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Revenue efficiency evaluation of Revenue

efficiency
life insurance companies in India: evaluation

identification of leaders
and laggards
Aparna Bhatia Received 26 January 2021
Revised 17 July 2021
University School of Financial Studies, Guru Nanak Dev University, 5 August 2021
Amritsar, India, and 21 October 2021
14 November 2021
Megha Mahendru Accepted 27 November 2021
Department of Commerce and Business Administration, Khalsa College,
Amritsar, India

Abstract
Purpose – The purpose of this article is to evaluate revenue efficiency performance of life insurance companies
in India. The study also compares if private or public insurance sector is more “revenue efficient”. Furthermore,
the study determines the nature of return to scale (RTS) and identifies the leaders and laggards amongst
insurance companies operating in India.
Design/methodology/approach – Revenue efficiency is calculated by employing data envelopment
analysis – a non-parametric approach, on a data set of 24 insurance companies over the period 2013–2014 to
2017–2018.
Findings – The empirical results suggest that life insurance companies in India could generate only 34.4% of
revenue, which is very less than what these are expected to generate from the same inputs. Majority of life
insurance companies operating in India are operating at decreasing return to scale (DRS). There is a reduction
in leaders and the highest proportion of companies is falling in the category of laggards.
Originality/value – As per the best knowledge of researchers, no empirical work has been carried out with
respect to measuring the revenue efficiency of Indian insurance companies. The current study appropriately
fills the gap by not only calculating the revenue efficiency scores of insurance companies in India but also
provides insights into the causes of revenue inefficiencies. It also gives implications for efficient and effective
management of insurance companies.
Keywords Revenue efficiency, Life insurance companies, Data envelopment analysis, India
Paper type Research paper

1. Introduction
The literature on measurement of “efficiency” of insurance sector is prolific and has expanded
dramatically during last two decades and continues to flourish. Eling and Luhnen (2010)Eling
and Luhnen, 2010 and Wise (2017) conducted review based studies and from the extensive
review of 95 and 190 studies respectively concluded the prominence of efficiency calculation in
insurance sector as a supreme measure of performance evaluation. Performance can be
evaluated in terms of absolute figures or ratios as well. But absolute figures do not convey
relative behaviour. Ratios can lack objectivity (Feroz et al., 2003). Ratios are more relevant in
calculating “profitability” or “returns” rather than “efficiency”. Efficiency is defined as the
choice of alternatives which produces the largest outputs with the application of given
resources. Efficiency computes an organization’s performance in relation to the best operating
organization’s performance at a particular point of time (Ram Mohan and Ray, 2004). In other
words, it refers to how well an organization uses its resources in comparison to the current best
performing organization in terms of efficiency (Lovell, 1993). It facilitates comparison between Benchmarking: An International
Journal
© Emerald Publishing Limited
1463-5771
JEL Classification — C14, C61, C67, G14, G22. DOI 10.1108/BIJ-01-2021-0051
BIJ inputs used and output generated. Hence, efficiency measure is a robust measure of
performance evaluation of insurance companies.
Researchers have calculated different types of efficiencies of insurance companies.
Numerous studies have analysed technical, pure technical and scale efficiency of the
insurance companies over different time horizons as Fecher et al. (1993), Cummins et al.
(1996Cummins et al., 1996, 1999), Fukuyama (1997), Noulas et al. (2001), Diacon et al. (2002),
Mahlberg and Url (2003), Yang (2006), Dawkins et al. (2007), Wu et al. (2007), Borges et al.
(2008)Borges et al., 2008, Bawa and Ruchita (2011), Saad et al. (2011), Saeidy and Kazemipour
(2011), Rahman (2013), Sabet and Fadavi (2013), Dalkılıç and Ada (2014), Mathur and Paul
(2014), Nandi (2014), Nourani et al. (2018), Benyoussef and Hemrit (2019), and lately Siddiqui
(2020). Technical Efficiency (output and input oriented) is designed to determine a firm’s
potential outputs given its inputs or firm’s capacity to produce existing level of output with
the minimum quantity of inputs without considering their prices. Technical Efficiency
(output and input oriented) merely indicates the ability of a firm in using its inputs optimally
or producing its outputs efficiently, but it does not take into consideration the cost incurred or
revenue generated by the firm. Consequently technical efficiency measure provides a limited
view of the performance. Assessment of cost incurred and revenue generated is much vital for
insurance companies than just establishing the association between inputs and outputs.
Therefore, several researchers shifted their approach to measure the cost efficiency of
insurance companies, using both parametric and non-parametric techniques (Praetz, 1980;
Fecher et al., 1991; Gardner and Grace, 1993; Yuengert, 1993; Cummins and Weiss, 1993; Rai,
1996; Berger et al., 1997, 2000; Cummins et al., 1999; Cummins and Nini, 2002; Greene and
Segal, 2004; Choi and Weiss, 2005; Hao and Chou, 2005; Tone and Sahoo, 2005; Hao, 2007;
Hussels and Ward, 2007; Bikker and Leuvensteijn, 2008; Weiss and Choi, 2008; Fenn et al.,
2008; Sinha and Chatterjee, 2009; Afza and Asghar, 2010, Shinde, 2012; Sinha, 2012; Noronh
and Shinde, 2012; Ansah-Adu et al., 2012; Kader et al., 2014; Dash and Muthyala, 2018; Sen,
2020). However, in this era of profit maximization it is not feasible for insurance companies to
merely reduce cost. They need to focus on the income side as well. The ground reality is that
insurance managers as well as employees are required to meet the targets of selling insurance
policies set for their branch. In other words, insurance managers are not given a bundle of
inputs to produce the outputs; rather they are given output targets in the form of selling
insurance policies by efficiently optimizing the use of inputs (Sahoo et al., 2007). As a result,
estimating revenue efficiency of insurance companies is even more desirable nowadays.
Revenue efficiency refers to how competently a company offers services to the customers
by using its available resources. In other words, the actual revenue generated by a particular
firm is compared with the most efficient firm producing maximum possible revenue from
similar input quantities and output prices. A firm can attain revenue efficiency if it produces
the optimal mix of output and employs the best technology. Meagre research work is
available on revenue efficiency of the insurance industry (Cummins, 1999; Cummins et al.,
1999; Ward, 2002; Choi and Weiss, 2005; Weiss and Choi, 2008; Cummins and Xie, 2008). This
calls for more contribution to the extant literature in this field.
Researchers have evaluated efficiency and productivity for both life and non-life insurance
companies (Fecher et al., 1991; Fecher et al., 1993; Donni and Hamende, 1993; Cummins et al.,
1996; Cummins and Turchetti, 1996; Donni and Fecher, 1997; Berger et al., 2000; Chaffai and
Ouertani, 2002; Cummins et al., 2004; Ennsfellner et al., 2004; Barros et al., 2005; Badunenko
et al., 2006; Cummins and Rubio-Misas, 2006; Barros and Obijiaku, 2007; Fenn et al., 2008; Eling
and Luhnen, 2008; Davutyan and Klumpes, 2008; Asghar and Afza, 2010; Barros et al., 2010;
Ansah-Adu et al., 2012; Barros and Wanke, 2016; Jaloudi, 2019; Ilyas and Rajasekaran, 2019, b).
However, the studies conducted jointly on life and non-life insurances have been criticized as
both arenas do not have similar restrictions and regulations (Barros et al., 2005). The scope,
objectives, statutes and guidelines differ widely across life and non-life insurance businesses. Revenue
So, this study specifically focuses on life insurance sector. efficiency
Life insurance sector is the fastest growing sector in India. Life insurance segment has
recorded higher penetration of 2.82% in 2019 as compared to 2.15% in 2002 (Invest India, 2021).
evaluation
Furthermore, the life insurance sector is expected to increase at a CAGR of 5.3% between 2019
and 2023 (Indian Brand Equity Foundation, 2021). Prior to liberalization, Life Insurance
Corporation (LIC) was the only life insurance provider in Indian insurance sector. Life Insurance
Corporation came into existence by nationalizing all life insurance companies i.e. 154 Indian, 16
non-Indian insurers and 75 provident societies in 1956. LIC had monopoly in the country till late
90s until Malhotra Committee recommended opening up of insurance sector to private players.
Indian Insurance sector was liberalized in 1999. Insurance Regulatory Development Authority
(IRDA) was set up as the regulator and administrator to develop and control Indian Insurance
Sector. At last in the year 2000, Indian insurance sector stretched its circumference and allowed
private players to participate in the insurance business. Subsequently, huge number of
advanced innovative insurance products accompanied by sophisticated distribution channels
flooded the market. A tight competition emerged within the industry. The same share of wallet
over which LIC had the monopoly was now being shared among many of the new entrants as
well. New private players initiated a battle for taking the largest possible proportion of the
growing life insurance market pie. They focused on novel products, intensive advertisements,
aggressive trainings of agents and sophistication in customer service. IRDA data for the year
2017–2018 suggests that the private sector insurance companies achieved a growth of 8.47% in
the number of new policies issued (68.59 lakh policies) as against the previous year; 2016–2017,
with 63.24 lakh policies. LIC lagged behind the private sector with a growth of 5.99% in number
of new policies issued (213.38 lakh policies) against the previous year; 2016–2017 when it issued
201.32 lakh policies. As evident from the statistics, after the entry of these private players, the
market share of Public Sector Life Insurance reduced considerably. In fact, there emerged a
situation of the survival of the fittest. Players applied different strategies to gain competitive
advantage in the market. Public welfare is the foremost responsibility of the government. It is
for the government to gauge that public money is vested in safe hands. Insurance companies
accumulate huge finances from the masses. The investment in insurance sector does not
generate immediate pay back. People should not feel cheated after number of years of making
investment in insurance policies. Thus, it becomes imperative to ascertain the performance of
life insurance sector and provide comprehensive insights about its efficiency to the masses as
well as the authorities of the country. Keeping in view the preceding discussion, the article
specifically targets to achieve the following objectives-
(1) To evaluate the revenue efficiency of Indian Insurance companies which employ and
operate on the pivot of huge public finance over 5 years from 2013–2014 to 2017–2018.
(2) To compare private and public sector insurance companies in terms of revenue
efficiency.
(3) To assess the nature of return to scale (RTS) of Indian life insurance companies.
(4) To identify the causes of inefficiencies along with identification of companies as
leaders and laggards on the basis of their revenue efficiency scores.
With these pre-mentioned objectives, the current study deploys the technique of data
envelopment analysis (DEA) approach for the computation of revenue efficiency scores of
insurance companies. DEA has emerged as the foremost tool owing to its advantages and
flexibility (Colwell and Davis, 1992). Banker et al. (1996) reported that DEA gives superior
results for almost all sample sizes. DEA approach is comparatively much robust (Seiford and
Thrall, 1990).
BIJ The study contributes to the empirical literature in a number of ways. First, even after much
excavation of literature the researchers could not find any empirical work available with
respect to measuring the Revenue Efficiency of Indian insurance companies. Second, the
current study not only calculates the revenue efficiency scores of insurance companies in India
but also provides insights into the causes of revenue inefficiencies accredited to technical
efficiency (output oriented) and allocative efficiency (output oriented). Third, comparison of
performance of insurance companies across their ownership by private and public sector is
meagrely available in the existing literature. Such assessment would familiarize the investors
and other stakeholders with the conduct and potential of both sectors and add value to the
available literature.
The article is structured into different sections. Section 1 shows the progression in research
work undertaken on insurance sector in preceding decades. It also provides an overview of
Indian Life Insurance Sector and specifies the objectives and contribution of the current study.
Section 2 delineates the review of studies. Section 3 outlines the data source; methodology used
and identifies inputs-outputs selected for calculating the revenue efficiency. Section 4 details
out the empirical results and findings of the study. The penultimate Section 5 concludes the
findings and gives implications. The final Section 6 delineates limitations of the study and
scope for future research.

