The impact of competition on cost efficiency of insurance and takaful sectors: evidence from GCC markets based on the stochastic frontier analysis

Alshammari, Ahmad Alrazni and Syed Jaafar Alhabshi, Syed Musa and Saiti, Buerhan (2019) The impact of competition on cost efficiency of insurance and takaful sectors: evidence from GCC markets based on the stochastic frontier analysis. Research in International Business and Finance, 47. pp. 410-427. ISSN 0275-5319

	PDF - Published Version Restricted to Registered users only Download (674kB) | Request a copy
Preview	PDF (SCOPUS) - Supplemental Material Download (170kB) | Preview
Preview	PDF (WOS) - Supplemental Material Download (370kB) | Preview

Abstract

In recent years, competition in the insurance sector has increased due to the number of players added by the emergence of takaful. This paper examines the impact of competition on the cost efficiency of conventional insurance and takaful sectors in Gulf Cooperation Council (GCC) countries between 2009–2016 using a stochastic frontier cost function. Overall, results suggest that the relationship between competition and efficiency is positive and supports the Quiet Life (QL) hypothesis where managers in a less competitive market may utilise the market power of their firms and reduce their efforts. However, importantly, there are differences between takaful operators and conventional insurers in this respect. The relationship between competition and efficiency turns out to be negative where conventional insurance is concerned, and positive only for takaful. The positive relationship between competition and cost efficiency may encourage policy makers and regulators to support a competitive insurance industry which should improve efficiency. However, they should be aware of the degree of competition and use restrictions and requirement for market entry carefully.

Item Type:	Article (Journal)
Additional Information:	6867/68335
Uncontrolled Keywords:	Insurance Takaful, Islamic finance, GCC, Competition Cost efficiency
Subjects:	H Social Sciences > HG Finance > HG8011 Insurance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Institute of Islamic Banking & Finance (IIiBF)
Depositing User:	Dr Syed Musa Alhabshi
Date Deposited:	06 Dec 2018 16:07
Last Modified:	02 Aug 2019 16:23
URI:	http://irep.iium.edu.my/id/eprint/68335

Actions (login required)

View Item