The cost efficiency of takaful insurance companies

Abstract

This study examines the cost efficiency of non-life Takaful insurance firms operating in 10 Islamic countries. Non-parametric data envelopment analysis is used to compute cost efficiency scores and a second-stage logit transformation regression model is then estimated to test the influence of corporate characteristics on these efficiencies. We find that non-executive directors and separating the Chief Executive Officer and Chairman functions do not improve cost efficiency. However, board size, firm size and product specialisation have positive effects on the cost efficiency of Takaful insurers. In contrast, the regulatory environment is found not to be statistically significant in terms of improving cost efficiency. We conclude that our results could have important commercial and policy implications. © 2010 The International Association for the Study of Insurance Economics.