EFFICIENCY OF NON-LIFE INSURANCE IN INDONESIA

Abstract

It is a fact that financial institutions among Asian countries, especially Indonesia, have been
dominated by commercial banks. In addition, an insurance market share is only 10 percent of
the financial market. Yet, the insurance industry is an important partner for the banking industry.
This function is to guarantee the risk of banks in distributing credit and supporting
the national economy through the community's fund. This paper evaluates the relative efficiency
of 23 Non Life Insurance companies in Indonesia, using Data Envelopment Analysis
(DEA) model. DEA is a management evaluation tool that assists in identifying the most efficient
and inefficient decision-making units (DMUs) in the best practice frontier. Empirical
results show that bigger insurance companies are found to be more efficient than smaller
firms. Moreover, companies with captive market and the company's group with non-captive
market have relatively the same result. These findings are new empirical contributions to
efficiency literature of the insurance industry. The paper also provides policy implications
for the Indonesian insurance sector.