A Comparative Analysis of Economic Efficiency of Conventional and Islamic Insurance Industry in Pakistan

Pervez Zamurrad Janjua, Muhammad Akmal

Abstract


In this study Data Envelopment Analysis (DEA) and Ratios Analysis are applied to find the economic efficiency of conventional and Islamic insurance sector in Pakistan over the period from 2006 to 2011. The average cost efficiency through DEA of Islamic insurance sector was recorded 75 percent, while the average of conventional was 67 percent. The average allocative efficiency of Islamic was 77 percent while 67 percent for conventional insurance which is the main contributor to the cost inefficiency of both type of firms. Thus, through DEA economic efficiency of Islamic insurance sector is better than its conventional counterpart. The results of efficiency through ratios analysis indicate that on average the efficiency of conventional insurance companies is better than that of Islamic insurance companies. Being new entrants in the market the profitability of Islamic insurance companies was not good, therefore the economic efficiency of conventional insurance is better than that of Islamic insurance industry over the period of analysis by ratios analysis.


Keywords


Conventional Insurance; Islamic Insurance (Takāful); Technical Efficiency; Allocative Efficiency; Cost Efficiency; Data Envelopment Analysis DEA); Ratios Analysis

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DOI: http://dx.doi.org/10.22555/pbr.v17i1.17

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