An Efficiency Analysis of Life Insurance Companies in Korea with the Dynamic-Network DEA Model

The purpose of the study is to measure the efficiency of life insurance companies in Korea from 2004 to 2015 by employing the dynamic network slacks-based DEA model (DNSBM). Compared to the previous static models, our results demonstrate the more dynamic behavior of the efficiency for the life insurance companies. Our findings include the following: At the industry level, first, unlike the previous static models, the results from DNSBM display the greater fluctuations in the average efficiency during the examining period. The fluctuations are reflected by the external economic effects such as the subprime mortgage crisis that started in 2007 through 2009, and has recovered after 2010. Furthermore, within the Korean insurance market, structural adjustment and management innovations of the firms attributable to the pressure of the losses in net profit, and economic stimuli of the government might have caused the growth in efficiency after 2010. Based on the firm-specific analysis, first, in the first operation stage, DGB, KB, and Lina were selected as the best practiced – the most efficient companies. In the profitability stage, Samsung, Prudential, and Lina were the most efficient life insurance companies in Korea. Finally, when we break the overall efficiency scores into stages (divisions), there was a clear distinction between foreign and Korean firms: Our analysis illustrates that life insurance companies in Korea have a comparative advantage in the operation stage, while the foreign companies have a comparative advantage in the profitability stage.