Environmental-Adjusted Operational Efficiency Analysis of Insurance Companies: An Application of the Three-Stage Data Envelopment Analysis Model

Abstract

companies from 2012 to 2020 using the Three-Stage Data Envelopment Analysis (DEA) model. The first stage applies an input-oriented DEA model to estimate efficiency scores. In the second stage, Stochastic Frontier Analysis (SFA) is employed to separate inefficiency from environmental factors and random noise, focusing on company age and type. The third stage uses adjusted inputs to reassess efficiency, providing more accurate and fair estimates. The results show that company age significantly affects efficiency, while company type has limited influence. Overall, efficiency scores improved after adjustment, highlighting the value of incorporating environmental variables in performance evaluations. The study recommends adopting the Three-Stage DEA model for more reliable efficiency assessments in the insurance sector.