Abstract: This paper uses the most commonly used two-stage estimation method to measure the efficiency of financial industry to analyze the efficiency of property insurance companies in China. In the first stage, the technical efficiency of property insurance companies in China is measured by DEA method. In the second stage, the panel data model is used to empirically test the influence of operating time, market share, return on capital and other factors on technical efficiency. The results show that many property insurance companies are in a state of inefficient operation. The main factors leading to this situation are the business hours of insurance companies and payout ratio. In addition, this paper uses Manquist productivity index to investigate the changes of the company's total factor productivity, and finds that its average annual growth rate is above 22%, which is mainly due to the technical changes in the insurance business process.
[Keywords:] DEA; ; Technical efficiency; Total factor productivity; Fixed sample data
I. Introduction
According to the statistical data and historical experience of international insurance business, the profit period of life insurance companies is different from that of property insurance companies. The former is relatively slow, mostly in 5-7 years after opening; The latter is faster and usually doesn't have to wait that long. In contrast, the operation of property insurance companies has the characteristics of short cycle and quick results. This is also one of the reasons why some investors choose to invest in property insurance companies. However, this ideal state is not static in the property insurance market. Today, there are still many insurance companies in the property insurance market, including China, which are in a state of ineffective operation, both new companies that have just started business and old companies that have been operating for many years. This situation in China's property insurance industry is worth pondering.
Prior to this, many foreign scholars used data envelopment analysis (DEA) to examine the efficiency of property insurance industry in different countries and analyzed the growth of total factor productivity (Cummins, Turchetti &; Weiss,1997; Cummins & Lu Biao-Misas,1998; Cummins, Weiss & Son, 1999). In recent years, some people in China have tried to analyze the efficiency of China's insurance companies with DEA, for example, Chen Ying (200 1)[4], (2003), (2003), Hou Jin (2004). Interestingly, the research conclusions of domestic scholars are not consistent. The reason for this difference may be that different indicators are selected or different data methods are used. Different from foreign studies, domestic researchers did not consider the changes of total factor productivity of property insurance companies.
Therefore, this paper attempts to expand the existing research results from the following aspects: First, the sample goes from 2004 to reflect the efficiency of property insurance companies in China in recent years. Secondly, combining DEA method and panel data model, this paper analyzes the efficiency of China property insurance company and its influencing factors by using two-stage estimation method. Thirdly, using Manquist productivity index, this paper investigates the change and composition of total factor productivity of 14 property insurance companies.
Second, research methods, index selection and data processing
(A) Introduction of research methods
From the research of scholars from all over the world, the measurement methods of efficiency can be divided into two types: econometric method and mathematical programming method. The former is a parametric method and the latter is a nonparametric method. Compared with parametric method, nonparametric method has the greatest advantage that it does not need to set a specific function form, thus avoiding the problems caused by wrong function setting. Among the mathematical programming methods, the most commonly used method is data envelopment analysis (DEA), which was first put forward by the French quantitative economist Farrell (1957) and developed successively by American economists Charnes, W.Cooper and E. Rhodes (1978). The basic idea of this method is to find out the relatively effective points on the production boundary by observing a large number of data of actual production points and based on certain production effective standards.
DEA method also provides a number of efficiency measures, including technical efficiency, pure technical efficiency and scale efficiency, in which technical efficiency: pure technical efficiency x scale efficiency. When evaluating efficiency, DEA method includes two forms: input-oriented and output-oriented. The former is to estimate efficiency under the assumption that the output level of the enterprise is certain and the input is minimum; The latter estimates the efficiency under the assumption that the input is certain and the output is maximized. Up to now, most researchers have adopted the input-oriented approach to analyze the efficiency of insurance industry and banking industry. Our research is no exception.
Malmquist productivity change index is developed on the basis of boundary method. It can be used to measure the growth of total factor productivity, and it can be decomposed into the product of technological progress and efficiency change, so it can measure the productivity change of an enterprise caused by technological progress and efficiency improvement.
