Evaluating the cost efficiency of Insurance Companies in Ghana

Abstract

Purpose – The purpose of this paper is to evaluate the efficiency of insurance companies in Ghana using a two‐stage procedure to ascertain whether insurance companies are cost efficient and also to examine the efficiency determinants of insurance companies.

Design/methodology/approach – Using a cross‐sectional data set of 30 firms over the period 2006‐2008, the study evaluates the efficiency scores by applying a data envelopment analysis that allows the inclusion of multiple inputs and outputs in the production frontier. The study also employs a regression model to identify the key determinants of efficiency of the Ghanaian insurance industry.

Findings – The empirical results in the first stage suggest higher average efficiency scores for life insurance business than non‐life insurance companies. In the second stage, the authors observe that the drive for market share, firm size and the ratio of equity to total invested assets are important determinants of an insurance firm's efficiency.

Originality/value – The findings of this study provide insights into the cost efficiency of insurance companies in Ghana. This has implications for the efficient management of insurance firms in the country.