An Empirical Study On Cost And Profit Efficiency Effect Of China Life Insurance Companies Based On SFA Method

The life insurance industry has been an important component of economic operation in the national economy and played a role as important social "stabilizer" and "booster" since the Reform and Opening-up. However, with the full liberalization of our economy and the increasingly heated market competition, China’s life insurance industry has showed a negative momentum with low speed and efficiency, the waste of resources, high-cost low-output patterns, low quality, all of these phenomena have seriously restricted the healthy and rapid development of China’s life insurance industry. Therefore, evaluating the efficiency of China’s current life insurance industry, analyzing the factors which affect the efficiency and seeking ways to improve have a very important theoretical and practical significance to this industry and the development of the whole national economy.Based on the current situation of Chinese life insurance, combining with the related researches both domestically and abroad, this paper introduces basic connotation and research approach of the insurance efficiency. In the research process, we stand throughout in the insurance function angle, construct the inputs and outputs target system, With Stochastic Frontier Approach(SFA), this paper evaluates the cost efficiency and profit efficiency of Chinese life insurance companies and analyses its key determinants. The analysis is applied to an unbalanced panel of17life insurance companies over the period from2000to2008. The results show that:Firstly, the profit efficiency of the whole China’s life insurance company is significantly higher than the cost efficiency. the overall level of profit efficiency is between0.7-0.8, which is on the rise in the sample period, while the overall level of cost efficiency is between0.4-0.6and with a downward tendency in the sample period trend. China’s life insurance industry is still in the stage of extensive management.Secondly, With the full liberalization of China’s life insurance market, the cost efficiency of capital life insurance companies began to stabilize, and has shown a rising trend, while which of the foreign life insurance companies is further reduced. When it comes to profit efficiency, it remains stable in capital life insurance companies but has had a significant increasing in the foreign life insurance companies with the enhancement of market openness. Thirdly, the profit and cost efficiency of capital life insurance companies should be significantly better than the foreign life insurance company. But with the opening of the market, Chinese and foreign life insurance companies’cost efficiency and profit efficiency gap, have shown narrowing trend.At last, the cost and profit efficiency of life insurance companies are less affected by macro environment then by individual characteristics of the company.