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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
COPY RIGHT © 2012 Institute of Interdisciplinary Business Research
12
DECEMBER 2012
VOL 4, NO 8
EMPIRICAL ANALYSIS OF THE OPERATING EFFICIENCY OF
CHINA'S INSURANCE INDUSTRY
WU SONG, CAO ZHENGYONG, QIN KUN, LANG WEI,
ZHANG RONG
Abstract
This article uses data of China's insurance industry from 2004 to 2009, and a single stage
stochastic frontier model to assess the efficiency of China's insurance industry profits, and
empirical analysis of the insurance industry economy of scale. Research found that the insurance
industry Chinese general insurance enterprise of the average profit efficiency than a foreign
general insurance enterprise, life insurance and foreign capital of Chinese life insurance average
profit efficiency are not significant. From the trend, Chinese life insurance companies and
Chinese general insurance enterprise performance are short of scale economy, while foreign life
insurance and foreign general insurance enterprise scale economy are obvious and steady. The
above findings for future ascension of the efficiency of the insurance industry, strengthen the
insurance system of the stable and the adaptability and resist the ability of the risk has the
important enlightenment.
Keywords:SFA; Profit Efficiency; Economies of Scale
1. Introduction
In the past 30 years, China's insurance market has undergone profound and complex changes,
China 's average annual GDP growth rate of 9% for high efficiency operation of the insurance
industry to provide a solid macroeconomic foundation to maintain an average annual growth rate
of about 30% of the insurance industry, become one of the fastest growing industries in the
national economy. With the changing market environment and the rapid development of the
insurance business, the insurance market subject to rapid growth, there are 146 insurance
companies in 2010. The dramatic changes in the structure of the insurance business, insurance
coverage has been the first cargo insurance , auto insurance, home property insurance and
Wu song:School of Economics and Management,Sichuan Agricultural University, Chengdu,
Sichuan,611130;Cao zhengyong: School of Economics and Management,Sichuan Agricultural University,
Chengdu, Sichuan,611130;Qin kun: School of Economics and Management,Sichuan Agricultural University,
Chengdu, Sichuan,611130;Lang wei: School of Economics and Management,Sichuan Agricultural University,
Chengdu, Sichuan,611130.Zhang rong: Department of mechanical engineering,Wuchang Institute of
Technology,Wuhan,Hubei,430000.
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business property insurance extended to the field of life insurance, health insurance, credit
guarantee insurance, greatly enriched the field of insurance, insurance types. Insurance market
system is more robust, and various forms of organization of the market players increasingly rich.
The insurance industry continued to expand investment channels, has accumulated a large
amount of money through investment bonds, funds, stocks, real estate and bank deposits have
become increasingly prominent in the capital and money market, economic, financial, functional.
With the continuous development of the insurance industry and in-depth social management
function also gradually revealed.
In 2010, the China Insurance premium income was 1.45 trillion RMB yuan, a year - on - year
growth was 30.4%. Insurance total assets was 5.05 trillion RMB yuan, representing an increase
of 24% from the beginning of the year, but a percentage of GDP was only 12.68 percent, more
than 20% of the proportion of the world OECD countries. A far cry from the insurance
penetration and insurance density compared with the world average level of development. From
the long-term development of the insurance industry , the business model of the insurance
industry in China is one-sided pursuit of size and speed , ignoring the quality and efficiency of
the formation of a high expense ratio , high loss ratio and low operating efficiency contrast , the
insurance industry within the potential operational risks are also to some extent rendered. From a
theoretical perspective , the operating efficiency of the insurance industry as an important
indicator to judge the competitiveness of the insurance agencies , insurance agencies
performance and the level of development of the insurance market , capital allocation and risk
management functions of the insurance industry to play a concentrated reflection of Insurance
theoretical research core one of the issues , the improvement of the operating efficiency of the
insurance industry is also the operation and management of the insurance industry pursuit of
important goals . In the current environment of rapid expansion in the size of the insurance
market within the foreign insurance institutions competing for insurance agencies or insurance
regulators , requires a combination of the history and current situation of the insurance industry ,
and the system is comprehensive and in-depth analysis and research the insurance industry
efficiency. In this paper, the economies of scale through empirical analysis to assess the
efficiency of the insurance industry's profits , Inspection and Insurance , provide useful
information to enhance the efficiency of China's insurance industry in the future , and enhance
the stability and adaptability of the insurance system as well as the ability to withstand risks .
