Scale, Market Position, Profitability and Leverage as Drivers of Efficiency in a Dual Insurance System: Evidence from Conventional and Takaful Insurers in Pakistan, 2013–2022
DOI:
https://doi.org/10.62843/jrsr/2026.v.ii.215Keywords:
Takaful, Conventional Insurance, Data Envelopment Analysis, Tobit Regression, Firm Size, Leverage, PakistanAbstract
Several emerging markets have developed conventional risk-transfer insurers and Takaful risk-sharing operators operating in parallel, yet it remains unclear whether the efficiency-enabling factors are similar in both types of entities. This study analyses 15 conventional insurers and four Takaful operators in Pakistan from 2013–2022 to examine which structural dimensions—size, market share, profitability, and leverage—drive differences in efficiency. A two-stage design is adopted, in which Data Envelopment Analysis (DEA) generates technical efficiency, super efficiency, and overall efficiency scores, which are then regressed against firm characteristics separately for each model using Tobit regressions. The mean technical efficiency of conventional insurers decreased from 0.98 in 2013 to 0.58 in 2022, while the mean technical efficiency of Takaful operators remained close to the Takaful benchmark of 0.60 and exceeded conventional insurers from 2017 onwards. The pooled mean efficiency was 0.69 for Takaful operators compared with 0.64 for conventional insurers. Market share showed both positive and negative correlations with efficiency among conventional insurers. For Takaful operators, size was positively correlated with technical and overall efficiency but negatively correlated with profitability, while market share influenced super efficiency. Five out of six models showed a negative relationship between leverage and efficiency. Overall, the findings suggest that in a dual system, contract design is not the most important determinant of efficiency; rather, efficiency depends more on how the scale of the system, capital, and competitive position are managed.
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