Insurance

Islamic Economic Studies

Vol. 22, No. 1, May, 2014 (139-158)

DOI No. 10.12816/0004133

Efficiency Measure of Insurance v/s Tak ful Firms Using

DEA Approach: A Case of Pakistan

ATIQUZZAFAR KHAN

UZMA NOREEN

Abstract

This study aims at comparing the Pakistan’s Tak ful and conventional

insurance companies in terms of efficiency and productivity for the period

2006-2010. We apply Data Envelopment approach to estimate technical,

allocative and cost efficiencies. The results indicate that the insurance

industry as a whole is cost inefficient due to high allocative inefficiency.

However, technical efficiency components show improving trends. Results

further indicate that Tak ful firms are more efficient as compared to

conventional insurance firms. Malmquist productivity index shows a

significant improvement in scale efficiency. However, we do not find any

considerable contribution of technology to improve overall productivity. The

study suggests introduction of innovative and diversified products in

insurance industry of Pakistan, particularly for Tak ful companies.

Keywords: Tak ful, insurance, Comparative Analysis, Non-Parametric

Methods.

JEL Classification: G22, P51 D22, C14.

KAU-IEI Classification: I44.

1. Introduction

The insurance industry plays an important role in the development of social and

economic sectors of an economy by minimizing risk of all economic activities on the

one hand and by channelizing long term financial resources on the other. An efficient



Assistant Professor, International Institute of Islamic Economics, International Islamic University,

Islamabad, Sector H-10, Pakistan. Email: atiquzzafar@iiu.edu.pk.

 Lecturer, International Institute of Islamic Economics, International Islamic University, Islamabad,

Pakistan. Email: uzma.noreen@iiu.edu.pk.

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and productive insurance sector also contributes to economic growth of a country by

transforming...