2. Review of literature
India today has an embellishing insurance sector serving the diverse and massive population of
the country. So accordingly researchers have shown keen interest in its performance evaluation
from varied measures of efficiencies. Sinha (2006) assessed the technical efficiency of 13 life
insurance companies for 2004–2005. The efficiency scores of the life insurance companies
revealed that LIC was found to be technically efficient. Even Sinha (2007a) reported that from
2002–2003 to 2005–2006, LIC and SBI Life had a technical efficiency score of 1 while other life
insurance firms were technically inefficient. Continuing his work using revenue maximizing
approach, Sinha (2010) compared 15 life insurance companies where he again found that Life
Insurance Corporation of India (LIC) was found to be efficient followed very closely by Sahara
life. Dutta and Sengupta (2011) also studied technical efficiency and reported that LIC, ICICI
Prudential, SBI Life and Sahara were fully efficient. Even during the years of slowdown in the
life insurance industry, Sinha (2015) indicated that Life Insurance Corporation of India (LIC)
and SBI Life Insurance were technically efficient for the period 2005–2006 to 2011–2012.
Similarly, Bawa and Bhagat (2015) found that LIC was 100% efficient from 2006 to 2013.
Anandarao et al. (2019) reported that ICICI Prudential Life Insurance, Shriram Life Insurance
and Tata AIA Life Insurance rank first in the overall efficiency along with LIC. Shetty and Basri
(2020) divulged that there was no significant difference in the efficiency scores of traditional
and corporate agents. Roy and Saha (2018) too observed that the LIC was the only efficient
company. Siddiqui (2020) indicated that the state life insurer i.e. Life Insurance Corporation
(LIC) had been efficient for the entire time period of study from 2012–2013 to 2016–2017. Tone
and Sahoo (2005) reported huge increase in cost efficiency of Life Insurance Corporation of
India over the period 1982–2001 due to modernization of operations. Dash and Muthyala (2018)
showed that the most efficient Indian life insurance companies were Life Insurance Corporation
followed by SBI Life and ICICI Prudential Life. Sen (2020) while evaluating insurance sector
found that there were initially improvements in efficiency but after 2008–2009 there was
stagnation. As a result Life Insurance Corporation of India was found to be technically efficient
but remained cost inefficient. Parida and Acharya (2017) assessed technical efficiency and
productivity growth of the 13 life insurers. The results suggested that LIC had consistently
scored 1 till the year FY10–11, indicating no change in productivity.
After the ingress of private players in late 2000s, researchers diverted to comparison of
performance of insurance companies across their ownership into public and private sector.
Sinha (2007b) assessed technical efficiency and total factor productivity growth in life Revenue
insurance industry and showed that the private insurance companies were far behind the Life efficiency
Insurance Corporation. Furthermore, Sinha and Chatterjee (2011) used window analysis to
compare the performance of the major life insurance companies. The results demonstrated a
evaluation
huge gap in the technical efficiency of Life Insurance Corporation (LIC) of India and private
life insurance companies, though the efficiency scores of the private insurers showed an
upward trend while a receding pattern in the efficiency scores of LIC was observed. Chatterjee
and Sinha (2009) while evaluating cost efficiency of Indian life insurers between 2002–2003
and 2006–2007 suggested an upward trend in cost efficiency of private life insurers though
the trend was reversed in 2005–06 and 2006–07. But over years, Shinde (2012) and Noronh
and Shinde (2012) found that Life Insurance Corporation of India had more cost efficiency
score while the cost efficiency score of the private life insurance companies was not very
consistent. Most recently, Saxena et al. (2020)Saxena et al., 2020 compared the technical
efficiency and total factor productivity of Life Insurance companies. The results reported that
the total factor productivity of both LIC and private sector insurance companies had
decreased.
On one hand insurance business is expanding in India over the years and on the other
empirical assessment provides mixed evidences on the efficiency of insurance companies
using multiple measures of efficiency evaluation. So researchers also focused on evaluating
the returns to scale of insurers in order to recommend optimum expansion and scale of their
operations. Sinha (2007a) reported year to year technical efficiency scores for the period 2002–
03 to 2005–06 with most of insurance companies operating at increasing returns to scale in
the last two years under review. Chakraborty et al. (2012) investigated technical efficiency
and found that 6 companies were operating at Increasing return to scale, 3 on decreasing
return to scale and 4 on CRS out of 13 life insurance companies. Nandi (2014) also analysed
technical efficiency and depicted LIC operating on increasing return to scale. Latest work by
Saxena et al. (2020)Saxena et al., 2020 revealed that the LIC was consistently operating
efficiently and working with overall efficiency on constant returns to scale while all the
selected private insurance corporations were competing with LIC and working on the
increasing returns to scale.
In spite of plentiful literature existing in the area of insurance business in India, it
is observed that one of the most contemporary measures of evaluation of efficiency, that is,
revenue efficiency has not been deployed by researchers in India. Revenue efficiency is
measured by employing an output distance function. This function allows determining of the
link between the revenue generated by a particular bundle of inputs and maximum possible
revenue produced from the same bundle of inputs (Berger and Mester, 1997). Handful of
studies are available across other countries that evaluate revenue efficiency of insurance
sector. Cummins (1999) evaluated the technical, scale, cost and revenue efficiency for a time
period of 1988–1995 of US life insurance companies that represent 80% of industry assets
using Data envelopment analysis. The results of the study depict that revenue efficiency was
relatively 30% in 1988 which is very low. The average revenue efficiency of insurance
companies during study period ranged between a minimum of 0.244 to a maximum of 0.376.
Further, insurer wise results depict that 40% insurers had full efficiency score while most of
efficiency score was in the range of 10%–15% only. Cummins et al. (1999) examined whether
mergers and acquisitions lead to improvement in cost and revenue efficiency in the US life
insurance industry over the period 1988–1995, again using Data Envelopment Analysis
(DEA). The study further applied Probit Regression to check the impact of acquisition on
efficiency scores. The results of the study found that acquired firms achieve greater gains in
technical, cost, and revenue efficiency than non-M&As firms. Ward (2002) estimated simple
determinant functions for cost, revenue and profit using the simple Cobb–Douglas
determinant functions on a sample of 40 UK life insurance companies over the period 1990
BIJ to 1997. The results of the study suggested that the use of an independent mode of
distribution increased the cost which was offset by associated increases in revenue and
profits. Choi and Weiss (2005) examined the relationship between market structure and
performance in terms of both revenue and cost efficiency in property-liability insurers over
the period 1992–1998 using data at the company and group levels by applying Stochastic
Frontier Analysis. The results of the study revealed that revenue X-efficiency and revenue
scale-efficiency were positively and significantly related to price in all models in 1995–1998,
thus suggesting that revenue efficient firms charged higher prices. Further, revenue scale-
efficiency was positively related to price in the year 1992, 1994 and 1996. Weiss and Choi
(2008) examined the interaction between state rate regulation on automobile insurance
markets and direct measures of firm level efficiency using a stochastic frontier approach
(SFA) for the period of 1992–1998. The results of the study concluded that revenue X- and
scale-efficiency were positively related to price in non-stringently regulated states. Thus, the
study suggested that where prices were not stringently regulated, revenue efficient firms
were able to capture some of the benefits of their superior efficiency by charging higher
prices. Cummins and Xie (2008) analysed effects of Mergers and Acquisitions (M&As) in the
US property-liability insurance industry on the productivity and efficiency during the period
1994–2003 using Data Envelopment Analysis (DEA) and Malmquist Productivity Indices.
These results suggested that acquirers undertaking M&A’s improved revenue efficiency by
broadening their product offerings or entering new markets. Target firms had higher cost,
technical, pure technical, scale, and revenue efficiency than the non-target firms. A synoptic
view of these studies is given in Table 1 as follows:

2.1 Research gap

As gathered from the review of literature, researchers have investigated different efficiency
measures of insurance companies in India. But, evaluation of technical efficiency has been
predominantly focused upon. However, the measure of technical efficiency is not adequate as it
only reflects the ability of a company in using its inputs optimally or producing its outputs
efficiently. It does not consider the prices of both inputs and outputs. Similarly, a handful
studies measure cost efficiency of Indian life insurers. Cost efficiency considers the prices of
inputs and outputs but it merely focuses on one side of the coin i.e. cost reduction and ignores
the revenue side of insurance companies. A cost efficient company may not be revenue efficient
as in the short run company may show itself as cost efficient by escaping certain discretionary
expenditure in terms of marketing and advertising. But saving on such expenditure might
affect its turnover and hence deteriorate its revenue efficiency. Also, unlike cost side, revenue
scores cannot be window dressed or manipulated as these are based on actual market
performance. Moreover, in the contemporary times, it is seen that performance targets and
rewards in insurance companies are based on benchmark of turnover that is, selling more and
more number of life insurance policies that generate revenue rather than reducing cost. Hence,
revenue efficiency is the most desirable measure of efficiency. But, anxiously, not even a single
study is available in the extant literature that evaluates revenue efficiency of life insurance
business in India. India is a country of 1.3 billion people with 65.53% of them living in rural
areas and 22% below poverty line (Samrat, 2019). It falls in the category of developing countries
which are exposed to high risks; ranging from risk to economic activities to threat to life. There
is risk of death of an income earner followed by deprivation of income. After 2004 the
Government of India has abolished the Old Pension Scheme of its employees. Resultantly, there
is massive post-retirement insecurity amongst common people. Trailing responsibilities in
terms of education of children, their marriage, medical treatment of elderly people at home etc.
requires risk preventing social schemes of good quality. Hence, Insurance is must in order to
protect people from these eventualities. It is in fact a major channel of savings for the people in
case of survival. It is the backbone of the disadvantaged population of India who do not enjoy
 Time
Author (Year) Origin Purpose Sample size period Relevant findings

I. Studies on measurement of technical efficiency of insurance companies

Sinha (2006) India To assess the operating efficiency of life 13 life insurance 2004–2005
LIC was technical efficient whereas rest of the
insurance companies companies firms had technical efficiency score of less than
one
Sinha (2007a) India To compare life insurance companies with 13 life insurance 2002–2003
The mean technical efficiency improved
respect to technical efficiency and scale companies to 2005– in 2003–2004 relative to 2002–2003. It remained
efficiency 2006 on the same level in 2004–2005 but declined
in 2005–2006

Most of the life insurers exhibited increasing
returns to scale

LIC ranked first along with SBI life insurance
with efficiency score of 1
Sinha (2007b) India To measure technical efficiency and 13 life insurance 2002–2004
Technical efficiency and productivity had
productivity of the life insurance companies companies improved over the period of study. Private
insurers had higher productivity growth rate
than the sole public life insurer – LIC.
Chatterjee and India To assess the cost efficiency of Indian life Life insurers 2002–2003
An upward trend in cost efficiency was observed
Sinha (2009) insurers to 2006– between 2002–2003 and 2004–2005. However,
2007 the trend was reversed for the next two years i.e.
2005–2006 and 2006–2007
Sinha (2010) India To compare the sampled companies on the 15 life insurance 2005–2006
Life Insurance Corporation of India (LIC) was
basis of efficiency scores to 2008– found to be most efficient succeeded by Sahara
2009 life
Dutta and India To evaluate technical efficiency of life 14 life insurance 2004–2005
Only four companies – LIC, ICICI prudential,
Sengupta (2011) insurance companies companies to 2008– SBI life and Sahara – were 100% efficient
2009
Sinha and India To compare the performance of the major life 13 life insurance 2003–2007
A huge gap in technical efficiency of Life
Chatterjee (2011) insurance companies companies Insurance Corporation (LIC) of India and private
life insurance companies was observed. LIC was
found to be efficient than rivals in private sector

(continued )
efficiency
Revenue

review of literature
Synoptic view of
evaluation

Table 1.
 BIJ

Table 1.
Time
Author (Year) Origin Purpose Sample size period Relevant findings

Chakraborty et al. India To investigate technical efficiency and Life insurance 2005–2009
Five insurers (BIRLA-SUN LIFE, ICICI-
(2012) productivity growth in Indian life insurance industry PRUDENTIAL, LIC, KOTAK LIFE, and
industry SAHARA) out of 14 were found to be fully
efficient

6 companies were operating at increasing return
to scale, 3 on decreasing return to scale and 4 on
constant returns to scale
Nandi (2014) India To examine the technical efficiency scores of Top 13 life 2002–2003
Overall life insurers had an average technical
life insurance companies individually and insurance to 2011– efficiency score of 82.6%, pure technical
across sectors companies 2012 efficiency 87.5% and scale efficiency 94.7%

LIC, SBI Life Insurance Co. Ltd. and ICICI
Prudential Life Insurance Co. Ltd. were found to
be most efficient

Sector wise performance showed that LIC was
better as compared to other players in the private
sector
Sinha (2015) India To calculate technical efficiency 15 life insurance 2005–2006
Life Insurance Corporation of India (LIC) and SBI
companies to 2011– Life Insurance were technically efficient for all
2012 the years

There was decline in mean technical efficiency
scores in 2011–2012 as compared to 2005–2006
Bawa and Bhagat India To examine the technical efficiency, pure Life insurance 2006–2013
LIC was 100% efficient in all the years
(2015) technical efficiency and scale efficiency of life companies
Aviva Life and SBI Life were 100% efficient only
insurance companies registered in Punjab in the first four years under review

The average technical efficiency of life insurance
companies in Punjab was 55.0%. Pure technical
efficiency stood at 67.9%, and scale efficiency
was 80.5%

(continued )
 Time
Author (Year) Origin Purpose Sample size period Relevant findings

Parida and India To assess technical efficiency and 13 life insurers 2002–2014
Life insurance market was moderately efficient
Acharya (2017) productivity growth of life insures and the mean productivity had improved just by
1% over the study period
Roy and Saha India To assess the efficiencies sampled companies 22 life insurance 2008–2009
LIC was the only efficient company among the
(2018) in the post-global recession by segmenting companies to 2016– domestic companies while ICICI Prudential and
them as domestic companies and indo-foreign 2017 Bajaj Allianz were most efficient among the
companies Indo-foreign companies

Domestic companies were significantly better in
terms of their efficiency as against indo-foreign
companies
Anandarao et al. India To evaluate technical efficiency 17 life insurers 2013–2014
ICICI Prudential Life Insurance, Shriram Life
(2019) Insurance and Tata AIA Life Insurance ranked
first in the overall efficiency along with LIC.
Shetty and Basri India To measure technical efficiency of traditional 12 Indian life 2012–2016
No significant difference was found in the
(2020) and corporate agents insurance efficiency scores of traditional and corporate
companies agents
Siddiqui (2020) India To analyse the technical efficiency of all life 24 life insurance 2012–2013
Life Insurance Corporation (LIC) was efficient
insurance companies and identifies reasons companies to 2016– over the total study period
for inefficiency 2017
Private life insurance companies exhibited
variations in their performance levels due to
variation in their sizes

Some private insurance companies operated
efficiently while others were less productive
because of deployment of excessive capital
Sen (2020) India To analyse cost, technical and allocative Existing 2005–2006
Life Insurance Corporation of India was found to
efficiency companies in life to 2015– be technically efficient but remained cost
sector 2016 inefficient

Canara HSBC OBC Life and IndiaFirst Life
Insurance were consistently efficient in all the
years in terms of technical efficiency

(continued )
efficiency
Revenue
evaluation

Table 1.
 BIJ

Table 1.
Time
Author (Year) Origin Purpose Sample size period Relevant findings

Saxena et al. (2020) India To compare technical efficiency and total Life insurance 2008–2009
LIC was consistently operating efficiently and
Saxena et al., 2020 factor productivity of LIC and selected companies to 2017– proved to be a technically benchmark firm
private sector insurers 2018 working with overall efficiency on constant
returns to scale

All the private sector insurers except Bajaj
Allianz exhibited technical efficiency
of less than 1

Most of the insurance companies operated on
increasing returns to scale
II. Studies on measurement of cost efficiency of insurance companies
Ward (2002) UK To provide an insight into cost associated 40 life insurance 1990
The use of an independent mode of distribution
with alternatives methods of distributing life companies to1997 increased the cost but it was offset by associated
insurance policies growth in revenues and profits
Tone and Sahoo India To analyse the cost efficiency of life insurance Life Insurance 1982–2001
Huge increase in cost efficiency of life insurance
(2005) corporation of India Corporation Ltd corporation of India was seen over the period of
(LIC) study
Shinde (2012) India To evaluate the cost efficiency of life Life insurance 2000–2010
Life Insurance Corporation of India consistently
insurance companies operating in India companies secured cost efficiency score of 100%. The cost
efficiency score of private life insurance
companies was not in congruence over the years
under review
Noronh and Shinde India To evaluate the cost efficiency of life Life Insurance 2000–2010
LIC was found to be cost efficient with efficiency
(2012) insurance companies operating in India Corporation score of 100%. Private life insurance companies
had inconsistent cost efficiency scores
Dash and India To examine the cost efficiency of life 15 life insurance 2010–2017
Life Insurance Corporation achieved 100% cost
Muthyala (2018) insurance service providers companies efficiency. It was followed by SBI Life and ICICI
prudential life