The rest of this article is organized as follows: Part II reviews the insurance efficiency of
operation of the relevant literature; Part III describes the research method, build related models,
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and data and variables described; Part IV evaluates profit efficiency in the insurance industry,
and empirical analysis on economies of scale; Part V reaches its conclusion.
2. Literature review
Study on operating efficiency of insurance problems mainly concentrated in Europe and the
United States, on the operating efficiency of the insurance industry's research is related to cost
efficiency, efficiency, technological efficiency and scale efficiencies of profit, and so on.
Insurance company mergers and acquisitions found in developed countries, in addition to some
mergers among large insurance companies, most merger and acquisition through mergers and
acquisitions can be its own efficiency and benefits of upgrading(Kim & Grace,1995;
Klumpes,2007). Study the solvency as a constraint to analyze the efficiency of insurance
companies to maximize profits , the profit(Thompson et al ,1974; Kahane,1977; McCabe &
Witt,1980; Harrington & Nelson,1986). Patrick l Brockett et al. (2004) introduced the ratio of
current assets and liabilities and solvency in the DEA model, and verified that the risk impact on
efficiency. The insurance company service is divided into two kinds of risk management and
financial intermediaries , and to study the relationship between the two services and operational
efficiency(Cummins et al. , 2006). Research Scholar for economies of scope and economies
was small. The earliest scope economy hypothesis was(Bailey & Friedlaender,1982; Baumol et
al., 1988). Followed by some scholars of this hypothesis in different industries and areas of
inspection , found that the larger insurance companies are more likely to achieve profit scope
economies , the insurance companies have vertically integrated marketing channels more easily
than the use of non-integrated marketing channels profit of economies of scope . Scholars in the
study were Kellner & Mathewson (1983); Yuengert (1993); Grace & Timme (1992) and Berger
et al. (1999). The domestic scholars from the GDP growth rate, inflation rate, interest rate,
residents' income, the level of monetization insurance market structure macroeconomic factors
analysis of the operational efficiency of the insurance industry(Sunfeng,2005; Zhouhailin, Xuxu,
2005; Caihua, 2009). Some studies suggest that the company category, company size, mode of
operation, human capital , ownership structure, the degree of product diversification, employees
per capita premium income, the proportion of auto insurance business, established insurance
company internal factors of the insurance company's cost efficiency and profit efficiency
influential(Yaoshujie et al.,2005; Huangwei,2006; Liuzhiying, et al.,2007). Another study
found, domestic and foreign operating efficiency of the insurance industry there is a gap, most
property and casualty insurance company in the state of increasing returns to scale, the need to
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expand the scale to enhance efficiency, lower pure technical efficiency of domestic companies,
the need to improve the technical level of management and decision-making(Wangjiating,
Zhaoliang, 2010).
Research methods to evaluate the operational efficiency of the insurance industry, the use of
research methods mainly include two categories parametric methods and non-parametric
methods. Parametric methods need to be set in advance in the form of the function used to collect
the sample data to estimate the optimal production frontier. Different assumption of random
items and non- efficient items parametric methods can be divided into the stochastic frontier
method (SFA), distribution-free method (DFA) and the thick frontier method (TFA). Non-
parametric method does not require pre-set specific functional form , sample production unit of
the production frontier is estimated by the direct use of linear programming , a nonlinear
programming method , the main method of data envelopment analysis (DEA) and a free set shell
(FDH). Foreign literature has Yuengert (1993), Hardwick (1997) and Cummins & Zi (1998) SFA
method to study the efficiency of the insurance industry. Fecher et al. (1993) combined DEA
methods and SFA method of French life and non - life insurance companies operating efficiency.
