Efficiency and productivity of insurance industry in Malaysia: a comparison between conventional insurance and takaful

Chong, Jia Kiuk (2025) Efficiency and productivity of insurance industry in Malaysia: a comparison between conventional insurance and takaful. Master dissertation/thesis, UTAR.

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Abstract

Motivated by the emergence of digital insurers in Malaysia, which poses a challenge to the long-term sustainability of established industry players, this study aims to evaluate the efficiency and productivity of the Malaysian insurance sector, focusing on a comparison between conventional insurers and Takaful operators. Additionally, with corporate governance receiving heightened attention after the collapse of American International Group (AIG) in 2008, attributed to improper accounting practices, and the rising significance of Environmental, Social, and Governance (ESG) considerations, this research further investigates the link between corporate governance attributes and the efficiency of these insurers. The efficiency and productivity of the insurers are measured using Data Envelopment Analysis (DEA) and the Malmquist Productivity Index (MPI). Panel regression techniques, including pooled Ordinary Least Square (OLS), Fixed Effect Model (FEM), and Random Effect Model (REM), were applied to examine the factors influencing insurer performance, particularly corporate governance aspects. By utilising data from 59 conventional insurers and 29 Takaful operators from 2013 to 2021, this study reveals that scale efficiency exerts a more pronounced impact on overall industry efficiency compared to pure technical efficiency. Additionally, productivity showed a 10% improvement during the study period, largely driven by technological advancements. Parametric and non-parametric test results demonstrate a notable difference in the efficiency and productivity between conventional and Takaful insurance sectors in Malaysia. Listed firms in the country displayed lower levels of both technical and pure technical efficiency, while scale efficiency was positively associated with GDP and the proportion of males on the Shariah committee. This study underscores the necessity for conventional insurers to enhance operational efficiency, strategic scaling, and technological adoption to mitigate inefficiencies associated with expansion and to maintain competitiveness. Furthermore, it highlights the positive influence of corporate governance attributes, such as firm size and foreign participation, on the technical efficiency of Malaysian insurers, emphasising the vital role of governance in boosting performance within the insurance sector. Keywords: Insurance, efficiency, productivity, conventional insurers, takaful operators

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