Competition and Efficiency: The Case of Insurance Companies in Ghana

Abstract

In recent years, researchers have put a lot of focus on the study of how efficiency in an industry is affected by competition in that same industry. Most of these studies have been on the financial sectors with stronger preference for the banking industry. The insurance industry unlike the banking industry has seen less of these studies and even less of this area of study has been for the Ghanaian insurance industry Alhassan et al., (2015). This study focuses on determining the level of technical efficiency in the Ghanaian insurance industry and further investigates the level of competition in the same industry. The study then finally analyses the impact competition has on the overall efficiency of the industry. In the determination of the level of technical efficiency of the industry, the Stochastic Frontier Analysis (SFA) was used as a tool for efficiency estimation whereas the Panzer Rosse model was used in investigating the nature of competition in the insurance industry. The results obtained from the study revealed that, there is a positive and significant linkage between competition and technical efficiency of insurance business. In view of these results, it is recommended that, efforts are made by appropriate industry regulators in creating a more liberal environment for the industry to promote competition. This move will encourage the introduction of new products and services by insurance companies creating a more competitive and innovative industry.