Comparative Studies On The Efficiency Of Insuruance Industry Between China And Russia

In last two decades of the twentieth century, the world economy witnessed a significant transition from the government-led economy to a market-oriented economy in many developing countries. Among them, different reforms with the most significant and distinctive characteristics happened in China and Russia. In the first half of the20th century, the communist revolution took place in both China and Russia. And the two countries tried their best to implement and perform the economic system which is based on socialist economic system. However, with the gradual ending of strong central planned economy era, China and Russia began to turn to market economy. China’s reform, the typical "progressive" reform starting from the late1970s, has made remarkable economic achievements in the past35years, and even became the strongest driving force for world economic growth in the early2000s. After the social upheaval, Russia implemented the "shock" therapy from the early1990s, trying to make mandatory rapid transition to a market economy. The "progressive" reform and "shock therapy" faced a huge controversy since the birth of two distinct paths. The economic reform process in China and Russia has therefore been drawing widespread attention. In the early990s, main stream economists generally had a wide recognition of the economy’s transition from planned economy to market orientation:stability (namely, the stable macroeconomic policy, such as effective control of inflation and maintaining the balance of payments); liberalization (i.e., let the market rather than government bureaucracies to determine the market price); privatization (that is decision of production transferred from the government to the private sector). Economists, however, don’t not get consensus about the performance of the process of these reforms. The progressive and radical reforms, after over20years of practice, have achieved considerable development in China and Russia, respectively. Meantime, China and Russia have taken the corresponding progressive and radical way to conduct reforms in their financial sectors. Although the paths of reform are quite different, the financial reforms in China and Russia share a lot in common, namely the overall reform are carried out top-to-down by the governments’participation and implementation. The difference is that the reform of Chinese financial system framework did not fundamentally touch the original interests group, but was established after years of pilots at different stages step by step and corresponding reform. However, at the beginning of the reform of the financial system, Russia implemented a large scale, rapid overall conversion directly touching the existing interest groups. And in order to speed up the process, the government carried out a financial liberalization policy, namely the liberalization of banking activities, financial services, financial prices, and easy industry entry. In a very short period of time, the government re-established the country’s financial system that the developed market economy countries owned. Different transition path may generate effects on the financial system. The exploration of the development and efficiency of the financial sector in Russian after the transition will act as very strong reference for our financial reform next step.From the perspective of comparative study, this article explores and analyzes the true efficiency of China’s insurance industry, with Russia as the main compartment, trying to have an in-depth study of the efficiency of China’s insurance industry. Insurance sector can generate complex effect on aggregate economy. On one hand, insurance has its own capabilities, meanwhile, insurance has a variety of significant impact on national economic aggregates such as total loss of social disasters, the aggregate financing scale, the employment and gross domestic product etc. The study of efficiency of the insurance industry not only should be based on the perspective of insurance function, also should be on the micro-efficiency and macro-efficiency of insurance industry. The research of such kind should be more sound and comprehensive. Starting from the efficiency of insurance industry, this paper utilizes the methods of data envelopment analysis and total factor productivity analysis respectively, to calculate and analyze the micro-efficiency and macro-efficiency of the insurance industry in China and Russia. And on this basis, this paper examines the intrinsic relationship between the macro-environmental factors and the two insurance system stability and efficiency. This paper selected15insurance companies of China and14insurance companies of Russia from2008to2012, as well as a total of25large insurance companies. The sample of the datasets contains three inputs and three outputs.The paper referred to the insurance industry efficiency research literature at home and abroad, used data envelopment analysis (DEA) method to conduct an efficiency calculation and variable comparison analysis of the two countries’main insurance company, and summarizes the data of the comparative analysis at each time and stage.From the average technical efficiency of the insurance industry between the two countries, China’s average efficiency of the insurance industry has been hovering at about0.7, belonging to medium level, from2008to2012.By contrast, Russia has been maintained at above0.9efficient domain which indicates that the large gap on the insurance company’s overall technical efficiency between China and Russia. Due to technical efficiency can be further decomposed into pure technical efficiency and scale efficiency, further investigation found that:a big gap between the two countries’ insurance companies efficiency indicators is pure technical efficiency, which reflects company’s operating management level. And hence the empirical results imply that Russian insurance companies’management level is higher than that of Chinese insurance companies.Three factors are the main reasons to explain this fact. First, the number and scale of market players are small; the main structure dominated by the state-owned insurance companies is not conducive to effective competition in a market pattern. Second, insurance professionals’overall quality is not high with a serious lack of high-end talent, and so on. Third, insurance investment channels are narrow, and the investment incomes are low, and the competence of risk management needs improving. This article, from the perspective of total factor productivity, further uses multiple indicators to measure the relationship between the development of insurance industry and Macroeconomy growth in two countries. The empirical result indicates that in the past30years, China’s insurance industry embraced robust development no matter in terms of size and depth and surpassed the economic growth at the same period. China’s total factor productivity plays a decisive role to the insurance industry development, but the development of insurance industry does not have apparent effect to enhance the productivity. This again reflects that the overall efficiency of China’s insurance industry is still not high. These factors hindered the development of the insurance industry in our country, which is harmful to the insurance function into full play. The development of the insurance industry and the total factor productivity spillover in Russia, and Russian insurance efficiency is higher compared with China. It is worth noting, both for the Chinese economy and for the Russian economy; total factor productivity growth has an important role in elevating the development of the insurance industry. However, compared with developed countries, and even other emerging countries in Asia, the two countries’insurance industry, no matter in insurance density and depth, still has a large gap, and has greater potential for future development.Based on comparative analysis of efficiency, the paper points out China’s policy recommendations for the future development of the insurance industry:setting insurance industry as a clear position of the pillar of financial system; upgrading insurance industry growth mode; using multi-pronged approaches to maintain a healthy development of the nsurance market; adjusting the insurance industry regulation; and absorbing Russia’s experiences from the system perspective for the acceleration of the process of marketization of financial industry.