Stability of relative efficiency in DEA of life insurers and takaful operators

Research output: Contribution to journalArticle

Abstract

It is essential to test the stability of the efficient frontier and the reliability of efficiency scores obtained from DEA. This becomes more significant if the results will be used to make management decisions or to enhance the efficiency of the firm. Therefore, this study will perform several tests to ensure the stability of the relative efficiency obtained from the DEA. These tests are demonstrated on DEA efficiency scores of risk and investment management function of life insurers and takaful operators. Several stability tests performed in this study on the illustrative data show a stable efficient frontier. The test also indicated that the efficiency score is reliable in discriminating between efficient and inefficient decision making units (DMUs). Therefore it can be concluded that the DEA model used is appropriate in furnishing a comprehensive guide towards the best practices that other firms might adopt and worst practices that other firms should avoid. In turn, the managerial decision-making can be made with more confidence.

Original languageEnglish
Pages (from-to)857-874
Number of pages18
JournalGlobal Journal of Pure and Applied Mathematics
Volume12
Issue number1
Publication statusPublished - 2016

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Relative Efficiency
Operator
Efficient Frontier
Decision making
Decision Making
Best Practice
Confidence
Mathematical operators
Life
Unit
Business

Keywords

  • Data envelopment analysis (DEA)
  • Efficiency
  • Investment management
  • Risk management
  • Stability
  • Takaful

ASJC Scopus subject areas

  • Mathematics(all)
  • Applied Mathematics

Cite this

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abstract = "It is essential to test the stability of the efficient frontier and the reliability of efficiency scores obtained from DEA. This becomes more significant if the results will be used to make management decisions or to enhance the efficiency of the firm. Therefore, this study will perform several tests to ensure the stability of the relative efficiency obtained from the DEA. These tests are demonstrated on DEA efficiency scores of risk and investment management function of life insurers and takaful operators. Several stability tests performed in this study on the illustrative data show a stable efficient frontier. The test also indicated that the efficiency score is reliable in discriminating between efficient and inefficient decision making units (DMUs). Therefore it can be concluded that the DEA model used is appropriate in furnishing a comprehensive guide towards the best practices that other firms might adopt and worst practices that other firms should avoid. In turn, the managerial decision-making can be made with more confidence.",
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