Cummins et al ( 1995 ) with the DEA method studied Italian life and non - life insurance
companies operating efficiency , while operating the technical efficiency of the life insurance and
non-life insurance company is only as good as the business of life insurance or only to operate
the non - life insurance company technical efficiency. Fried et al. (2002) proposed the three -
stage DEA model , through the implantation of the environment variable analysis , elect the
specific impact factors lead to inefficient enterprises , accurate evaluation of the efficiency of the
insurance industry ; addition, many foreign scholars use parameters or non-parametric method ,
empirical analysis of insurance efficiency . Such as, Cummins & Weiss, 1993; Rai, 1996;
Cummins, et al (1999), and Stephen Diacon (2004). Domestic literature studies on the efficiency
of the insurance industry use of the DEA method. Zhao Xu (2003) pure technical efficiency of
insurance companies with DEA empirical analysis found that the efficiency of insurance
companies operating in China is not high. Yun Min and Li Xin Dan (2003), the use of the DEA
method analysis of insurance companies operating efficiency, and that the low level of efficiency
of China's insurance industry, there is much room for development. Hou Jin, Zhu Lei (2004)
analyses the gap between the company's operating efficiency of the property insurance market in
the capital as well as the effective operation and actual operating DEA method. Yao Shujie
(2005) analysis of the operational efficiency of 22 insurance companies in China from 1999 to
2002.Wu Yimin(2002) studied the technical efficiency of China's domestic -funded and foreign-
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funded total of 31 insurance companies from 2001 to 2003. Li Chenhua and Zhang Wei(2005)
comparative analysis of the scale efficiency of 28 insurance companies set up before the end of
2001, from 2001 to 2003. Li Kecheng2005) evaluated the relative operating efficiency of 13
domestic life insurance companies from 1999 to 2002. Lv Xiuping ( 2007 ) by DEA method and
empirical research on the macro- efficiency of China 's insurance industry studies have shown
that the efficiency of the scale of China 's insurance industry remained better level , and the level
of technical efficiency is low, and show a downward trend. Chen Lu 2007) the application of
DEA measure the technical efficiency of China's insurance company, the empirical analysis of
the efficiency of the factors affecting the insurance industry. Cheng Dayou, Feng Yingjun (2008)
used a two-stage DEA efficiency evaluation method in the marketing aspects of the property
insurance company in China efficient than foreign companies, but the profitability of the less
efficient than foreign property insurance company. Huang Wei 2009) to build a multi-stage DEA
analysis framework and comprehensive estimates the level of efficiency after considering the risk
factors, the impact of risk factors on the efficiency of the insurance institutions are being
strengthened. Hu Ying, Ye Yugang 2009) the risk factors included in the DEA model analysis
found that the life insurance companies bear a higher risk compared with the insurance
companies, to improve the efficiency levels without risk-adjusted. Li Yanhong, Wu Cong (2009)
used the super- efficiency DEA method to study the technical efficiency of China's insurance
industry and the dynamic changes in trends and test the soundness of the efficiency assessment.
Wang Xiang (2009) efficiency using DEA model analysis of Chinese insurance corporations,
discovery capital advantage over foreign insurance companies on the economic level of the
overall, main factors affecting efficiencies of scale is premium income and revenues. Xie Qiang,
Li Xiufang (2009) using DEA method to analyze the efficiency of insurance companies, and
using m-index to solve industry productivity trends, the study found, Asia financial holding
efficiency highest, followed by European universal model, United States financial holding
efficiency minimum. Cao Qian, Du Wenwen (2009) pay scale based on DEA model and scale
remuneration variable models, an analysis of efficiency and economies of scale of China's
insurance industry, the study found Chinese insurance industry there are economies of scale,
scale efficiency differences between insurance companies are major causes of scale efficiency of
insurance has been declining. Han Song and Wang Deling (2009) with DEA method on
insurance company efficiency and total factor productivity: An empirical analysis, and factors
affecting the efficiency of insurance companies in China. Xu Jingfeng, Li Dongliang (2010)
based on two-stage DEA model on China's insurance market of 26 insurance companies premium
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protection and investment business of an empirical analysis of the efficiency, research results
show that efficiency is increased life insurance company in China, insurance business relating to
the efficiency and the efficiency of the investment business degree. Sun Shu barrier, Lu Xiaowei
(2010) use a two-stage model of DEA model of multiplication and addition of "product
effectiveness" and "efficiency" carried out a comparative analysis, make property and casualty
insurance industry needs to address the problem of uneven profit model, production and capacity.
In addition, the Gan Xiaofeng (2008) using the dynamic frontier model analysis of the cost and
profit efficiency and scale efficiency of Chinese insurance industry development trends, and
examines the impact of macroeconomic factors on insurance industry profits and industry
structure efficiency, results indicate that cost efficiency in domestic than foreign companies,
profit efficiency comparable scale efficiency above the Chinese companies in foreign companies.
