Productivity of the Indian non-life insurance sector New evidence employing Fare-Primont index approach

Purpose The purpose of this paper is to analyse the performance of the Indian non-life (general) insurance sector in terms of total factor productivity (TFP) over the period 2005-2016. Design/methodology/approach This study utilises Fare-Primont index (FPI) to access the change in TFP and its components: technical change, technical efficiency and mix and scale efficiency over the observation period. Moreover, it employs the Mann-Whitney U-test to scrutinise the difference between the public and the private insurers in terms of growth in productivity. Findings The results reveal that the insurance sector possesses a very low level of TFP. Also, the results divulge an improvement of 11.98 per cent in TFP of the insurance sector at an annual average rate of 12.41 per cent over the observation period. The growth in productivity is mainly attributable to the improvement of 10.81 per cent in the scale-mix efficiency. The progress in scale-mix efficiency is mainly the result of improvements in residual scale and residual mix efficiency. The results also show that the privately owned insurers have experienced a high productivity growth rate than the state-owned insurers. Practical implications The results hold practical implications for the regulators, policymakers and decision makers of the Indian non-life insurance companies. Originality/value This study is the first of its kind to use FPI, which satisfies all economically relevant axioms and tests defined by the index number theory to comprehensively access the change in TFP of the Indian non-life insurance sector.