Analysing the Technical Efficiency of General Takaful Industry in Malaysia: A Non-Parametric Approach

Abstract

This paper aims to examine the technical efficiency level of the general takaful operators in Malaysia from 2013 to 2017. The focus on the general takaful industry is made after taking into account the recent regulatory developments, i.e. phased liberalisation of motor and fire tariff, and Islamic Financial Services Act 2013 (IFSA 2013) - conversion of composite license to single licenses. This paper employs Data Envelopment Analysis (DEA) and Malmquist Productivity Index (MPI) in order to measure the relative technical efficiency and the total factor productivity (TFP) change of eight general takaful operators in Malaysia respectively. The findings suggest that the main source of inefficiency of the general takaful operators in Malaysia is scale inefficiency, rather than managerial inefficiency. Meanwhile, technological regress has dampened the TFP growth of the general takaful industry in Malaysia. Therefore, it suggested the general takaful operators improve their productivity by improving their technical innovation.