By scholars at home and abroad for the above insurance management efficiency research
contents and methods choice of literature can be found, cost efficiency, technical efficiency in the
insurance industry on evaluation strategies, technological advances and an important role in
policy development, but the ultimate criterion of management in the insurance industry, that
profit efficiency. Therefore, management efficiency research of insurance profit efficiency will
be more direct and effective. Efficiency evaluation method in use, parametric methods can be
purely random errors and non-efficiency values for decomposition, but is not properly set or error
function distribution is assumed to be potentially confused with efficient estimation of the error.
Non-parameter method does not need to specify functions or distributions, avoiding setting
errors, but the method treats any deviations from the frontier as inefficient, cannot realistically be
separated from non-efficient random errors, will eventually lead to biassing estimates of
operating efficiency. This measurement error, uncertain economic environment easier to occur in
countries with economies in transition on the basis of facts, integrated advantages of parametric
method and non-parametric methods, on the efficiency of insurance profit estimates using
Battese & Coelli (1995) proposed single-stage model for stochastic frontier analysis technology,
economies of scale at the same time test China's insurance industry.
3. The Models
3.1 Profit frontier model
Due to China's insurance industry has effect accounted for market structure of nature,
insurance market in decided outputs price has larger of market influence, through estimated profit
random frontier function to obtained profit efficiency, and random frontier analysis technology as
currently more popular of parameter estimated technology, by Battese & Coelli(1995) made of
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single stage random frontier model generalized Shang by three a equation composition, this
building of corresponding profit frontier model for:
ln ln -lnt X V Uit t it it it
(i)
1 1i N t L L,, ; ,,T
Where i stand for insurance companies, t represents the time, it
represents the i-th cost of
insurance company profits, Xit
represents the i-th form of logarithm of the input and output of
insurance enterprises, for the k-dimensional vector.Vit
is a random variable, independent of the
Uit
. And assumes that it is subject to independent identically distributed normal
distribution 20Nv
, .Uit
is Non-negative profit inefficient, subject to independent, zero-
truncated normal distribution 2,N lit u . is estimating coefficient vector. Frontiers of profit
function is valid, must be subject to the variation ratio r is not zero(
2u=
2 2+u v
),
01 , . If you do not meet this condition means that the non-efficiency does not exist, frontier
function is invalid. When r closer to 0, efficiency of deviation mainly determined by the random
errors when r closer to 1, efficiency of deviation mainly by inefficient decisions. Through
efficiency function of unilateral likelihood ratio LR test statistic test of significance of variation
rates of formation of zero assuming r, variation rate r value size to determine the efficiency of
deviation is mainly determined by the random error or by inefficient decisions.
Profit without efficiency effects model are:
l t r Mit t it it
(ii)
The t time insurance company profit efficiency:
exp - =exp - -LE U r Mit it it it
(iii)
Among them, consisting of rit
are interpreted by the Mit
related variables of a vector; Mit
is
subject to the truncated normal distribution 20,N . is to estimate the coefficient vector.
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Using stochastic frontier beyond the logarithm boundary functions (Translog Stochastic
Frontier Function) represents the profit function is:
3 2 3 31ln ln ln + ln ln
1 21 1 1 1
2 2 3 21 1 2ln ln + ln ln ln - ln112 21 1 1 1
Y P T Y Yit j jit k kit jm jit mit
j k j m
P P T Y P V Ukn kit nit rs rit sit it it
k n r s
(iv)
Where represents a profit; Yj represents the output; P
k on behalf of inputs; T is the time
trend; Vit
Is a random error term; Independent ofUit
;Uit
non-negative profit inefficiency items;
, , , , are parameters to be estimated.
3.2 Economies of scale model
A previously constructed beyond the logarithmic profit function using the Box-Cox factor
(Caves et al., 1980) replace output beyond the profit function independent of the value lnYj be
generalized beyond the logarithmic function , this conversion can be an effective solution to the
joint production as well as specific output zero conversion factor :
1 /Yj j
(v)
=0Yj
,1
=j
, 0 , lnYj j
(vi)
That is beyond the logarithmic profit function is generalized beyond the special circumstances
of the number of profit function. This article value by a grid search method and makes the value
of the residual sum of squares and most hours ( Beger, et al , 1987 ; Buono & Eakin , 1990 ;
Clare, 1996 ) , at = 0.1 , profit function of all the coefficients of the P value close to 0 , and the
residual sum of squares and the minimum , so = 0.1 is selected . The box-Cox factor
replacement generalized beyond logarithmic profit function:
3 2 3 3
1
1 1 1 1
2 2 3 22
11
1 1 1 1
1ln ln +
2
1 1ln ln + ln ln - ln
2 2
j jit k kit jm jit mititj k j m
kn kit nit rs rit sit it it
k n r s
P T
P P T P V U
(vii)
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Economies of scale with the flexibility of generating profits:
3 3 ln
1 1
GM ej
j j j
(viii)
3 2ln
1 1
e Y Y Pj j j jm m rs s
m s
(ix)
Among them, GM for economies of scale factor, ej
as output elasticities of output j profits,
when you GM>0, means that the insurance industry there are economies of scale; when you
GM<0 insurance there are diseconomies; when you GM=0, neither there is diseconomies of scale
economies.