Max New York life, PNB MetLife, Reliance Life,
and Bharati AXA Life were cost inefficient

(continued )
 Time
Author (Year) Origin Purpose Sample size period Relevant findings

III. Studies on measurement of revenue efficiency of insurance companies

Cummins (1999) US To analyse the revenue efficiency of U.S. life 750 life insurance 1988 to
The average revenue efficiency of insurance
insurers companies 1995 companies during study period ranged between
a minimum of 0.244 to a maximum of 0.376
Cummins et al. US To examine relationship between mergers 750 life insurance 1988 to
Acquired firms achieved greater gains in
(1999) and acquisitions, cost and revenue efficiency, companies 1995 technical, cost, and revenue efficiency than non-
and scale economies acquired firms

Firms operating on non-decreasing returns to
scale (NDRS) and financially weak firms were
more likely to be acquisition targets
Choi and Weiss US To examine the relationship between firm Property-liability 1992–1998
Revenue X-efficiency and revenue scale-
(2005) performance, market structure and efficiency insurers efficiency were positively and significantly
related to price in all models in 1995–1998 thus
suggesting that revenue efficient firms charged
higher prices

Revenue scale-efficiency was positively related
to price in the years 1992, 1994, and 1996
Weiss and Choi US To examine the interaction between state rate Automobile 1992–1998
Revenue X- and scale-efficiency were positively
(2008) regulation on automobile insurance markets insurance related to price in non-stringently regulated
and direct measures of firm level efficiency markets states

Revenue efficient firms were able to capture
some of the benefits of their superior efficiency
by charging higher prices where prices were not
stringently regulated
Cummins and US To analyse the effects of mergers and Property-liability 1994–2003
Acquirers undertaking M&A’s improved
Xie (2008) acquisitions (M&As) on cost, technical, pure insurance revenue efficiency by broadening their product
technical, scale and revenue efficiency industry offerings or entering into new markets

Targets firms had higher cost, technical, pure
technical, scale and revenue efficiency than the
non-target firms
efficiency
Revenue
evaluation

Table 1.
BIJ much support from the Government. But the business of insurance rests on public money and
hence bears “uberrimafidei” relationship with the masses. Public money must not be lost. Life
Insurance companies employ and operate on the pivot of huge public finance and carry the
responsibility to compensate and pay back timely to the investors. Hence, this brings forth the
need to evaluate revenue efficiency of Indian Life Insurance companies. Also revenue efficiency
is largely affected by the scale at which an insurance company operates. The optimum scale of
operations achieved by insurance companies is so far determined by researchers on the basis of
technical efficiency achieved by insurance companies (Sinha, 2007a; Chakraborty et al., 2012;
Nandi, 2014; Saxena et al., 2020). Since no study on measurement of revenue efficiency in India,
is available resultantly no study measures the returns to scale of insurance companies in the
light of revenue efficiency. The assessment of returns to scale would also help to locate the
“leaders” and “laggards” in the insurance sector-an exercise which has not been undertaken in
the available literature. Thus, it is believed that the current analysis would not only bridge the
gap in the extant literature but would significantly contribute to it.

3. Research design and methodology

3.1 Sample, time period and data source
The study is based on all Life insurance companies operating in the Indian Insurance Sector –
both public and private. These are 24 in number. Anxiously, only 1 company, i.e. Life
Insurance Company (LIC) represents the Public Sector while the rest 23 companies represent
the Private Sector. A detailed list of these insurance companies is given in Table 2:
The revenue efficiency performance of life insurance industry has been analysed over
5 years from 2013–2014 to 2017–2018. It is the most recent period for which data is available.
Also, life insurance business has expanded drastically since 2000 with private players
manifesting their presence. So its evaluation in recent times is desirable. The study is based
on secondary data. The relevant data has been collected from various sources like hand book
on Indian insurance statistics, IRDA annual report, IRDA statistics and websites of Life
Insurance Council from 2013–2014 to 2017–2018.

3.2 Methodology: data envelopment analysis (DEA)

To measure efficiency of insurance companies, two approaches are available namely
Parametric Approach (Econometric Approach) and Non- Parametric Approach (Linear
Programming Approach). Parametric methods require the specification of a functional
form and include production, cost, profit and the revenue function as an alternative
approach for estimating efficiency (Ajibefun, 2008). Non-Parametric Approach does not
assume a particular functional form and has properties like convexity and homogeneity
where chances of measurement errors are less (Avkiran, 1999 and Rebelo and Mendes,
2000). The advantage of Non-Parametric Approach is that it requires lesser assumptions
about underlying technology (Jacobs, 2001). It follows Linear Programming Technique for
calculating the efficiency scores (Ajibefun, 2008). Data Envelopment Analysis (DEA)
appears to be the most widely used non-parametric approach for measuring revenue
efficiency. Data Envelopment Analysis is a benchmarking technique which permits to
measure organization’s efficiency based on inputs used and outputs produced by them.
Charnes et al., 1978 developed Data Envelopment Analysis (DEA) which applies linear
programming based technique to assess an empirical production technology frontier. It
computes the efficiency of a company in transforming inputs into outputs in relation to its
peer group. The best practice company defines an envelopment surface which is referred as
an empirical Production Efficient Frontier. Companies that lie on envelopment surface are
deemed to be efficient in DEA while those units that lie in the interior of the surface are
termed inefficient companies. Companies in DEA are known as Decision Making Units
S. Year of
Revenue
No Insurers Foreign partners operation efficiency
evaluation
1 Life Insurance Corporation of India – 1956–1957
2 Aditya Birla Sunlife Insurance Sun life Financial (India) Insurance 2000–2001
Company Ltd Investment Inc, Canada
3 HDFC Standard Life Insurance Standard Life (Mauritius holdings) 2006, Ltd, 2000–2001
Company Ltd UK
4 ICICI Prudential Life Insurance Prudential Corporation Holdings Ltd, UK 2000–2001
Company Ltd
5 MaxLife Insurance Company Ltd Mitsui Sumitomo Insurance Company Ltd, 2000–2001
Japan
6 Bajaj Allianz Life Insurance Allianz, SE Germany 2001–2002
Company Ltd
7 Exide Life Insurance Company Ltd – 2001–2002
8 Kotak Mahindra Life Insurance Ltd – 2001–2002
9 PNB MetLife India Insurance MetLife International Holdings Inc, USA 2001–2002
Company Ltd
10 Reliance Nippon Life Insurance Nippon Life Insurance Company Ltd, Japan 2001–2002
Company Ltd
11 SBI Life Insurance Company Ltd BNP Paribas Cardif, France 2001–2002
12 TATA AIA Life Insurance American International Assurance Company 2001–2002
Company Ltd (Bermuda) Ltd
13 Aviva Life Insurance Company Aviva International Holdings Ltd, UK 2002–2003
India Ltd
14 Sahara India Life Insurance – 2004–2005
Company Ltd
15 Shriram Life Insurance Company Sanlam Emerging Markets (Mauritius) 2005–2006
Ltd Limited
16 Bharti AXA Life Insurance AXA India Holdings, France 2006–2007
Company Ltd
17 Future Generali India life Insurance Participatie Maatschapij Hraafsschap 2007–2008
Company Ltd Holland NV, Netherlands
18 IDBI Federal Life Insurance Aegis Insurance International NV, 2007–2008
Company Ltd Netherlands
19 Aegon Life Insurance Company Ltd Aegon India Holdings BV, Netherlands 2008–2009
20 Canara HSBC OBC Life Insurance HSBC Insurance (Asia Pacific) Holdings Ltd, 2008–2009
Company Ltd UK
21 DHFL Pramerica Life Insurance Prudential International Insurance Holdings 2008–2009
Company Ltd Ltd, USA
22 Star Union Dai-ichi Life Insurance Dai-ichi Life Insurance Company Ltd, Japan 2008–2009
Company Ltd
23 IndiaFirst Life Insurance Company Legal and General Middle East Ltd 2009–2010
Ltd Table 2.
24 Edelweiss Tokio Life Insurance Tokio Marine and Nichido Fire Insurance 2011–2012 Indian life insurance
Company Ltd Company Ltd, Japan companies

(DMUs).The main endeavour of DEA is to calculate how efficiently DMUs uses available
resources to generate outputs (Charnes et al., 1978). DEA tries to determine the weight using
linear programming technique so as to maximize the ratio weighted output to weighted
input. In DEA, the weights for inputs and outputs are derived from the data instead of being
fixed in advance. The optimal weights generally vary from one DMU to another DMU.
DMUs having an efficiency score of one are rated as most efficient while less efficient DMUs
have efficiency score between zero and one. DEA was originally developed for measuring
Technical Efficiency, Pure Technical Efficiency and Scale Efficiency where prices of inputs
BIJ and outputs are not required. In DEA, multiple inputs and multiple outputs are linearly
aggregated using weights. As a result, the efficiency is calculated as:
Weighted sum of outputs
Efficiency ¼
Weighted sum of Inputs

The weighted sum of inputs and outputs are known as virtual inputs and virtual outputs. The
equation form of virtual inputs and outputs is written as follows:
Virtual input ¼ v1 x1o þ v2 x2o þ v3 x3o þ . . . þ vm xmo
Xm
¼ vi xio
i¼1

Virtual output ¼ u1 y1o þ u2 y2o þ u3 y3o þ . . . þ ur yro

Xs
¼ ur yro
r¼1

Hence, the efficiency scores in DEA can be calculated as follows:

