Efficiency Dynamics of Insurance and Takaful Market: A Data Envelopment Analysis of Pakistan

Abstract

Efficiency is a major challenge for Pakistan’s insurance and Takaful industry, where firms must manage resources carefully to remain competitive. This study examines the technical efficiency of Pakistan’s insurance and Takaful industry from 2011 to 2023 using Data Envelopment Analysis (DEA). The analysis covers 29 firms, treating each firm as a decision-making unit. The CCR model is used to assess how efficiently firms convert financial inputs into outputs. Total assets, total equity, and total liabilities are used as inputs, while net premium and investment income are used as outputs. The results depict that the industry remained moderately technically efficient, with an overall mean efficiency score of approximately 0.78. It shows that firms operated at about 78% efficiency leaving nearly 22% rooms for improvement. Year-wise results show clear fluctuations, with the highest average efficiency recorded in 2021 and the lowest in 2015. State Life Insurance Corporation of Pakistan (SLICoP) emerged as the strongest benchmark firm, remaining fully efficient throughout the period. Other powerful performers included Adamjee Life Assurance Company Ltd, TPL Life Insurance Ltd, TPL Insurance Ltd, Asia Insurance Co. (AICo)-Ltd, East West Insurance Co. (EWICo)-Ltd, Jubilee Life Insurance Company (JLIC)-Ltd, and EFU Life Assurance Ltd (EFU-LA. Ltd) The Takaful segment showed mixed performance, with Pak-Qatar Family Takaful Ltd reaching full efficiency in selected years. Overall, the findings suggest that Pakistan’s insurance and Takaful industry has a small group of consistently efficient firms. In contrast, many firms still need to improve resource utilization, premium generation, investment performance, and operational management.