(2) Index selection and data processing
1. Classification and measurement of the output of property insurance companies
Generally speaking, there are three methods to measure the output of financial industry: asset (intermediary) method, user cost method and added value method. In contrast, the value-added method is the most suitable method to study the efficiency of insurance enterprises (Cummins &; Weiss, 1998). This paper also adopts the value-added method when measuring the output of property insurance companies.
The business of property insurance companies includes underwriting business and investment business. Underwriting business is embodied in providing economic security to economic units facing risks to make up for the losses caused by insurance accidents. The output of underwriting business can be understood as the economic compensation that the insured or the insured should get, which is usually measured by the compensation that has been obtained or should be obtained but has not actually been obtained in the accounting year. Specifically, the output of underwriting business: the loss is withdrawn from the outstanding loss reserve-transferred back to the outstanding loss reserve. Investment business is a financial intermediary activity. Insurance companies invest their own funds and reserves to meet possible insurance claims in the future through appreciation. The output of investment business can be understood as all the assets invested by the insurer, which is measured by investedasset here. Specifically, investment assets; Cash and bank deposit investment-investment risk reserve loan-loan bad debt reserve.
2. Classification and measurement of investment by property insurance companies
Similar to the investment of general enterprises, the investment of property insurance companies mainly includes material investment, human investment and capital investment. Material input is material input, which can be expressed by the average annual net fixed assets, that is, material input = (net fixed assets at the beginning and net fixed assets at the end) /2. Human input refers to various expenses, and the items of human input calculated by insurance companies are mainly operating expenses and handling fees. The formula is manpower input = operating expenses and other expenses. Capital investment refers to the average investment of owner's capital in the current year, that is, capital investment = (paid-in capital at the beginning, capital reserve at the beginning, surplus reserve at the end, paid-in capital reserve at the end and surplus reserve at the end) /2.
3. Property insurance company samples
This paper takes the major property insurance companies in China Insurance Yearbook from 200 1 to 2005 as samples, of which 14 in 2000, 17 in 2006, 2 1 in 2002 and 22 in 2003 and 2004. The software used is DEAP version 2. 1.
Third, the empirical results analysis
(a) analysis of efficiency indicators
The technical efficiency is 1, which shows that the production of insurance companies is efficient and at the forefront of production possibilities. The technical efficiency is less than 1, indicating that its production is inefficient and is at the forefront of production possibility. Pure technical efficiency and scale efficiency are 1, which means that insurance companies have pure technical efficiency and scale efficiency respectively, otherwise pure technology is invalid and scale is invalid.
In 2000, for example, six of the 14 property insurance companies were relatively inefficient, and all of them were in the stage of increasing returns to scale (see table 1). Among them, Min 'an Haikou and Royal Sun property insurance companies have pure technical efficiency but ineffective scale, while Tianan, Huaan, Meiya Shanghai and Fengtai Shanghai have both ineffective scale and technology. Similar analysis can be made for the company efficiency indicators in other years.
For inefficient companies, either too much input or too little output. Taking 2000 as an example, this paper compares the actual input and output of various insurance companies with the target input and output. The results of empirical research show that Tianan has invested too much in materials and manpower. Hua 'an's investment business output is insufficient, and three inputs are too much; Min 'an Haikou and Royal Sun underwriting business have insufficient output and too much investment in the three items; Meiya Shanghai and Fengtai Shanghai have invested too much in three types of projects. Similar analysis can be made on the input and output of companies in other years.
To sum up, from 2000 to 2004, there were more insurance companies in China's property insurance market. Among them, almost all companies have the problem of ineffective scale. From 2000 to 2002, most of them were in the stage of increasing returns to scale; After 2002, some companies began to be in the stage of diminishing returns to scale, which showed that excessive expansion reduced operating efficiency. During this period, most inefficient companies in China property insurance market have excessive capital investment, material investment or manpower investment, that is, these investments have not achieved the corresponding improvement of the company's operating efficiency. On the other hand, some companies have shortcomings in underwriting business output and investment business output. In contrast, the latter is more serious.