Ps
ur yro
Max θ ¼ r¼1Pm
vi xio
i¼1
Afterwards, DEA was modified to measure economic efficiency i.e. Cost Efficiency, Revenue
Efficiency and Profit Efficiency which require different input-output combinations as well as
their prices (Fried et al., 2008). Revenue Efficiency model is an output oriented model that
maximizes revenue for a given set of input quantities and output prices. It measures the ratio
between current revenues and optimal revenues, given the output prices and input and output
quantities (Lovell, 1993; Sanchez et al., 2013). The distance of firm from the maximum output
indicates the potential increase in outputs that the firm could achieve using the same inputs. It
helps to achieve the maximum rate of increase in outputs that would be feasible for all inputs
(Das et al., 2005). Revenue Efficiency is said to be achieved when a firm chooses an output
combination which gives them maximum revenue at the applicable output prices. The fully
efficient firm has a Revenue Efficiency score equal to 1 while the inefficient firms have efficiency
score less than 1. In order to ascertain the Revenue Efficiency, firms should focus on two
components of it, i.e. Technical Efficiency (output oriented) and Allocative Efficiency (output
oriented) (English et al., 1993). Technical Efficiency (output oriented) reflects the ability of a firm
to maximize output from a given set of inputs whereas Allocative Efficiency reflects the ability of
the firm to use the inputs to maximize the proportion of output given their respective output
prices based on certain regulations. These measures are then combined to provide a measure of
efficiency called Revenue Efficiency. Clearly the decomposition of Revenue Efficiency enables to
understand what needs to be done to enhance the performance of the firm.
Figure 1, the firm is producing a given level of outputs (Y1 and Y2) using the input (x) defined
by point P assuming Constant Return to Scale (CRS). On X axis y1/x and on y axis y2/x is depicted.
SS’ is the Production Possibility Curve (PPC) for the firm. A firm which lies on the curve such as Q
and Q’ are fully efficient firms. P firm is inefficient as it lies below the PPC. If the inputs employed
by the firm are used efficiently, the output of the firm producing at point P can be expanded
radically to point Q. This shows the distance PQ represents related to technical inefficiency.
Hence, Technical Efficiency (output oriented) can be given as OP/OQ. If the output price
information is given, then the iso-revenue line AA’ can be drawn. The point Q is technically
efficient as it lies on the production possibility frontier and higher revenue can be achieved by
producing at point Q’ because Firm Q’ is operating at the tangency point between the production
 A Revenue
Y Axis
efficiency
S
R evaluation

Q
Y2/X

P Q’

A’
Figure 1.
Revenue, Technical
0 Y1/X S’ X Axis and Allocative
Efficiency (output
oriented)
Source(s): Coelli et al., (2005)

possibility curve and the price line. Firm Q’ is the point of maximum revenue efficient. To achieve
the same level of revenues as at point Q’ with the same inputs and output combination, the output
of the firm would need to be expanded to point R. The Allocative Efficiency is measured as 0Q/0R.
Further overall Revenue Efficiency is the product of Technical Efficiency (output oriented) and
Allocative Efficiency (output oriented) which forms Revenue Efficiency.

Revenue Efficiency ¼ Technical EfficiencyðOOÞ 3 Allocative EfficiencyðOOÞ

ð0P=0RÞ ¼ ð0P=0QÞ 3 ð0Q=0RÞ

Two firms with identical input and output quantities and output prices may have different
Revenue Efficiency scores because one of the firms has superior product quality or more effective
marketing strategies. Revenue Efficiency can be attained if the firm uses best practice technology
and chooses the optimal mix of outputs. In other words, RE is achieved by means of the best
practice technology choosing the most favourable mix of outputs. An insurance company can
improve its Revenue Efficiency by offering quality services in addition by avoiding improper
input-output quantity mix and mispricing of output prices (Rogers, 1998). The following is the
Mathematical programming equations used to compute revenue efficiency scores:
X s
Max ¼ qor yro
r¼1
X
n
Subject to λj xij ≤ xio i ¼ 1; 2; . . . ; m
j¼1
X
n
λj yrj ≥ yro r ¼ 1; 2; . . . ; s
i¼1
λj ; yro ≥ 0
X n
λj ¼ 1
i¼1
BIJ 3.3 Return to scale (RTS)
In economic terms, company’s objective is to operate on the most productive scale size, i.e.
Constant Returns to Scale (CRS) in order to maximize the revenue. Return to Scale assists in
achieving the most productive scale size by either downsizing or expanding the scale of
operations. Non-parametric DEA can find out whether a Decision-Making Unit (DMUs) i.e.
insurance company is operating at Decreasing Returns to scale (DRS), Increasing Returns to
Scale (IRS) or Constant Returns to Scale (CRS). DRS indicates that DMU produces less than
proportional increase in outputs with an increase in inputs, IRS depicts that DMU produces
more than proportional increase in outputs with an increase in inputs and Constant Return to
Scale (CRS) depicts that DMUs produces equal increase in the outputs with an increase in
inputs. Return to Scale in DEA can be identified by comparing the efficiency scores obtained
from the CCR model which assumes Constant Return to Scale (CRS) with the efficiency scores
calculated from BCC model by assuming Variable Return to Scale (VRS). If VRS scores are
equal to CRS scores then it is supposed that a bank is operating at Constant Returns to Scale
(CRS). If the scores are not equal then it is desirable to ascertain whether a bank is operating at
Increasing Returns to Scale (IRS) or Decreasing Returns to Scale (DRS). To recognize whether
bank is operating on IRS or DRS, DEA model is applied under the assumptions of Non-
Increasing Returns to Scale (NIRS). If VRS efficiency scores are equivalent to NIRS score then
the bank is said to be operating at DRS while if VRS scores are different from NIRS score then
the bank is said to be operating at IRS (Coelli et al., 1998). The nature of Return to Scale is very
significant as the information obtained from the efficiency scores about the nature of RTS
may be utilized by management to achieve the most productive Scale size by either
downsizing or expanding the Scale of operations.

3.4 Input-output selection for revenue efficiency measurement

In the context of financial institutions, the selection of inputs and outputs is an arbitrary
process in DEA (Ariff and Can, 2008 and Berger and Humphrey, 1997). Different approaches
for selecting inputs and outputs include Intermediate Approach, User Cost Approach and
Value Added Approach. In Intermediation approach, the insurance company is considered as
a financial intermediary that borrows funds from policyholders and shareholders for
transforming them in assets basically for paying out claims and investing in capital market.
The user cost approach considers financial product as an input or output by analysing their
net contribution to firm’s revenues. If return of an asset is more than its cost then the product
is considered as an output or vice versa. The value added approach considers all assets and
liabilities with substantial value added as the major outputs, and the remaining assets
and liabilities are considered as inputs, intermediate product, or unimportant outputs. Eling
and Luhnen (2010)Eling and Luhnen, 2010 after reviewing 95 studies on efficiency evaluation
suggested that three main insurance inputs were labour (agent and home-office labour),
business services and materials, and capital. Wise (2017) recommended that the basic set of
output proxies is premiums and investment income. Furthermore, some studies use
premiums as an output proxy (Yuengert, 1993; Gardner and Grace, 1993; Fecher et al., 1993)
and they categorize the net premium as the value added for customers. This approach is
considered most appropriate for measuring efficiency of financial institutions and is widely
used in case of insurance studies (Sinha, 2015). The present study uses two inputs and two
outputs. Number of agents and Shareholder Fund are the inputs and Investments and Net
Premium received are the outputs used for computing the revenue efficiency scores. The
description of inputs and outputs is described in Table 3 as follows:
A precondition for the application of DEA is that the sample size must be at least twice the
sum of input and output variables. Furthermore, the number of insurance companies
considered for the study is satisfactory as it represents more than twice the sum of inputs and
outputs, and meets the pre-condition for the application of DEA.
Variables Description
Revenue
efficiency
Input variables evaluation
1. Number of agents Number of agents both individual and company in the insurance company
2. Shareholder Fund Share Capital þ advance against share capital þ share application money pending
Allotment þ Reserves and Surplus þ Fair Value change account
Output variables
1. Investments Both shareholders’ and policyholders’ investments in approved securities,
government securities, other approved securities, shares, debentures and assets
held to cover linked liabilities
2. Net premium received Premium-reinsurance ceded þ reinsurance accepted
Output prices
1. Prices of investments Income (interest and dividend received) from investments/Investments Table: 3.
2. Prices of premium Price of premium received as unity throughout the years for all companies Description of input
received and output variables

3.5 Independent sample T-test

In order to check whether the revenue efficiency performance of Public and Private Sector
Life Insurance Companies is significantly different or not, Independent sample T-test is
applied. The test compares the mean between the groups and determines whether the means
are significantly different from each other.

3.6 Hypothesis development

Life Insurance Industry in India is regulated by Insurance Regulatory and Development
Authority of India (IRDA). It administers, manages and controls insurance companies in both
Public and Private sector with the same regulatory framework i.e. Insurance Act, 1938. Thus,
companies in both sectors have to follow common statutory constraints and privileges. There
exist no differences in organization and management of these companies on the basis of
ownership in the statutes. Both are operating in the market and facing the same competition.
Hence it is hypothesized that:
H1. There exist no statistically significant difference in the revenue efficiency scores of
public and private insurance companies.

