Multi-Directional Efficiency Analysis of Ghanaian Life and Non-Life Insurers in the Presence of Undesirable Output.

Debora Afua Antwiwaa Addo; Kwaku Ohene- Asare; Charles Andoh

Debora Afua Antwiwaa Addo Department of Finance, University of Ghana Business School
Kwaku Ohene- Asare Department of Operations and Management Information Systems University of Ghana Business School
Charles Andoh Department of Finance, University of Ghana Business School

Keywords: claims, insurance, multi-directional efficiency analysis, second-stage analysis, undesirable output

Abstract

The study evaluates the input/output efficiencies of insurers in Ghana, highlighting the misleading results in insurance efficiency assessment when undesirable outputs are excluded from efficiency estimations. Using a panel data set of 30 life and non-life insurers from 2008 to 2019, the multi-directional efficiency analysis is used to assess aggregated and disaggregated efficiency levels. Robust econometric regression models (pooled ordinary least squares and two-step system Generalized Method of Moment (GMM)) are also used to investigate the external factors that affect comprehensive efficiencies. Investment income was identified as the worst-performing insurer output variable, reducing the overall efficiency of insurers. Claims, representing an undesirable variable, was identified as the best-performing variable in raising overall efficiency, followed by labour. Life insurers are observed to be performing significantly better than their non-life counterparts on their aggregated and disaggregated efficiency. Finally, the previous year’s overall performance of insurers and the level of competition are identified as the determinants of insurance efficiency.