A Comparative Analysis of the Efficiency of Takaful and Conventional Insurance in Nigeria: A Data Envelopment Analysis Approach

Oluwayemi Emmanuel JEJE; Bankole ABIOLA; Godson MESIKE

Oluwayemi Emmanuel JEJE Department of Actuarial Science & Insurance, University of Lagos, Akoka Lagos, Nigeria
Bankole ABIOLA Department of Actuarial Science & Insurance, University of Lagos, Akoka Lagos, Nigeria
Godson MESIKE

Keywords: Conventional Insurance, Data Envelopment Analysis, DEA, Efficiency, Islamic Insurance, Level of Efficiency, Takaful

Abstract

The insurance industry is vital to the development of any nation's economy. To evaluate the performance of this industry, efficiency measurement is critical as it will determine the industry’s competitiveness, and companies that are likely to survive. As such, this study aims to compare takaful and conventional insurance efficiency in Nigeria. This study uses the Data Envelopment Analysis (DEA) method with input orientation to measure efficiency. The objects in this study were six (6) conventional insurance firms and two (2) takaful firms spanning from 2017 to 2021. The results showed that takaful insurance emerged on the efficient frontier in all years except 2019 and was more efficient in these years than the conventional counterpart. It concludes that regarding efficiency neither takaful nor conventional insurance firms clearly outperform the other. This study revealed the efficiency level and compared the efficiency of takaful and conventional insurance firms in Nigeria.