An analysis of cost efficiency in the Malaysian takaful industry
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Efficiency of financial institution has become an important part of insurance literature. This study aims to evaluate the performance in term of cost efficiency for takaful and insurance firms in Malaysia. A sample of 18 firms consisting of 7 takaful operators and 11 conventional insurers are chosen from the period 2004 to 2009. The cost efficiency score for each firm are obtained using input oriented DEA model. A Kruskal Wallis and Mann Whitney test are employed to examine any significant difference in cost efficiency between Takaful industry and insurance industry. The main findings indicate a significant difference in cost efficiency between takaful and insurance industries. The average cost efficiency for takaful industry is 49.20% which implies they could reduce the cost of production by 50% without affecting the level of output. A lower market share exist in takaful industry has resulted to cost inefficiency. Essentially, this study has supported the market power theory.
Cost efficiency , Data envelopment analysis
Ismail, N., Alhabshi, S. O., & Bacha, O. I. (2012). An analysis of cost efficiency in the Malaysian takaful industry. Insurance and Takaful Journal, 2, pp. 5-13.
Malaysian Insurance Institute