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The Empirical Analysis of Efficiency of China's Insurance Industry

Yao Shujie, Feng Genfu and Han Zhongwei(Xi'an Jiaotong University; Middlesex University,UK)  
China joined the WTO in 2001 and has to fully open up its insurance market to foreign competitors by 2006. However, the domestic insurance market is overwhelmingly dominated by a few large state-owned or state-controlled firms. As the market is still underdeveloped and the demand for insurance is rising exponentially, there exists huge potential, opportunities as well as challenges for non-state, foreign and joint-venture insurance companies. Efficiency is a key concern of policy makers to encourage further development of the insurance industry. This paper focuses on this important issue. It uses a panel data set of 22 firms over the period 1999—2002 to evaluate their efficiency scores applying a DEA approach. It then employs an econometric model to identify the key determinants of efficiency. The empirical results suggest the direction of how to improve firm efficiency. It is found that firm size, ownership structure, mode of business and human capital are important factors affecting firm performance. The results shed important light on policy design and implementations on future development of the insurance industry with WTO obligations.
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