3.3 Variables and data description
Increase value (Berger & Humphrey,1997) is the study of the insurance operation efficiency
up to theory, this added value on the basis of the law of, depending on availability, define two
kinds of inputs: labour (1
P ) and capital (2
P ); three outputs: premium income (1
Y ), deposit (2
Y )
and investment income (3
Y ).Labour input is expressed in number of employees; capital
investment represented by fixed assets on the balance sheet, deposits time deposits on the balance
sheet in the output indicates, premium income in the insurance statistics of the original insurance
premium income, investment income investment income on the balance sheet. All of the data
sources for statistical information of the China Insurance Regulatory Commission and the China
Insurance Yearbook (2004-2009).This select of in the funding life insurance enterprise (China
Life , CPIC, PINGAN, NCI, TAIKANG LIFE, CHINA TAIPING), and foreign life insurance
enterprise (MANULIFE-SINOCHEM, ALLIANZ, ICBC-AXA LIFE, CTTIC, GENERALI
CHINA LIFE INSURANCE, AIA, Haier NEWYORK LIFE), and in the funding casualty
enterprise (PICC, CCPCIC, CECIC, CUI, CPIC, PING AN OF CHINA , Huatai INSURANCE)
and foreign casualty enterprise (TIANAN INSURANCE, Chartis, TOKIOMARINE NICHIDO,
Winterthur Swiss Insurance, RSA, Sumitomo Mitsui Financial Group, SAMSUNG PCIC,
Allianz SE) samples are premium top insurance agency, a total of 28, its market share at more
than 70%, representative, all data processing using the Eviews6.0 software.
4. The Empirical results
This article assumes that all cross slope and time sample points on the same, frontier random
function parameter estimation on Chinese insurance industry profits, the model most of the
estimated coefficients are significant, the model fit and an f-test values are higher, and coefficient
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of variance of the values is smaller.The ratio is 0.92, proved inefficient in the composite error
accounted for the vast majority, and random error accounts for a very small proportion. Profits in
the insurance industry with an average efficiency of 80.6%, have shown that technical conditions
did not change and the same input cases, average profit to be lower than the theoretical maximum
possible profits of the insurance industry 19.4%. Results of specific coefficients are shown in
Table 1.
Table 1 Frontier Model of Estimation of Profit Results
Variable Coefficient Std. Error t-Statistic Prob.
α -0.533657 5.718353 -0.093324 0.9258
β1 -2.050625 1.069404 -1.917541 0.0576
β2 0.309985 0.340594 0.910129 0.3646
β3 0.68787 0.549717 1.251316 0.2133
φ1 0.539878 0.844694 0.63914 0.524
φ2 -0.107704 0.613548 -0.175543 0.861
τ1 -0.309315 0.319436 -0.968316 0.3349
β11 0.17798 0.073502 1.210717 0.0085
β12 -0.127809 0.138918 -0.920033 0.3594
β13 -0.256478 0.193187 -1.327619 0.1869
β23 0.099836 0.049073 2.03446 0.0441
β22 0.031106 0.015952 0.976541 0.0266
β33 0.017767 0.063954 0.277803 0.7817
φ11 0.032354 0.064229 0.251866 0.3077
φ22 -0.012801 0.01481 -0.432173 0.1946
φ12 0.055257 0.178504 0.309554 0.7574
ψ11 -0.059294 0.117609 -0.252082 0.3075
ψ12 0.001759 0.172064 0.010221 0.9919
ψ21 -0.019824 0.140527 -0.141068 0.8881
ψ22 -0.024142 0.028574 -0.42245 0.19995
ψ31 0.015697 0.184694 0.08499 0.9324
ψ32 0.139838 0.062918 2.222547 0.0282
τ11 0.0162 0.02022 0.4006 0.2123
Weighted Statistics
R-squared 0.804867 Mean dependent var 4.922238
Adjusted R-squared 0.723838 S.D. dependent var 2.21216
S.E. of regression 1.162515 Akaike info criterion 3.381008
Sum squared resid 159.4701 Schwarz criterion 4.310759
Log likelihood -234.0046 Hannan-Quinn criter. 3.758346
F-statistic 9.933002 Durbin-Watson stat 2.373384 0.92 Average profit efficiency 80.6%
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Figure 1 Average Efficiency Level of China's Insurance Industry (2004-2009)
Figure 1 draws an insurance changes in average profit efficiency curves for different years in
China. From 2004 to 2009, profits continued to increase in the efficiency in stationary, rose from
74.8% to the cent. 2005 and 2008 profit efficiency appears must degree of declined, 2005 years
