Decomposing Total Factor Productivity of Non-life Insurance Firms in Tanzania.

Abstract

The purpose of this study is to decompose total factor productivity of non-life insurance firms in terms of technical efficiency change (TECH) and efficiency change (EFFCH). The study also focuses on factors deriving productivity change of the insurance sector in Tanzania. The study employs a Malmquist Productivity index (MPI) model in 19 non-life insurance firms operating in Tanzania over the period 2014-2017. Findings revealed that 94.7 percent of all firms were experiencing improvement in productivity by 54.6 percent, while one firm was experiencing regress in productivity change by 1.2 percent over the study period. As far as efficiency change and technical efficiency change only one firm was experiencing deterioration in each category by 5.8 percent and 1.2 percent respectively. It was further revealed that in the year 2014/15-2015/16 insurance sector was performing better (with productivity improvement of 90.6 percent) compared to the remaining year under review. Productivity of insurance sector was largely derived by the efficiency change (catch up effect). The study suggests that non-life insurance firms in Tanzania should redesign and improve their existing production technology as it is the main performance deriving factor. Findings will be useful to insurance managers and regulatory organs who wish to make smart and informed decisions to support policy implementation.