Cost Efficiency in the UK Life Insurance Industry in the Post-Global Financial Crisis Period

Abstract

The aim of this research project is to adopt a two-stage approach for empirically measuring and determining the level of cost efficiency in the UK Life Insurance industry during and after the Global Financial Crisis (GFC). Stage one employs a Data Envelopment Analysis (DEA) technique with Variable Returns to Scale (VRS) to estimate the cost efficiency scores for the whole UK Life Insurance Industry for the period 2007 to 2015. In the second stage, a panel Tobit regression technique is used to examine the effects on cost efficiency of a set of determinants that are largely drawn from the recent literature on Financial and Risk Management (FRM). The findings suggest that the average cost efficiency in this period was lower than the level previously reported in the literature, but, by 2015, a clear improvement is noted. The findings also suggest that some potentially effective measures to improve operational efficiency include the reduction of the use of reinsurance, increasing firm size and relocation of office space away from Central London.