profit efficiency declined for 70.6% of main causes can comes down for: China insurance market
policy is relax, allows foreign insurance company provides health insurance, and pension and
annuity, business, canceled on established foreign insurance body of geographical limit, as
foreign insurance body of continued influx, China insurance does not do full prepared, appears
has year of profit efficiency declined of situation. 2008 profit efficiency drops to 80.6% mainly
due to the impact of the global financial crisis, China's insurance industry operating efficiency is
also affected, a downward momentum, but with the macro-policy adjustments, rapid profit
efficiency in 2009 rose to 87.7%.
Figure 2 Average Efficiency of the Different Types of Insurance Institutions
Figure 2 depicts the different types of insurance institutions in China profit efficiency
comparison between curves. In the funding property insurance body of average efficiency and
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insurance industry of profit efficiency difference smaller, for 79.5%; foreign property insurance
body due to business of scale and business type relative less, average efficiency for 68.4%, than
insurance industry of average efficiency low 15.14%; and in the funding life insurance body and
foreign life insurance body of average efficiency is difference is unlikely to, respectively for
87.3% and 87.2%; than insurance industry average efficiency high 8.31% and 8.19%. Diagrams
also show the average efficiency of China's life insurance than property casualty agencies
generally higher, mainly due to the life insurance agencies occupy a major share of the insurance
market in China. Property casualty agencies competitiveness is relatively small. Thus, profit
frontier function below the estimated coefficient of economies of scale in insurance enterprises in
China, verify that there are economies of scale efficiencies.
Table 2: Insurance Companies Economies of Scale Factor
Economies of scale factor(GM) In 2004 In 2005 In 2006 In 2007 In 2008 In 2009
PICC -0.7913 -0.7951 -0.8269 -0.9167 -1.0440 -0.9747
CCPCIC 0.4429 0.1906 0.0383 -0.1082 -0.1155 -0.0880
CECIC 0.4299 0.3413 0.2792 0.2274 0.0139 0.2156
CUI 0.0275 -0.1201 -0.2442 -0.3120 -0.3330 -0.3273
CPIC -0.2157 -0.2300 -0.3084 -0.3996 -0.5391 -0.4620
PINGAN -0.1277 -0.1858 -0.2833 -0.3679 -0.5835 -0.4477
HUATAI INSURANCE 0.5556 0.5115 0.4528 0.3041 0.2695 0.3124
TIANAN INSURANCE 0.1027 0.0372 0.0355 -0.0074 0.0069 0.0207
CHARTIS 0.7339 0.6888 0.6402 0.5984 0.6044 0.5934
TOKIOMARINE NICHIDO 0.9125 0.8820 0.8317 0.7887 0.8109 0.7658
Winterthur Swiss Insurance 1.1846 1.1535 1.1476 1.1363 0.9716 1.0491
RSA 1.1770 1.1140 1.0463 0.9836 1.0004 1.0323
Sumitomo Mitsui 1.0187 0.9673 0.9359 0.8710 0.8123 0.8363
SAMSUNG PCIC 1.0629 1.0266 0.9662 0.8971 0.8589 0.8630
Allianz SE 1.2144 1.1170 1.0139 0.9364 0.8636 0.9007
China Life -1.1429 -1.1744 -1.2351 -1.2657 -1.4557 -1.4566
CPIC -0.5420 -0.5603 -0.5771 -0.6901 -0.8051 -0.7961
PINGAN LIFE -0.7215 -0.7493 -0.8135 -0.8700 -1.0884 -0.9727
NCI -0.3203 -0.3614 -0.4464 -0.5209 -0.8003 -0.7273
TAIKANG LIFE -0.2999 -0.3022 -0.3571 -0.5392 -0.8016 -0.7418
CHINA TAIPING 0.0304 -0.0292 -0.1448 -0.2617 -0.3864 -0.3233
MANULIFE-SINOCHEM 0.6769 0.6389 0.5802 0.5225 0.4237 0.4668
ALLIANZ 0.9499 0.8391 0.5057 0.2598 0.4061 0.3211
AXA LIFE 0.6587 0.8357 0.7260 0.5783 0.5983 0.6802
CTTIC 1.1772 0.5435 0.4297 0.2588 0.1753 0.1985
GENERALI CHINA LIFE
INSURANCE 0.8086 -0.3426 0.0880 0.2323 0.1419 0.3576
AIA 0.1222 0.0328 0.0093 -0.0694 -0.0370 -0.0182
Haier NEWYORK LIFE 1.0236 0.8828 0.8531 0.7847 0.7381 0.7566
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Figure 3. Efficiency of Different Types of Economies Scale in Insurance Business (2004-2009)
We can see from Table 2 and Figure 3 economies of scale efficiencies the insurance
enterprises in China. Chinese-funded life insurance companies and local property companies
there are diseconomies, and foreign-owned property companies and foreign-funded life insurance
companies render the economies of scale. Due to China's domestic insurance companies to
occupy the vast majority on the scale, and invalid serious competition between the Chinese-
