EFFICIENCY OF NON-LIFE INSURANCE IN INDONESIA

It is a fact that financial institutions among Asian countries, especially Indonesia, have been dominated by commercial banks. In addition, an insurance market share is only 10 percent of the financial market. Yet, the insurance industry is an important partner for the banking industry. This function is to guarantee the risk of banks in distributing credit and supporting the national economy through the community's fund. This paper evaluates the relative efficiency of 23 Non Life Insurance companies in Indonesia, using Data Envelopment Analysis (DEA) model. DEA is a management evaluation tool that assists in identifying the most efficient and inefficient decision-making units (DMUs) in the best practice frontier. Empirical results show that bigger insurance companies are found to be more efficient than smaller firms. Moreover, companies with captive market and the company's group with non-captive market have relatively the same result. These findings are new empirical contributions to efficiency literature of the insurance industry. The paper also provides policy implications for the Indonesian insurance sector.