A Study Of Efficiency In China’ Insurance Industry

In recent years, China’s insurance industry has maintained a fast-growing trend, and it played a more and more important role in the socio-economic development. First of all, the prerium has increased a lot. In1986, the total premium income was only42.3476billion yuan. But at the end of2010, the total premium amount has already inceased to1.45trillion yuan. During24years, average annual growth is up to more than30%, much higher than the rate of development of other industries. At the same time, the financial compensation function of insurance is also becoming significantly. In2010, there happened many disasters and accidents in our country, such as Yushu earthquake in Qinghai province, Yichun airplane crash, high-building fire in Shanghai, and so on. In these accidents, the insurance companies fulfill their responsibity for payment actively, the total claims of whole insurance industry is320.043billion yuan. It shows that insurance industry has become a strong backup force for national economy running. As the development of insurance’s quatity, the operating efficiency has gradually become to the focus of whole industry. A lot of researchers have studied the efficiency of insurance through many channels. The main findings are concertrate on the following aspacts, the first aspact is the situation of whole efficiency, and the second aspact is the factors that influence efficiency. The international financial crisis brought new challenges to the insurance industry in2008. In some developed countries, the insurance industry had suffered seriously, for example, the largest insurance company AIG in U.S had to be taken over by the government because of its bad financial situation. So, in this bad environment China’s insurance industry has also influenced by international finance crisis. Many schors also studied the effect of international crisis on our insurance industry, but most studies are limited to qualitative research, they only describe the direct and indirect effects by qualitative tools ignoring quantitative analysis. So, the literature resources of efficiency change are very limited. Therefore, this paper attempts to give a preliminary research on efficiency change under the international finance crisis by using quantitative tools to describe the short-term and long-term changes. Almost all the domestic schors use DEA method to analyze the efficiency of insurance industry. This paper will use both traditional method and DEA method to analyze efficiency problem. Firstly, the author choose the largest four insurance companies as the research sample, then use traditional method to analyze the change in status through three aspacts:profitability, solvency and operating robustness, as a result, all these three index are fall down. So, we can see the overall efficiency of insurance industry has droped. Than, in order to examine the accuracy of this result, this paper also use DEA method to calculate60sample companies’efficiency over6years from2005to2010. The conclusion is that, in short term, the efficiency is declined after financial crisis; but in long term, this downward trend is very weak, and the overall efficiency is even higher than before the crisis. For further analysis, the author classified the companies into two major categories:life insurance companies and property insurance companies, according to their business; Chinese-funded companies and foreign-funded companies, according to the ownership structure. The results show that the efficiency of property insurance company has droped more than life insurance company under crisis, and the foreign-funded company suffered more than Chinese-funded company. In the end, this paper also analyze the return to scale and the slack variable of all the samples, the conclusion is that the majority of insurance companies are in the stage of decreasing returns to scale, and the input on labor is surplus. So, the insurance industry should reduce their size and labor input to improve efficiency.The innovation of this paper may exist in three aspacts. Firstly, the literature studies of the relationship between financial crisis and inrance industry is only maintained on quatitive research, this paper will use quantitative tools to analyze the efficiency change under financial crisis. Secondly, author describes the efficiency change from both shor-term and long-term perspectives, and get specific results, it is an improment in this field. Thirdly, in line with the principle of continuity and integrity of sample data, author chooses sample companies as many as possible. There are60companies in all, they can reflect the entire insurance industry’ development.