4. Empirical findings and discussion

4.1 Revenue Efficiency of Indian life insurance companies
Revenue Efficiency scores for each Indian Life Insurance Company is calculated over the time
period of 5 years from 2013–2014 to 2017–2018. Then these scores are aggregated to analyse
the performance of Overall Indian Life Insurance Companies. Table 4 represents the Revenue
Efficiency and scores of its components for overall Indian Life Insurance Companies.
As seen from Table 4, Revenue Efficiency score of Indian Life Insurance Companies is
0.336 in 2013–14 which marginally increases to 0.341 in 2014–2015 and 0.345 in 2015–2016. In
the next year 2016–2017, it rebounds to a low of 0.341and then one again revives and reaches
its maximum level in 2017–2018, showing an efficiency score of 0.356. Revenue efficiency in
the recent 5 years has rolled over 0.336 to 0.356 only. In the same way, an erratic pattern is
noticed in Allocative Efficiency, Technical Efficiency (Output Oriented), Pure Technical
Efficiency and Scale Efficiency. Estimates of Allocative Efficiency deviate from a minimum
of 0.875 to maximum of 0.969. Technical Efficiency (output oriented) fluctuates from a low of
BIJ 0.343 to a high of 0.391 and Pure Technical Efficiency ranges between a low of 0.447 to a high
of 0.519. Likewise, Scale Efficiency varies from a low of 0.777 to a high of 0.815. On the whole,
Indian Life Insurance Companies could generate only 34.4% of revenue, which is very less
than what they are expected to generate from the given inputs. Average Allocative Efficiency
(Inefficiency) is 91.0% (9.0%), whereas Technical Efficiency (output oriented) (Inefficiency) is
37.0% (63.0%). Pure Technical and Scale Efficiency (Inefficiency) of Indian Life Insurance
Companies is 50.0% (50.0%) and 79.2% (20.8%) respectively.
The average Revenue Efficiency Score of Indian Life Insurance Companies is anxiously
less as compared to the target Revenue Efficiency score of 1. Better Revenue Efficiency Scores
were expected as after the commencement of private sector companies in insurance sector it is
assumed that companies try to capture large market and earn excellent premium by offering
innovative products. But the results show that life insurers have low Revenue Efficiency
score intermittently for all years under study. Revenue efficiency scores follow increased
pattern till 2015–2016 although it is not much significant. During this period, there was an
overall increase of 3.20% in the number of new policies issued. Renewal premium growth in
the whole of the industry also witnessed a hike of 6.20% (IRDA Report, 2015). But the gain
tempered down with the disequilibrium between the number of policies issued vis-a-vis the
rise in operating expenses of the company. The new policies issued by life insurance
companies though reduced by 1.05% but simultaneously the operating expenses accelerated
by 19% in 2016–2017 impacting the revenue adversely. However, during 2017–2018, the
growth in renewal premium of 8.79% and increase in new business premium registration by
10.82% helped the revenue efficiency to stretch to its maximum level during this year.
It is also seen in Table 4 that technical inefficiency seems to be the major cause of Revenue
Inefficiency among insurance companies. Technical efficiency scores (output oriented) are
less as compared to the Allocative Efficiency scores. This depicts that managers of insurance
companies are not able to generate revenue produce as much revenue as they use their inputs.
Furthermore, Pure Technical Inefficiency is the major reason of Technical Inefficiency
(output oriented) as Pure Technical Efficiency scores of Life insurance companies are inferior
in comparison to Scale Efficiency scores. Life Insurance Companies are not able to utilize their
inputs to the fullest possible extent to produce as much output as they are capable. The
results also indicate that there still exists substantial room for improvement for all insurance
companies in terms of output generation with the utilization of the given inputs.

4.2 Company-wise revenue efficiency of life insurance companies in India

The results in the preceding section are worrisome with reference to the performance of Life
Insurance business in India. This has aroused a need to analyse the company specific
performance and calculate the revenue efficiency scores of life insurers individually. The
exercise would help to identify the leaders and laggards; either contributing to or marring the

Year No. of companies RE AE (OO) TE (OO) PTE SE

2013–2014 24 0.336 0.969 0.343 0.477 0.777

2014–2015 24 0.341 0.888 0.377 0.512 0.784
2015–2016 24 0.345 0.931 0.364 0.493 0.802
2016–2017 24 0.341 0.875 0.379 0.501 0.815
Table 4. 2017–2018 24 0.356 0.887 0.391 0.519 0.784
Revenue Efficiency Average 0.344 0.910 0.371 0.500 0.792
scores of Indian Life Note(s): RE: Revenue Efficiency, AE (OO): Allocative Efficiency (Output Oriented), TE (OO): Technical
Insurance Companies Efficiency (Output Oriented), PTE: Pure Technical Efficiency, SE: Scale Efficiency
performance of life insurance business in totality. Thus, Table 5 shows the estimated revenue Revenue
efficiency scores and components scores of Life insurers as follows: efficiency
Table 5 indicates that there has been a change in the revenue efficiency and its
components patterns of Life insurance companies over five years from 2013–2014 to 2017–
evaluation
2018. In 2013–2014, the most efficient companies comprisedonly three companies i.e. Canara
HSBC OBC, IndiaFirst and LIC. These companies operated with full revenue efficiency as
their efficiency scores with respect to revenue efficiency and its components is 1. HDFC
Standard ranked at next position with 0.722 revenue efficiency score followed by Max life
with 0.507 score. Other 19 life insurance companies have revenue efficiency score of less than
0.439 which makes them less efficient. Bharti Axa, Aegon, Sahara India, Future Generali
India and Edelweiss Tokia have very low revenue efficiency score as all have revenue
efficiency score of less than 9.8%. Edelweiss Tokio has the lowest revenue efficiency score of
3.8% (0.038). For the year 2014–2015, again Canara HSBC OBC and LIC operated with full
revenue efficiency score of 1 followed by Indiafirst with 0.901, HDFC Standard with 0.678 and
Max life with 0.521 efficiency score. Bharti Axa, Aegon, Sahara India, Future Generali India
and Edelweiss Tokia yet again have very low revenue efficiency score and ranked at last
positions as per the ranking given. In the year 2014–2015, Edelweiss Tokio has the lowest
revenue efficiency score of 0.045. Further the results of 2015–2016 depict that Canara HSBC
OBC and LIC remain revenue efficient while the revenue efficiency of Indiafirst falls to 0.906.
Remaining 21 life insurers have revenue efficiency score of less than 0.579 (57.9%). Reliance
Nippon, Aegon, Sahara India, Future Generali India and Edelweiss Tokia have very low
revenue efficiency score. Bharti Axa improved their revenue efficiency score a little as it came
at 19th position. Edelweiss Tokio has extremely low revenue efficiency score of 0.043. In the
year 2016–2017, the first position according to revenue efficiency score is occupied by Canara
HSBC OBC and LIC. Indiafirst goes still down in its revenue efficiency score at 0.872. HDFC
Standard and SBI Life occupy fourth and fifth ranks. Avidly, even at a relatively high rank,
SBI Life insurance has the revenue efficiency score of just 0.487 which is less than 50%. Last
positions as per revenue efficiency are again taken by BhartiaAxa, Aegon, Reliance Nippon,
Sahara India and Edelweiss Tokia. Edelweiss Tokio again has the lowest revenue efficiency
score of 0.040. In 2017–2018, the most efficient companies comprisedonly two companies i.e.
Canara HSBC OBC and LIC. These companies operated with full revenue efficiency score of 1.
Indiafirst ranked at second position with 0.948 revenue efficiency score followed by HDFC
Standard with 0.614 score and Star Union Dai-ichi with 0.571 score. Other 19 life insurance
companies have revenue efficiency score of less than 0.524 which makes them less efficient.
Future Generali India, Bharti Axa, Aegon, Edelweiss Tokiaand Sahara India, have very low
revenue efficiency score as all have score of less than 10.6%. In 2017–2018, Sahara India has
the lowest efficiency score of 0.036.
Overall the results depict that Canara HSBC OBC and LIC remain fully efficient in all the
five years under review. Indiafirst is fully efficient in 2013–2014 and remains close to 1 even in
the succeeding 4 years. Future Generali India, BhartiaAxa, Aegon, Reliance Nippon, Sahara
India and Edelweiss Tokia have low revenue efficiency score as they always ranked at the
last positions as per their revenue efficiency scores.

4.3 Robustness test across ownership

From the sample of 24 Life Insurance Companies operating in India, Life Insurance
Corporation of India (LIC) is the only public sector company. The other 23 companies fall in
the private sector. As per statistics available, LIC still leads the market with 66.24% share in
premium with private sector having just the balance of 33.76%. Even in our calculation of
Revenue Efficiency scores, LIC has always shown a revenue efficiency score of 1 in all the
years under review. It seems that LIC dominates all the rest 23 companies in the sector. It also
 BIJ

Table 5.
Revenue Efficiency
scores of Indian Life
Insurance Companies
Year 2013–14 2014–15 2015–16 2016–17 2017–18
Insurance AE TE AE TE AE TE AE TE AE TE
companies RE (OO) (OO) PTE SE Return Rank RE (OO) (OO) PTE SE Return Rank RE (OO) (OO) PTE SE Return Rank RE (OO) (OO) PTE SE Return Rank RE (OO) (OO) PTE SE Return Rank

