SFA Method In Efficiency Analysis Of Property And Casualty Insurance Companies In China

Efficiency problem is one of the core issues of economic research. With the furtheropening up of the Non-life insurance market, property and casualty insurance industryconfronts growing competitive pressure. How to enhance the competitive strength andimprove operational efficiencies becomes the basis of property and casualty insurancecompanies surviving from the market competition. In this article, stochastic frontieranalysis (SFA) method is used to assess the efficiency of property and casualtyinsurance companies in our country to try to get reference materials which are usefulfor improving efficiency of property and casualty insurance companies.Firstly, this paper chose sample data of20property and casualty insurancecompanies from2004to2009. Technical efficiency and allocative efficiency ofproperty and casualty insurance industry in our country are estimated and compared bymeans of stochastic frontier analysis. The author found out that the efficiency has beenimproved year by year during the observation period. In terms of technical efficiency,Chinese companies are better than joint venture and foreign companies because of thescale effect. However, in terms of allocative efficiency, joint venture and foreigncompanies are better than Chinese companies, and the growth rate is higher, all ofwhich show that Joint venture and foreign companies are better than Chinesecompanies on controlling cost and management capability.(the difference ofefficiency between foreign companies and Chinese companies are bigger than thedifference of output efficiency between them which indicating that foreign companiesare more ability to control cost and manage the company.)Secondly, this paper analysis factors affecting efficiency of property and casualtyinsurance from the point of view of cost and input, and chose8Characteristic variablesto test (in progress a Empirical analysis). The study indicates that the economic scalecoefficient, investment and the percentage of the interest income exist positive effecton efficiency of property and casualty insurance; however, return on total assets ratio,asset share, operating expense ratio, fixed assets ratio, the dummy variables havenegative effect efficiency of property and casualty insurance. Among all of thesefactors, return on total assets ratio, asset share, investment, the percentage of interestincome are most effective factors on efficiency value. At last, according to the empirical results, three suggestions are proposed toenhance the efficiency of the property and casualty insurance industry in our country:transform the growing ways of business and theories of operation and management,strengthen coverage management and controlling, optimize the structure of insuranceforms, strengthen informatization, improve talent drive mechanism, promote investingincome of companies and quicken the speed of investment and innovation.