funded insurance companies, on the Chinese-funded insurance companies as a whole is
diseconomies. And foreign-funded enterprises while entered China insurance market relative
more late, but are their maintained own national of insurance business concept, effective of
control company of risk, in participation and China within funding insurance market competition
in the, more stressed insurance service quality and formed science of rates regulatory mechanism,
at any time on insurance business for Science effective of adjustment, to adaptation market of
changes, to in insurance business efficiency in the reflect out scale economic efficiency of
situation. From the perspective of development trends, insurance enterprises ' overall economies
of scale coefficient values are reduced over time, with changes in government regulation of the
insurance industry and the level of management skills upgrading or if technological advances,
increases the effective size of the insurance industry in China. You can see from Figure 3, 2004-
2009 China's insurance industry in overall terms, economies of scale are not significant, 2008
due to the financial crisis affecting the economies of scale of coefficient is negative, 2009
rebound is positive, but is not very obvious economies of scale. Foreign life insurance companies
and foreign-owned property companies during this period the economy of scale factor for a
positive number, and the overall stable situation, description of foreign-owned insurance
companies to maintain profit growth effectively in control of their own business risk, strong
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stability in the scale economy. Owned life insurance and owned property in enterprises in terms
of diseconomies appear to be growing trend, in 2008 culminated in 2009 fell, suggesting that
China's domestic insurance industry there are many drawbacks in the insurance business process,
such as the shortage of core resources, scientific rate control mechanism is not perfect, as well as
insurance industry competition. Chinese-funded insurance companies in profit and efficiency
above did better than foreign-owned companies, but in terms of business risk control and the
large difference in foreign-funded enterprises, showed diseconomies.
5. Conclusion
This article using stochastic frontier analysis methods to build a mathematical model of
efficiency and economies of scale of Chinese insurance industry profits, an empirical analysis of
China's 28 home insurance agency in three years between the 2004-2009 profit efficiency and
economies of scale of the observations. Study results showed that profit efficiency in general
conformity with the actual situation of China's insurance industry, owned property in enterprise
profit efficiency is better than foreign-owned property companies, and Chinese-funded
enterprises and foreign-funded life insurance companies life insurance profit efficiency not that
far away. From the perspective of time trends, industry in the overall performance of economies
of scale in China, Chinese life insurance business and owned property in enterprise performance
for scale economies, and foreign life insurance companies and foreign-owned property
companies economies of scale significantly, and robustness. This article examined several
important interrelationships between variables and different levels of insurance business
efficiency measurement values will help us more fully grasp the insurance agency's efficiency
and overall operating efficiency of the insurance industry. Attention operates operate efficiency
in the insurance industry, will help enhance the competitiveness of insurance companies. With
the deepening of insurance management efficiency research, research will focus on to the
insurance companies act, the governance of insurance companies and insurance supervision of
market risk levels; build a sound performance evaluation system of insurance would help
insurance companies effectively measure and improve operational efficiency in the insurance
industry, will also help to speed up the process of institutional reforms and economic
development in the insurance industry.
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