ADITYA 0.224 1.002 0.224 0.260 0.864 drs 14 0.209 0.934 0.224 0.252 0.891 drs 15 0.165 0.973 0.170 0.183 0.931 drs 15 0.196 0.928 0.211 0.222 0.950 drs 13 0.174 0.943 0.185 0.205 0.903 drs 15
BIRLA
SUNLIFE
AEGON 0.095 0.999 0.095 0.127 0.746 drs 21 0.102 0.812 0.125 0.163 0.767 drs 20 0.096 0.970 0.099 0.131 0.759 drs 21 0.071 0.925 0.077 0.102 0.757 drs 21 0.070 0.940 0.075 0.113 0.665 drs 22
AVIVA 0.231 0.997 0.232 0.319 0.727 drs 11 0.221 0.936 0.236 0.316 0.747 drs 13 0.226 0.965 0.234 0.310 0.754 drs 13 0.173 0.935 0.185 0.231 0.800 drs 16 0.139 0.943 0.147 0.180 0.819 drs 18
BAJAJ 0.141 0.936 0.151 0.177 0.852 drs 17 0.174 0.978 0.178 0.226 0.788 drs 18 0.163 0.867 0.188 0.252 0.744 drs 16 0.176 0.896 0.197 0.288 0.685 drs 15 0.181 0.946 0.191 0.339 0.564 drs 14
ALLIANZ
BHARTI AXA 0.098 0.944 0.104 0.169 0.616 drs 20 0.091 0.728 0.125 0.187 0.670 drs 21 0.111 0.924 0.120 0.166 0.725 drs 19 0.099 0.748 0.132 0.171 0.771 drs 20 0.086 0.758 0.114 0.156 0.728 drs 21
CANARA 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1
HSBC OBC
DHFL 0.119 0.945 0.126 0.134 0.940 drs 19 0.240 0.791 0.304 0.349 0.872 drs 11 0.219 0.837 0.261 0.282 0.927 drs 14 0.179 0.767 0.233 0.242 0.962 drs 14 0.215 0.784 0.274 0.285 0.961 drs 13
PRAMERICA
EDELWEISS 0.038 0.895 0.043 0.049 0.876 irs 24 0.045 0.881 0.051 0.054 0.957 drs 24 0.043 0.924 0.047 0.051 0.923 drs 24 0.040 0.802 0.050 0.052 0.963 drs 24 0.039 0.873 0.045 0.055 0.826 drs 23
TOKIO
EXIDE LIFE 0.168 0.976 0.172 0.209 0.823 drs 16 0.176 0.866 0.203 0.244 0.833 drs 17 0.115 0.907 0.127 0.138 0.916 drs 18 0.108 0.851 0.127 0.133 0.956 drs 19 0.127 0.885 0.143 0.159 0.897 drs 19
FUTURE 0.068 0.964 0.071 0.086 0.825 drs 23 0.086 0.914 0.094 0.114 0.825 drs 22 0.073 0.922 0.079 0.088 0.899 drs 22 0.112 0.871 0.128 0.142 0.907 drs 18 0.106 0.855 0.124 0.159 0.779 drs 20
GENERALI
INDIA
HDFC 0.722 0.970 0.745 0.936 0.796 drs 4 0.678 0.837 0.810 0.986 0.822 drs 4 0.579 0.950 0.609 0.718 0.848 drs 4 0.740 0.865 0.855 1.000 0.855 drs 4 0.614 0.877 0.700 0.978 0.716 drs 4
STANDARD
ICICI 0.302 0.950 0.318 0.363 0.877 drs 10 0.413 0.978 0.422 0.528 0.800 drs 7 0.461 0.979 0.471 0.591 0.797 drs 6 0.401 0.898 0.447 0.546 0.819 drs 8 0.404 0.894 0.452 0.605 0.747 drs 10
PRUDENTIAL
IDBI 0.217 0.999 0.217 0.227 0.954 drs 15 0.219 0.862 0.254 0.263 0.963 drs 14 0.294 0.919 0.320 0.329 0.974 irs 11 0.341 0.833 0.410 0.425 0.966 irs 11 0.308 0.870 0.354 0.363 0.974 irs 11
FEDERAL
INDIAFIRST 1.000 1.000 1.000 1.000 1.000 - 1 0.901 0.901 1.000 1.000 1.000 - 1 0.906 0.961 0.943 1.000 0.943 irs 3 0.872 0.932 0.936 1.000 0.936 irs 3 0.948 0.976 0.972 1.000 0.972 irs 3
KOTAK 0.229 0.962 0.238 0.252 0.945 drs 13 0.186 0.860 0.216 0.229 0.944 drs 16 0.147 0.919 0.160 0.166 0.962 drs 17 0.136 0.790 0.172 0.178 0.968 drs 17 0.168 0.819 0.205 0.227 0.904 drs 16
MAHINDRA
LIC 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1 1.000 1.000 1.000 1.000 1.000 - 1
MAX LIFE 0.507 0.935 0.542 0.708 0.765 drs 5 0.521 0.821 0.635 0.769 0.825 drs 5 0.548 0.908 0.603 0.686 0.878 drs 5 0.451 0.831 0.543 0.595 0.913 drs 7 0.470 0.857 0.548 0.674 0.814 drs 8
PNB METLIFE 0.346 0.997 0.347 0.488 0.710 drs 8 0.316 0.946 0.334 0.462 0.723 drs 10 0.439 0.986 0.445 0.676 0.659 drs 8 0.464 0.943 0.492 0.742 0.662 drs 6 0.524 0.941 0.557 0.854 0.653 drs 6
RELIANCE 0.138 0.949 0.145 0.183 0.794 drs 18 0.123 0.749 0.164 0.199 0.826 drs 19 0.109 0.881 0.124 0.127 0.973 drs 20 0.069 0.797 0.087 0.088 0.987 drs 22 0.157 0.848 0.185 0.196 0.944 drs 17
NIPPON
SAHARA 0.073 1.003 0.073 1.000 0.073 irs 22 0.057 0.994 0.057 1.000 0.057 irs 23 0.045 0.954 0.047 1.000 0.047 irs 23 0.045 0.946 0.048 1.000 0.048 irs 23 0.036 0.773 0.046 1.000 0.046 irs 24
INDIA
SBI LIFE 0.370 0.999 0.371 0.453 0.819 drs 7 0.483 0.935 0.517 0.681 0.758 drs 6 0.458 0.941 0.487 0.624 0.781 drs 7 0.487 0.864 0.564 0.697 0.810 drs 5 0.476 0.880 0.541 0.775 0.698 drs 7
SHRIRAM 0.306 0.978 0.313 1.000 0.313 irs 9 0.320 0.809 0.396 1.000 0.396 irs 9 0.433 0.877 0.494 1.000 0.494 irs 9 0.379 0.763 0.497 1.000 0.497 irs 9 0.435 0.798 0.545 0.734 0.742 irs 9
LIFE
STAR UNION 0.439 0.995 0.441 1.000 0.441 irs 6 0.405 0.882 0.459 1.000 0.459 irs 8 0.411 0.940 0.437 1.000 0.437 irs 10 0.347 0.826 0.420 0.829 0.506 irs 10 0.571 0.868 0.658 1.000 0.658 irs 5
DAI-ICHI
TATA AIA 0.231 0.867 0.266 0.298 0.894 drs 12 0.221 0.896 0.247 0.275 0.898 drs 12 0.239 0.852 0.281 0.318 0.881 drs 12 0.285 0.995 0.286 0.339 0.845 drs 12 0.308 0.953 0.323 0.403 0.801 drs 12
Note(s): RE: Revenue Efficiency, AE (OO): Allocative Efficiency (Output Oriented), TE (OO): Technical Efficiency (Output Oriented), PTE: Pure Technical Efficiency,
SE: Scale Efficiency
seems that the poor average of revenue efficiency is mainly because of bad performance of Revenue
private sector players. efficiency
Life Insurance Corporation (LIC) has long existence of more than six decades. It is in fact a
“brand” in itself; difficult to compete and conquer. However, in contrast to the preceding
evaluation
opinion, Life Insurance Corporation has some follies too. It has been lagging behind in the terms
of introducing novel and innovative products in the market. Unlike private players it does not
offer customised services and tailor-made policies as per the requirement of customers. On the
other hand, Private insurance companies too have toiled hard. They have launched many
modern and unconventional products in the market as per need of customers like ULIPs, Cancer
and Heart Insurance Plans etc. Private players are also taking advantage of digitalization and
are expanding their business by selling their policies through online platform. They are making
use of new sales channels like Bancassurance, Point of Sale Agents, Agency Partner Channel
(APC), Web Aggregators and others. LIC still continues to rely heavily on traditional approach
of sales specifically through agents. It has just miniscule presence on online market space.
But to confirm whether the differences in revenue efficiency scores of LIC (Public) and
other companies (Private) are statistically significant or not, Independent Sample t-test is
applied. Before applying, Independent Sample t-test assumptions are required to be checked.
It has been found that the data is normal and test of equality of variances (Levene’s test) is
insignificant. The results of Independent Sample t-test are given in Table 6.

Efficiency score
Private Public Independent sample T-test
Year Efficiency sector sector Levene’s test statistics Sig

