Product diversification versus technical efficiency of conglomerate life microinsurance companies: evidence from India
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Product diversification versus technical efficiency of conglomerate life microinsurance companies: evidence from India Basri Savitha1 · Subrato Banerjee2 · Ankitha Shetty3 Received: 9 June 2018 / Accepted: 11 February 2019 © The Geneva Association 2019
Abstract We look at technical efficiency and productivity changes in the life microinsurance (LMI) portfolio of insurance companies in India. The central objective is to empirically examine the ‘tug of war’ between efficiency and product diversity in the Indian insurance market. The data used in this research is available in the Handbook on Indian Insurance Statistics (Insurance Regulatory and Development Authority of India). First, we emphasise that four-fifths of LMI insurers in our sample were technically inefficient. Second, through the use of the data envelopment approach (DEA), Malmquist total factor productivity index (MTFP), and Tobit regression analyses, we demonstrate that insurers could improve managerial ability by organising inputs in the production process more effectively. Finally, we provide empirical support for the strategic focus hypothesis by demonstrating that product diversification has adverse effects on the technical efficiency of insurers. Keywords Life microinsurance · Technical efficiency · Product diversification · Data envelopment analysis · Diversification · Productivity
Introduction The Indian life insurance industry has witnessed a remarkable transformation in the last two decades, following the economic liberalisation that opened up the domestic markets by allowing the entry of foreign (private) companies. There has also been an increased interest in rural financial services. This is why life microinsurance (LMI) * Basri Savitha [email protected] 1
Centre for Advanced Research in Financial Inclusion, School of Management, Manipal Academy of Higher Education, Manipal, Karnataka, India
2
Queensland University of Technology Business School, Brisbane, Australia
3
School of Management, Manipal Academy of Higher Education, Manipal, Karnataka, India
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was given priority in such a pro-poor policy environment. Rapid developments in the microfinance sector together with self-help group activities have supported the outreach of microinsurance. Before the advent of the twenty-first century there were only a few informal insurance schemes in India run by non-governmental organisations or cooperatives beyond the ambit of any regulatory framework. In 2002 the Insurance Regulatory and Development Authority of India (IRDAI) framed the ‘Obligations of Insurers to Rural or Social Sectors’ to catapult insurance penetration into the informal sector. In order to further enhance the outreach, it also framed microinsurance regulations (2005) that required private/public health insurance companies to develop and distribute microinsurance products in rural areas. In 2015 it revised the microinsurance regulation that provided guidance on product development, risk coverage levels and the widening of distributio
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