An analysis of the Kenyan non-life insurance companies' technical efficiency

Abstract

The main objective of this study is to analyze the technical efficiencies of the Kenyan nonlife insurance companies during the period 2006 - 20I0 the period that the Kenyan Insurance Industry saw many changes. Data Envelopment Analysis (DEA) a non-parametric method is used in evaluating the technical efficiencies of Non-life insurers in Kenya during the study period. The study uses Equity Capital, Debt Capital and Total Expenses as inputs in the DEA model, while Gross Premium and Investments Income are used as outputs. It was observed that Kenyan non-life insurers operated at an average overall technical efficiency of 84.7%, pure technical efficiency of 93% and scale efficiency of 90%. Further, the study tests the hypothesis relating to the roles played by each of the variable used in the technical efficiency analysis of the Kenyan non-life insurer. It was observed that Kenyan non-life insurers with higher market share measured by gross premium tend to have higher efficiencies, which implies that non-life insurers in Kenya could increase their efficiencies by increasing their market share. This study adds to the knowledge of efficiency in the insurance industry in Kenya and on the knowledge of efficiency in the world. From an academic perspective, the particular contribution of this study lies in computing the technical efficiencies of the Kenyan non-life insurance companies by use of DEA model.