Microfinance and Cooperative M5056

Article Review
Si’eki Tefatu
School of Global Masters of Business Administration in Finance, National Taipei University

Case Study
The Performance of Micro Insurance
Programs: A Data Envelopment Analysis

By Christian Biener and Martin Eling

The Journal of Risk and Insurance, (Online). 2011, 78(1):83-115.
https://www.jstor.org/stable/23019539

1. PURPOSE

The purpose of this research is to measure the performance of micro insurance programs using data
envelopment analysis and to derive implications for the viable provision of micro insurance products. Thus,
the focus of the article is to evaluates and interpret performance measure to overcome limitation and provide
a sophisticated tool for performance measurement within a multidimensional framework. Moreover, technique
that can incorporate the important social function that micro insurers need to fulfill and provide powerful
managerial implications.

2. MAIN IDEA

The main emphasis of the article is the use of Data Envelopment Analysis (DEA), to evaluate the
performance of Micro Insurance programs relative to the “best practices” of leading firms in the industry.

The article is organized as follows;

1) The "Performance of Micro Insurance Programs and Related Literature" section presents an overview
of;

i. Highlights of Key Performance Measurements in the field of Micro Insurance

ii. Outline of related literature on efficiency and microfinance.

2) The "Methodology and Data" section introduces their methodology and the data used in the empirical
analysis.
3) The "Empirical Results" section presents the empirical results and the "Conclusions" section

3. METHODOLOGY

The design of the data allows the use of Data Envelopment Analysis (DEA), to estimate technical, allocative,
and cost efficiency, assuming input orientation and variable returns to scale (VRS). The study has used a Data
on 20 micro insurance schemes that provide life and health insurance are available from the Micro Insurance
 Network. The data contain balance sheet and statement of income information from 2004 to 2008. An
unbalanced panel of 73 firm-years is available for analysis. The study has seven companies each for Africa and
Asia and six companies for Latin America.

The study also reviews whether micro insurers operate at constant returns to scale (CRS) or whether there exist
scale inefficiencies represented by increasing (IRS) and decreasing returns to scale (DRS). To account for the
small sample size and the intrinsic problem of measurement error in standard DEA, we apply the bootstrapping
procedure introduced by Simar and Wilson (2000a). The goal of the studies was to measure the impact of the
microfinance programs on low-income households analyze the data and illustrate the findings.

4. FINDINGS
The research article has find from their empirical results indicate significant diversity and the potential for
improvement in the micro insurance industry. In their data set, micro insurers that sell group policies are
more efficient than those that sell individual policies, a finding that might serve as an indication for managers
to direct activities toward the provision of group policies. Growth strategies and merger activities are
promising approaches toward an efficient production of insurance outputs;
However, these strategies must be designed so that the pure technical efficiency of operations is achieved in
the presence of increased size. We find that large micro insurers and for-profit micro insurers are best able to
improve performance when focusing on the use of state-of-the-art technology, whereas concentrating on
cost-minimizing input combinations is appropriate to address cost inefficiencies for small and for nonprofit
micro insurers.

5. CONCLUSION
Data Envelopment Analysis (DEA) overcoming the ambiguities of traditional financial ratios. The
empirical findings illustrate the diversity of micro insurance program. Growth strategies and merger
activities can enhance efficiency through by increasing scales. Large and for-profit micro insurers should
focus on the use of state-of-the art technology. The provision of group policies is more efficient than
providing individual policies only. Truncated regression confirms that an increase in size is not optimal for
overall efficiency
6. SIGNIFICANCE
The significance of the study reflects the use of Data Envelopment Analysis (DEA) to evaluate the
performance of Micro Insurance programs relative to the “best practices” of leading firms in the industry.
Consistent with the article findings, this article contributes to the topic by;

This paper extends the existing key performance measures with a new benchmarking tool that addresses the
limitations of the measures currently used in the micro insurance industry.

Enhance the comparability of micro insurance programs using a single and simple technique to interpret
performance number and provide managerial implications

Transfer frontier efficiency methodologies to the micro insurance industry and fulfill micron insurers to the
social function.
7. STREANGTH

This paper attempts to evaluate the performance of Micro Insurance programs, to ensure data quality and avoid
potential bias during the data collection, the Micro Insurance Network set up some fundamental requirements
as to consistency, transparency, and accuracy of the collected.

The strength of this article rests in the design model of analyze DEA technical, allocative, and cost efficiency
values and returns to scale for all micro insurers in study panel. Estimation techniques employed by the study’s

Empirical impact analyses so program impacts can be consistently estimated, determinants of Efficiency to
discover what drives firm performance.

8. WEAKNESS

Hence, regardless of all the positive results given the careful and transparent data collection process by the
Micro Insurance Network, as indicated in the data represent a small, but comprehensive snapshot of the
industry in terms of geographical coverage, age, size, organization, profit orientation, and product coverage.

However, given that the full population of micro insurers is not known, we cannot definitely eliminate the
possibility that the sample is biased in some way, for example, perhaps more efficient programs have more
comprehensive data or only above-average micro insurers participate in such a survey.

Whether these findings can be generalized to micro insurers out of sample, however, needs to be validated by
future research, it might not reflect the true impacts of the program. Thus the viability of the data analysis and
findings can be questionable and might not be applicable to echo the true effects of the program.