inefficient groups has widened in both models, as time goes by. The results show, in particular, that small to mid-sized domestic life insurance companies are losing their competitive edge over foreign life insurance companies. In sum, such quite different empirical results between two models implicitly tell us that closer attention should be paid to undesirable outputs in the efficiency analysis of firms.

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