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MEASURING PERFORMANCE OF LIFE INSURANCE
COMPANY IN MALAYSIA USING DEA MODELS
NURULSALY IZAETY BINTI ZAWAWI
2022477824
SUPERVISOR: NORFARZIAH BINTI ADNA
CODE: K242/48
ABSTRACT
Insurance industry in Malaysia has an important role as it was
recognized as a key to growth in the economy and financial stability of Objective
a country. The insurance industry can be classified as the main 1. To measure the efficiency of 14 life insurance companies using
contributor to Malaysia’s economic growth. This study was carried out Charnes, Cooper and Rhodes (CCR) and Slack Based Measure
to determine the efficiency of 14 life insurance companies in Malaysia (SBM) model
through Data Envelopment Analysis (DEA) models such as CCR and 2. To compare the efficiency of 14 life insurance companies using
SBM models. Three inputs and two outputs are determined to Charnes, Cooper and Rhodes (CCR) and Slack Based Measure
measure the performance of the life insurance companies. Result (SBM) model and suggest an improvement for inefficient DMU
show that, seven DMUs out of 14 DMUs were considered as efficient
with an efficiency score of 1 while the other DMUs are inefficient with IMPLEMENTATION
the score between 0.6366655 to 0.9756110. The inefficient of life
Input-Oriented CCR (CCR-I) Model.
insurance company need an improvement where the efficient
company can be benchmark for the other company to minimize input.
PROBLEM STATEMENT
Life insurance plays a vital role in ensuring financial stability and
economic growth for Malaysia.
However, life insurance faces challenge in handling their
deficient premium generation that raising concerns about Slack-Based Measure (SBM) Model. Find slack values and percentage of
operational efficiency and claims issues. slack
Top management of life insurance and takaful were concerned
whether the companies had used resources efficiently to
produce product outputs.
However, higher equity can be a problem for company if not
using its efficiently.
The higher claims will pressure the operating costs and losing
trust from customer.
METHODOLOGY RESULT & DISCUSSION
STEP 1: Data Collection Relative Efficiency Score of Life Insurance Company in CCR and SBM
STEP 2: Formulate the Mathematical Model
STEP 3: Solve Mathematical Model with Lingo Software
STEP 4: Analysis the Result
Decision Making Units (DMUs)
Input Excess and Output Shortfall of
DMU Improvement of DMU 1
Data Input and Output
AIA Berhad should minimize the input
excess and maximize the output
shortfall.
The total equity should decrease by
2.70% of input excess.
Investment income should increase by
35.09% for output shortfall.
The company become inefficient
because of large equity which
moderate the investment income and
having low investment returns.
RECOMMENDATION
Future researchers should consider
Conclusion undesirable input and output in the insurance
The DEA model assessed the efficiency of life insurance industry.
company for 2022. Future can consider measure the performance
Seven Decision-Making Units (DMUs) were found to be for other insurance such as general insurance,
efficient with score 1.
The remaining seven DMUs were identified as inefficient with takaful insurance and etc.
score below 1. Future can include super efficiency model to
Efficient company was used a balanced of inputs and output rank the efficient and other model, method to
while Inefficient company need the improvement of
performance. evaluate efficiency for better analysis.
Efficient company serves as benchmark for inefficient
company to improve the efficiency and performance