Malmquist index analysis
From the average value of 14 property insurance companies listed in Table 2, from 2000 to 2004, the total factor productivity index was 1.223, which means that the average growth rate of total factor productivity was about 22.3%. Further investigation of the reasons for its growth shows that it is mainly due to technological changes, with an increase of 18. 1%, while the improvement of technical efficiency is only 3.6%. In the improvement of technical efficiency, the scale efficiency is mainly increased by 2.9%, and the pure technical efficiency is only increased by 0.6%.
Looking at the changing process in different years, taking 2000-200 1 as an example (see table 3), the average growth rate of total factor productivity of 14 insurance companies is about 29.3%. The reason for the increase comes from the improvement of technical efficiency by 0.9% and the increase of technical change by 28.2%. In the change of technical efficiency, the scale efficiency increased by 2.8%, while the pure technical efficiency decreased by 1.8%. From the specific situation of insurance companies (see Table 3), from 2000 to 2004, the total factor productivity of Tianan, Volkswagen, Yongan and Tokyo Maritime has been improving. Taking Tianan as an example, from 2000 to 200 1 year, its technical efficiency increased by 24%, and its technical innovation increased by 18.9%, which made the total factor productivity increase by 47.4%. In the following years, the technical efficiency remained unchanged, and the improvement of its productivity mainly came from the same amount of technological changes. Similarly, other companies in other years can also be inspected.
Fourthly, the analysis of influencing factors of technical efficiency.
Considering the availability of data, we mainly analyzed the influence of the company's operating time (age), market share (market share), return on capital (ROE), reinsurance rate (reinsurance rate) and payout ratio on efficiency.
(1) Business hours of the company
The operating time of a company is one of the factors that affect the efficiency of the enterprise. On the one hand, enterprises may form a series of advantages over new entrants through long-term operation in the market and achieve higher operating efficiency than new entrants. On the other hand, when the market lacks competitiveness, these enterprises may rely too much on their dominant position and have low operational efficiency. In contrast, new enterprises can give full play to their late-comer advantages and seek a place in the market through various innovative activities combined with the production factors and conditions needed in the production process. It can be seen that the influence of business hours on the efficiency of property insurance companies is uncertain.
(2) Market share
Market share is the basic index reflecting market structure in industrial organization theory. In the traditional industrial organization theory, Harvard School, represented by Bain and others, believes that monopoly enterprises in a highly monopolized market structure can obtain higher profit rates through price collusion. However, studies by scholars such as Zhao Xu (2003) show that although there is a monopoly in the insurance industry in China, there is no high profit rate. The average profit rate of assets of several large insurance companies such as PICC China and Ping An China is lower than that of Xinhua Life Insurance and Huatai Property, and the DEA efficiency of large insurance companies is lower than that of many small insurance companies. Stigler, Demsetz and other Chicago School or "efficiency school" scholars believe that in industries with high market concentration, the real reason why large enterprises can get more profits than small and medium-sized enterprises lies in the efficient operation of large enterprises, that is, cost advantage. However, the scale economy brought by the expansion of enterprise scale has a certain boundary, beyond which scale diseconomy will occur, mainly because it is more difficult to coordinate, supervise and manage after the organization becomes larger, which leads to the decline of the management efficiency of the whole organization. This conclusion is also true for insurance companies. For example, Hu and Wang Bing (2000) used the survival test method to draw the conclusion that the market share of 5%- 10% is the best economic scale of China's insurance companies. Therefore, the influence of market share on the efficiency of property insurance companies is uncertain. This paper uses the ratio of company premium income to total premium income to measure market share.
(3) Return on capital
The return on capital can reflect the profitability and operating performance of an enterprise. In a developed market, the return on capital should change in the same direction as the efficiency of enterprises, and enterprises with strong profitability are of course enterprises with high operating efficiency. Therefore, the return on capital should change in the same direction as the efficiency of property insurance companies. This paper uses the ratio of net profit to owner's equity to measure the return on capital.
