Academic journal article ASBM Journal of Management

Performance Evaluation of Private Life Insurance Industry in India

Academic journal article ASBM Journal of Management

Performance Evaluation of Private Life Insurance Industry in India

Article excerpt

Introduction

The life insurance sector in the country has gone through major set of reforms during its evolution. Different measures have been taken from time to time to make the industry more dynamic and competitive so that insurers are able to minimise the discriminatory practices. The major steps that have changed the contours of the life insurance sector include setting up of the Life Insurance Corporation of India in 1956 and deregulation of the insurance sector in 2000. The pace of entry of private insurers since then is very high due to the huge untapped potential with regard to providing insurance cover to the majority of the populace in the country. As per the Annual Report, 2015-16 of the Insurance Regulatory and Development Authority (IRDA), around 80% of the country is still excluded from insurance cover. Moreover, insurance in terms of spread measured through penetration and density levels is very low. The figures are 3.44% (life: 2.72% and non-life: 0.72%) and US $54.7 respectively. This report further states that 23 insurers are fighting for the extra bit of the market pie. Computations on the basis of market share in 2015-16, excluding Life Insurance Corporation of India (LICI), show that more than 70% of the market share is grabbed by the top six insurers (ICICI Prudential, HDFC Standard Life, SBI Life, Max Life, Bajaj Allianz and Birla Sunlife), thereby revealing a lowly concentrated private insurance market. Similarly, the Kwoka (1985) measure of modified Herfindahl-Hirschman Index (HHI) gives the value as 99 that point to a dispersed market. Thus, the fight for existence and sustenance will continue. Those who operate efficiently will be in a financially better position than others and thereby will get an upper hand in the industry. This research paper focuses on the aspect of efficiency of the private insurers for the period 2010-11 to 2015-16.

Literature Review

The issue of efficiency is very popular among the researchers. Ibiwoye (2010) discussed the reasons behind increasing use of frontier methods for assessing decision-making units (DMUs). Cross-country studies on insurance are also popular (Boonyasai et al., 2002; Delhausse et al., 1995; Diacon et al., 2002). The cross-country study by Boonyasai et al. (2002) revealed the impact of liberalisation and deregulation in four life insurance markets, viz. Korea, Philippines, Taiwan and Thailand, for the period 1978-1997 using the DEA. Delhausse et al. (1995) looked into the efficiency level of non-life insurers in two European countries, Belgium and France, for 1984-88. Diacon et al. (2002) analysed the relative performance of 454 life insurers across 15 European countries for the period 1996-99. Cagil and Karabay (2010) applied the Charnes, Cooper and Rhodes (CCR) model to determine relative efficiency levels of twenty five non-life Turkish firms for the period 2003-08. Among the Indian studies, Bawa and Kaur (2011) looked at the efficiency level in the non-life insurance industry for 2002-03 to 2009-10 using DEA. This study identified National Insurance Company as the best performer, while the other two dominating insurers were Oriental Insurance Company and United India Insurance Company. Among the private insurers, Reliance General Insurance held the number one rank. Bawa and Ruchita (2011) made a study on the general insurers engaged in health insurance business in the country. The eight years' study from 2002-03 to 2009-10 across ten insurers found New India Assurance Company and National Insurance Company to be the two fully efficient companies. Kulkarni and Sagar (2011) studied the life insurance sector using parameters like premium growth, market share, product portfolio etc. and showed the dominance of ICICI Prudential Life, Bajaj Allianz Life and SBI Life Insurance.

There have been a few studies focusing on the South-East Asian countries. Chansorn (2008) examined the performance of commercial banks in Thailand and its difference on the basis of size (i. …

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