Investigating the efficiency of insurance companies in a developing country: a data envelopment analysis perspective

Insurance companies play a pivotal role in the financial systems of developing countries, wielding substantial influence on systemic financial stability. Thus, understanding their efficiency, performance, and sustainability is paramount for policymakers and stakeholders alike. The aim of this paper is to evaluate the relative efficiency of insurance companies within the North Macedonian market spanning the years 2018 to 2022. Employing the input-oriented BCC DEA model, the study integrates capital and labour as inputs, while assessing risk-pooling/bearing services and intermediate function as outputs. Our findings underscore the fluctuating efficiency levels within North Macedonia's insurance sector. Notably, the sector exhibited its peak efficiency in 2018 at 83.62%, dipping to its lowest point of 73.81% in 2020. Moreover, discerning between life and non-life insurers, we observe an average relative efficiency of 0.8067 for non-life insurers, contrasted with a higher average efficiency score of 0.9011 for life insurance companies over the examined period. This study contributes significantly on multiple fronts. Firstly, it pioneers empirical investigation of the efficiency on the North Macedonian insurance market, encompassing pre- and post-COVID efficiency metrics. This fills a notable gap in the literature, particularly within the context of emerging European markets. Secondly, our comprehensive approach facilitates a holistic evaluation of the insurance sector's performance across a five-year span, offering insights into its overarching dynamics and efficacy. Thirdly, the implications of our findings extend to policymakers, regulators, and insurance company management, aiding in informed decision-making and strategic planning.