(4) Reinsurance rate
Compared with the original insurance company, reinsurance companies usually have more advanced professional underwriting technology and risk management technology, which can make up for the shortcomings of the original insurance company in capital scale, underwriting ability and risk management, help improve the operating efficiency of the original insurance company and enhance the competitiveness of the entire insurance market. From this perspective, developing reinsurance is conducive to improving the operating efficiency of property insurance companies. In this paper, the reinsurance rate is measured by the ratio of premium to premium income.
(5) Payment ratio
Payout ratio reflects the ability of insurance companies to fulfill their liability for loss compensation and control the cost of claims. Internationally, the combinedratio is usually used as an index to examine the underwriting rate of the property insurance industry. It is equal to the sum of payout ratio and expense rate, representing the proportion of unit premium income used for claims and expenses. If the ratio is greater than 1, it means that the insurance company has underwriting losses. It can be seen that in the operation process of property insurance companies, doing a good job in disaster prevention and loss prevention, improving claims expenditure and improving claims efficiency will help improve the operation efficiency of insurance companies. In this paper, payout ratio is measured by the ratio of indemnity to premium income.
The fixed effect was selected and estimated by weighted GLS method. From the empirical results, among many factors, the operating time and payout ratio are the main factors that affect the efficiency of China property insurance companies, but their influence results are different. Specifically, the company's operating time is negatively related to the company's efficiency. This shows that the entry of new insurance companies into the insurance market is helpful to improve the efficiency of the property insurance industry, and new companies enter the market because of their high efficiency. The dividend payout ratio is positively related to the efficiency of the company. According to the modern insurance function theory, it is the basic and primary function of insurance, especially property insurance, to give economic compensation for the losses caused by natural disasters or accidents in the production and life of human society, which is directly reflected in the payout ratio of property insurance. Market share, return on capital and reinsurance rate failed to pass the significance test, indicating that these three factors have a weak impact on the efficiency of China property insurance companies.
Verb (abbreviation of verb) conclusion and policy suggestion
From the above empirical analysis of the efficiency and productivity of China property insurance companies, it can be seen that from 2000 to 2004, there were still many insurance companies in China property insurance market. Technical inefficiency is the crux of the inefficiency of some property insurance companies, while scale inefficiency has become a common problem for all companies. Further analysis of the influencing factors of technical efficiency shows that the company's operating time and payout ratio are the main influencing factors. The research results of Manquist productivity index show that technological change is the main reason for the growth of total factor productivity, and the change of technical efficiency also plays a certain role in the growth of total factor productivity, but the growth of pure technical efficiency is very limited. At present, the main measures to improve the efficiency of China property insurance companies include:
(A) moderate control of enterprise scale
For property insurance companies with invalid scale, we should not blindly expand the scale, because it is likely to increase management and supervision costs and further reduce operational efficiency. Especially after entering 2002, some domestic companies have begun to be in the stage of diminishing returns to scale. For these companies, we should change the extensive business model of one-sided pursuit of premium share and excessive expansion of scale and take the road of efficient and intensive development.
(B) optimize the input-output relationship
In order to improve efficiency, insurance companies should start from the relationship between input and output, reduce relatively excessive material input and human input, or increase corresponding output, especially investment business output. At present, the company should consciously reduce unnecessary investment in fixed assets, strengthen internal management, reduce operating expenses and control commission expenses in view of the widespread problem of excessive material and human input. In view of the shortage of investment and output in output, we should make full use of further relaxed investment channels to realize the steady growth of investment income. In recent years, the gradual relaxation of investment channels of insurance funds has made it possible for companies to improve their investment business output. However, in the actual use of funds, the company should take effective risk control measures according to its own capital, technology and talent conditions to achieve asset-liability matching management.
(3) Actively promote technological innovation
Technological change is the main reason for the growth of total factor productivity, while the growth of pure technical efficiency is very limited in the change of technical efficiency. This shows that insurance companies should focus on technological innovation and improvement of technical efficiency, rather than just solving the problem of expanding scale. Through technological progress, they are expected to improve their business conditions and achieve efficient growth.
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