2013– RE 0.307 1.000 1.071 2.506* 0.020

2014 AE(OO) 0.968 1.000 1.726 0.860 0.399
TE(OO) 0.315 1.000 1.079 2.469* 0.022
PTE 0.454 1.000 3.066 1.507 0.146
SE 0.767 1.000 0.865 1.021 0.318
2014– RE 0.312 1.000 1.324 2.62* 0.016
2015 AE(OO) 0.883 1.000 1.901 1.51 0.144
TE(OO) 0.350 1.000 1.464 2.30* 0.031
PTE 0.491 1.000 4.026 1.43 0.168
SE 0.775 1.000 0.740 1.02 0.318
2015– RE 0.317 1.000 1.790 2.565* 0.018
2016 AE(OO) 0.929 1.000 1.876 1.592 0.126
TE(OO) 0.337 1.000 1.864 2.432* 0.024
PTE 0.471 1.000 4.624 1.484 0.152
SE 0.791 1.000 0.913 0.922 0.367
2016– RE 0.312 1.000 1.548 2.540* 0.019
2017 AE(OO) 0.870 1.000 2.399 1.739** 0.096
TE(OO) 0.352 1.000 2.067 2.246* 0.035
PTE 0.479 1.000 4.362 1.441 0.164
SE 0.807 1.000 0.892 0.862 0.398
2017– RE 0.329 1.000 1.846 2.43* 0.024
2018 AE(OO) 0.882 1.000 1.710 1.74** 0.096
TE(OO) 0.365 1.000 2.371 2.21* 0.038
PTE 0.498 1.000 5.553 1.41 0.173 Table: 6.
SE 0.774 1.000 0.788 1.11 0.281 Independent sample
Note(s): RE: Revenue Efficiency, AE (OO): Allocative Efficiency (Output Oriented), TE (OO): Technical t-test Results for
Efficiency (Output Oriented), PTE: Pure Technical Efficiency, SE: Scale Efficiency Revenue efficiency
*, **Significant at 5% and 10% level of Significance respectively scores
BIJ As seen in Table 6, there exists a statistically significant difference among Public and
Private life insurance companies in case of revenue efficiency. Revenue Efficiency has t value
of 2.506, 2.62, 2.565, 2.540 and 2.43 for 2013–2014, 2014–2015, 2015–2016, 2016–2017 and
2017–2018, respectively which is significant at 5% level of significance. Thus H1 is rejected.
This means that the difference among groups in case of Revenue Efficiency scores is
statistically significant. Overall, the results of independent sample t-test depict that revenue
efficiency score is different for Public Sector and Private Sector life insurers operating in
India; consequently, leading to the fact that LIC is the most revenue efficient company.
LIC has the largest agency force in the insurance sector as more than 70% of its business
collection is through the agency channels (Saraswathy, 2018). LIC has long and old existence
and has large number of branches extended all over rural and urban regions of the country. It
has cavernous penetration till the masses. Moreover, LIC has backing of the Government of
India. Most importantly, LIC is India’s Most Trusted brand in the Banking, Financial Services
and Insurance (BFSI) category (TRA’s Brand Trust Report, 2019). Thus, LIC is the most
trusted company enjoying more than 60 years of trust, faith and confidence of the customers.
A business like insurance is a game of “trust” and “belief”. This faith of people in LIC helps it
to still dominate the market, in spite of its constraints in terms of technological or electronic
savviness. From operations point of view also, LIC’s large participating funds and low
expense ratios are its biggest strengths (Sinha, 2018). LIC dominates the annuity business
with a 95% market share (Sinha, 2019). All these plus points help LIC to significantly earn
better revenues as differentiated from rivals in the private sector.

4.4 Analysing return to scale for insurance companies

The results generated by DEA in Table 5 can also be used to determine whether an insurance
company is operating at a correct scale or not. Table 7 provides a synoptic view of the number
of insurance companies operating on Constant Return to Scale (CRS), Increasing Return to
Scale (IRS) and Decreasing Return to Scale (DRS).
Table 7 shows that 3 to 5 insurance companies are operating at IRS, 2 to 3 insurance
companies operating at CRS while 17–18 insurance companies operating at DRS. This
highlights that life insurers need to enlarge their scale of operations as the highest percent of
insurance companies are operating at Decreasing Return to Scale which means that changes
in all inputs by the same proportion changes output by less proportional values. This shows
that insurance companies are not utilizing their resources properly. Numerous companies are
experiencing diseconomies of scale. Scale inefficiency seems to be a very gross cause of poor
performance of life insurers operating in India.

4.5 Identification of leaders and laggards

On the basis of the mean efficiency scores generated by DEA, life insurance companies
operating in India have been divided into three categories: (1) Insurers with efficiency score of
1 are considered as leaders (2) Insurers which have efficiency score less than one but greater

Year IRS DRS CRS Total

2013–2014 4 (17) 17 (71) 3 (12) 24

Table: 7. 2014–2015 3 (13) 18 (75) 3 (12) 24
Number of Indian Life 2015–2016 5 (21) 17 (71) 2 (8) 24
Insurance Companies 2016–2017 5 (21) 17 (71) 2 (8) 24
at Different Return to 2017–2018 5 (21) 17 (71) 2 (8) 24
scale (RTS) Note(s): Figures in parentheses are percentages
than mean revenue efficiency score are rated as moderate performers while (3) Insurers with Revenue
mean efficiency score of less than average are considered as laggards. Table 8, presents the efficiency
number of insurers falling in each category as follows:
It is observed that there is a reduction in leaders from 3 to 2 (Revenue Efficiency); 5 to 2
evaluation
(Allocative efficiency), 3 to 2 (Technical Efficiency), 6 to 5 (Pure Technical efficiency) and 3 to 2
(Scale efficiency) while laggards have shown erratic pattern during the time period under study
though with the highest proportion of companies falling in the category of laggards. The
moderate performers varied between 5 and 8 (Revenue Efficiency); 8 to 10 (Allocative
efficiency), 5 to 8 (Technical Efficiency) and 3 to 6 (Pure Technical efficiency) and 11 to 13 (Scale
efficiency). Overall, there is decline in leaders and laggards while with a little increase in
moderate performers. Results exhibit that insurance companies are floating from moderate
performer to being laggards.
The results of the study corroborate with previous studies as Sinha (2006), Sinha (2007a),
Sinha (2010), Dutta and Sengupta (2011), Nandi (2014), Bawa and Bhagat (2015), Sinha (2015),
Roy and Saha (2018), Anandarao et al. (2019), Parida and Acharya (2017), Dash and Muthyala
(2018) and Siddiqui (2020) that report LIC to be much efficient relative to its counterparts in the
insurance industry. Also, across ownership comparison suggests that Public sector outcasts
companies in private sector in terms of efficiency. Our results are endorsed by Sinha (2007a),
Shinde (2012) and Noronh and Shinde (2012) who found that private insurance companies were
behind the Life Insurance Corporation. However studies by Sinha (2007b), and Sinha and
Chatterjee (2011) revealed private insurers to be more efficient than public insurers. The time
period covered by these studies were the inceptionary years for the private insurance
companies when they toiled hard to outcast their competitors. Similarly our results are not
supported by Sinha (2007a), Chakraborty et al. (2012), Nandi (2014) and Saxena et al. (2020)
Saxena et al., 2020 who exhibited that most of insurance companies operated at increasing
returns to scale unlike our findings where higher proportion of companies is operating on
decreasing returns to scale.

5. Conclusion and implications

To conclude, the current study appropriately fills the gap by working on the much neglected
parameter of calculating the revenue efficiency scores of Insurance companies in India and
identifying the reasons for their inefficiencies. It also provides implications for efficient and
effective management of insurance companies. The results of the study delineate that overall
Indian Life Insurance Companies could generate only 34.4% of revenue, which is very less than
what they were expected to generate from the same inputs. Canara HSBC OBC and LIC exhibit
high revenue efficiency score of 1 during all the years under review. Revenue efficiency and its
component scores are statistically and significantly different for Public Sector and Private
Sector life insurers operating in India, making public insurance sector supersede the private
insurance sector significantly. Majority (71%–75%) of Life insurance companies operating in
India are operating at Decreasing Return to Scale (DRS). There is decline in leaders and

Leaders Moderate performers Laggards

Year RE AE TE PTE SE RE AE TE PTE SE RE AE TE PTE SE

2013–14 3 5 3 6 3 5 9 5 3 13 16 10 16 15 8
2014–15 2 2 3 6 3 6 10 6 4 13 16 12 15 14 8 Table: 8.
2015–16 2 2 2 6 2 8 10 8 5 12 14 12 14 13 10 Number of Life
2016–17 2 2 2 6 2 9 9 9 5 13 13 13 13 13 9 Insurers identified as
2017–18 2 2 2 5 2 8 8 8 6 11 14 14 14 13 11 Leaders and Laggards
BIJ laggards while increase in moderate performers in terms of revenue efficiency score of
companies.
The results lead to a few perturbing implications. Private players are disfiguring the
average revenue efficiency scores of insurance business. Should they be removed from the
market? Should the insurance business be nationalized once again? The statutory bodies
related to insurance business need to contemplate the matter seriously. Insurance reach in India
is still very low. To be specific, insurance penetration is just at 3.69% (IRDA Report, 2018). In
spite of 24 players in the business, a massive population of 1.3 billion is not being sheltered by
privileges of insurance. The policy makers should try to bring more novelty, innovation and
customization in insurance policies so that each unit of population is motivated to purchase the
same. Awareness among masses with specific reference to benefits of life insurance is required.
Financial literacy is desirable. Insurance companies should address general people and
acquaint them with the privileges of being insured. Certain literature in vernacular languages
may also be distributed to familiarize public with the same. Insurance managers should focus
on the modes of distribution of insurance policies. For low browed population, insurance
policies should be sold through face-to-face distribution channels through agents. For others
well–versed with technology, web aggregators or online channels should be encouraged.
Marketing teams of insurance companies should identify the untapped market segments.
Insurance companies should try to sell policies and attract more customers with large-scale
campaigning and extensive advertising through audio-video and print modes. Last but not the
least; managers should propagate the relevance of achieving higher revenue efficiency in
insurance business amongst their staff so that each individual contributes to the stated
objective with perfection and there is improvement in revenue efficiency scores.

6. Limitations and future scope

No study is free from limitations and the present work is no exception. For calculation of
efficiency, input-output selection is a major decision. This selection is based on a researcher’s
judgment which unknowingly leads to biasness and hence hinders generalization of results.
However, for future research scope, the work can further be extended by comparing the
performance in terms of cost, revenue and profit efficiency. Various company specific,
industry specific and economy specific factors too can be taken for checking their impact on
revenue efficiency.

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About the authors

Aparna Bhatia is working as Assistant Professor in the University School of Financial Studies, Guru
Nanak Dev University, Amritsar. Her area of specialization is Finance and strategic management. She
has credited more than two dozen research papers in various national and international journals. She has
also attended many national and international conferences and workshops.
Megha Mahendru is working as Assistant Professor in the Department of Commerce and Business
Administration, Khalsa College Amritsar. Her area of specialization is Finance and Banking. Her
research interests include performance measurement using data envelopment analysis and financial
sector. She has more than dozen publications to her credit. Megha Mahendru is the corresponding author
and can be contacted at: [email protected]

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