Kembo M. Bwana 1, Evelyne F. Magambo 2
1 Senior Lecturer, Accountancy Department, College of Business Education,
P. O Box 2077, Dodoma – Tanzania, Corresponding Author: kembo211@gmail.com
2 Lecturer, Accountancy Department, College of Business Education
P .O. Box 3168 Mwanza -Tanzania
Abstract
This study compares the performance of non-life insurance in Tanzania and Kenya. Specifically, the study compares the Technical and Scale Efficiency (TSE) of non-life insurance in the two countries. It further explores the sources of technical inefficiency in non-life insurance in Tanzania and Kenya. The study employs Data Envelopment Analysis (DEA) to estimate the efficiency of the non-life insurance firms by adopting two inputs: management expenses and commission paid, while premiums written, and net investment income were used as output variables. Data were extracted from the annual reports of non-life insurance companies in Tanzania and Kenya for the years 2014-2017 (four years). The study revealed that non-life insurance firms in Tanzania were more technical and scale efficient compared to their Kenya counterparts. When technical efficiency was further decomposed into pure and scale efficiency to examine what largely caused inefficiency, it was revealed that in both Tanzania and Kenya, inefficiency is largely derived from a lack of technical efficiency, which reflects issues of innovation in the sector, inappropriate management practices, operating at sub optimal size of operation and misallocation of resources in production system. This study offers information relevant for investors and policymakers to make informed decisions in the insurance sector in both countries. It further guides insurance firms on the important inputs and proper allocation of the resources in the production system. The findings also contribute to our growing understanding of the effectiveness of non-life insurance in the insurance markets of the two nations.
Keywords: Non-Life Insurance, Technical Efficiency, Scale Efficiency, Data Envelopment Analysis
