The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: evidence from a stochastic frontier analysis

Alshammri, Ahmad Alrazni and Syed Jaafar Alhabshi, Syed Musa and Saiti, Buerhan (2019) The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: evidence from a stochastic frontier analysis. Economic Systems, 43 (3-4). pp. 1-18. ISSN 0939-3625 E-ISSN 1878-5433

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Abstract

The Gulf Cooperation Council's (GCC) insurance industry, including conventional insurance and Takaful, has witnessed remarkable growth during the last decade. However, the economies of this region rely on oil as the primary stream of revenue and lack development in financial markets. This could affect the insurance industry. For this reason, this paper examines the impact of oil prices and the financial market on the cost efficiency of the insurance and Takaful sectors in GCC countries using a stochastic frontier cost function with data from 2009–2016. The results show that the relationship between oil prices and efficiency changes from positive to negative when the prices increase, whereas the relationship between the financial market and efficiency is negative. No clear evidence of the impact of oil prices on efficiency arises from the differences between conventional insurance and Takaful. However, there are differences regarding the financial market, with a negative impact on conventional insurance and a positive one on the Takaful business. The results of this study have implications for regulators and management. The Takaful industry is rapidly growing compared to conventional insurance in the GCC and, therefore, the financial market may have added benefits for the GCC region. However, caution is required in relation to the impact of the financial market on conventional insurance. Furthermore, management may require the development of strategies to deal with the nature of GCC economies to avoid shocks to oil prices. © 2019

Item Type:	Article (Journal)
Additional Information:	6867/79863
Uncontrolled Keywords:	Cost efficiency, Financial capital development, Islamic Finance, GCC, Insurance, Oil price, Takaful
Subjects:	H Social Sciences > HF Commerce > HF5001 Business. Business Administration > HF5469 Markets. Fairs
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:	26 Mar 2020 16:47
Last Modified:	26 Mar 2020 17:01
URI:	http://irep.iium.edu.my/id/eprint/79863

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