Determinants of Cost Efficiency of Takaful and Conventional Insurance Firms of Pakistan


  • Muhammad Abbas Assistant Professor, Department of Business Administration, Air University, Multan Campus, Pakistan
  • Allah Bakhsh Khan Assistant Professor, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan
  • Salman Abbas Research Scholar, Air University, Multan Campus, Pakistan
  • Zeeshan Mahmood Assistant Professor, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan.



Takaful, Insurance, Cost Efficiency, Tobit Regression, DEA


This study investigates the Efficiency Performance of Takaful and Conventional Insurance Firms of Pakistan in terms of Cost, Allocative and Technical efficiencies for the period of 2010-2015. Six years panel data of Takaful and listed Conventional Insurance Firms of Pakistan is taken under consideration. The Methodology of Data Envelopment Analysis (DEA) is used in order to estimate efficiencies scores. Furthermore, Tobit Regression Analysis is carried out for determination of the real contributors of efficiencies in Insurance and takaful Industry of Pakistan. In Data Envelopment Analysis, Labor, Total Fixed Assets and Total Equity Capital are used as input variables. Simultaneously, the price variables are used along with input variables such as Price of Labor, Price of Total Fixed Assets and Price of Total Equity Capital. The output variables include Invested Assets, Investment Incomes and Net Premiums. In second Stage Analysis (i.e. Tobit regression), DEA efficiency scores are used as dependent variable, whereas Age, Size, and Leverage are used as independent variables along with the dummy for conventional and Takaful firms of Pakistan. This study found that Takaful and insurance firms have been operating on almost equal efficiency levels. Furthermore LEVERAGE is the main contributor for efficiency optimization, followed by the firm SIZE, whereas, firm’s AGE has no contribution in efficiency scores.


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How to Cite

Muhammad Abbas, Allah Bakhsh Khan, Salman Abbas, & Zeeshan Mahmood. (2020). Determinants of Cost Efficiency of Takaful and Conventional Insurance Firms of Pakistan. Review of Economics and Development Studies, 4(2), 331-340.