A COMPARATIVE STUDY OF CONVENTIONAL AND SHARIAH LIFE INSURANCE EFFICIENCY USING DATA ENVELOPMENT ANALYSIS

This study aims to analyze and compare the efficiency between conventional life insurance companies and Islamic life insurance companies in Indonesia over the period of 2014-2018. The sample of this study was taken from 10 conventional life insurance companies and 10 shariah life insurance companies that were selected based on the purposive sampling technique. Measurement of efficiency in this study was conducted using the method of data envelopment analysis (DEA) based on BankersCharnes-Cooper (BCC) and Charnes-Cooper-Rhodes (CCR) models of the value-added approach. This was followed by testing the hypothesis using a different Mann-Whitney U-test. Input variables used are assets, capital, general and administrative costs, and commission expenses. Meanwhile, the output variables are premiums and investment income. The results showed that conventional life insurance companies are more efficient than Islamic life insurance companies based on the BCC and CCR models. Furthermore, the results of different tests using the Mann-Whitney U-test showed an insignificant difference in efficiency between conventional life insurance companies and Islamic life insurance companies during the study period. The results of the comparison of the average efficiency value with the DEA method indicated that the efficiency level of a conventional life insurance company was better than a shariah life insurance company.


INTRODUCTION
The insurance industry is a non-bank financial institution that acts as one of the pillars of the national economy. This relates to the role of insurance companies as collection agencies and their provision of long-term funds for national economic development. The insurance companies also provide protection against risks faced by the community as well as support developmental stability. Operationally, in the context o Indonesia, insurance companies are fostered and supervised by the Financial Services Authority (Otoritas Jasa Keuangan -OJK).
Over the last decade, the companies have shown an increase in development not only in Indonesia but worldwide. The insurance industry in Indonesia continues to grow, especially life insurance. In 2016 the insurance industry contributed around 2.92% to the Gross Domestic Product (GDP). The biggest contribution of the gross premium of the insurance industry comes from the life insurance sector, which is equal to 46.2%. It can be inferred that life insurance contributes significantly to the development of the insurance industry in Indonesia (Financial Services Authority, 2016).
Life insurance is an agreement between insurance participants and an insurance company. The insurance company promises to pay a sum of money in the event of death to the insurance policyholder. Life insurance is intended to protect a person or family from financial loss or loss of one's income due to the death of the insured. This is a form of guarantee for families left behind. In general, there are two types of life insurance companies in Indonesia; namely conventional life insurance and shariah life insurance.
Conventional insurance and shariah insurance have the same purpose which is to manage life risks. However, there are differences in executing the process. The risk management in conventional insurance is by using risk transfer which is distributing the risks of members to the insurance company, while shariah insurance is by using the risk-sharing concept among the members under the insurance company where the members help each other by sharing the risks they will face by collecting the premiums which consist of tabarru' fund (Puspitasari, 2015;Nisak & Ibrahim, 2014) Although there are differences between Sharia Insurance and Conventional Insurance, the role of the two insurers is still the same, namely, to protect participants. However, there are benefits of Sharia insurance products that are not included in conventional insurance, namely waqf. The waqf is the transfer of property rights or durable assets to recipients of waqf or nazhir, which aims to benefit the people as contained in the Waqf Program owned by PRUSyariah from Prudential Indonesia. Besides, in Sharia insurance, there is a Sharia Insurance Contract or agreement using a Grant Agreement tabarru' which is carried out according to Islamic law and halal. Apart from that, ownership of Sharia Insurance funds is a joint fund owned by all insurance participants. If a participant needs assistance, another participant helps through contribution funds (sharing of risk). Besides that, zakat is one of the pillars of Islam that must be done by Muslims. So that Sharia Insurance requires participants to pay zakat. The amount is determined based on company profits. The growth of both companies can be observed from the growth rate of gross premiums, assets, and investments, as illustrated in Table 1. As observed from Table 1, the growth of shariah life insurance is relatively higher than the conventional life insurance. This can be highlighted by the higher growth rate of assets and investments. However, the growth of gross premiums on shariah life insurance is far below the growth of gross premiums of conventional life insurance, even though gross premiums of shariah life insurance are growing but the value is insignificant. Erwin Noekman, a shariah insurance observer, acknowledges that conventional insurance still dominates the insurance industry in Indonesia (Kontan.co.id, 2017). Although, every year the growth of shariah life insurance is always greater than conventional life insurance but the market share of shariah life insurance is far smaller than the conventional ones, which control almost 94% of the total market share. Referring to these figures, an argument could be made that conventional life insurance is more efficient than shariah life insurance.

SHARE | Volume 9 | Number 2 | Jul -Dec 2020
One of the important aspects of the success of a company is efficiency (Abidin at al., 2009). Efficiency shows that a company has strong managerial abilities (Mawaddah, 2013). Efficiency is important for a company in regards to maintaining the public's trust, and efficiency is also one of the keys to increasing the competitiveness of a company, especially in the tight competition of the insurance industry in Indonesia today.
There some studies that have been conducted in the world which lead to different findings. Take a study done by Abduh et al., (2012) which compared shariah insurance and conventional insurance in Malaysia. The result of the study shows that conventional insurance is less efficient when compared to shariah insurance because shariah insurance is equipped with different products operated under the same system as conventional. Meanwhile, Khan at al., (2014) conducted a study about the level of efficiency of the conventional insurance company and shariah insurance company in Pakistan. The findings show that shariah insurance is more efficient than conventional insurance. This is due to the optimal use of variable input. Based on the elaborated background and the gap found in the previous studies, the researcher is interested to conduct this study.
The difference between this study and previous studies is that the input variables studied in this study were more than the previous research conducted by Abduh et al., (2012). They used two input variables, namely commission fees, and management fees, while in this study, there are two additional input variables, namely assets and capital. This study focuses on comparing the efficiency of life insurance companies, in contrast to Purwanti (2016) research which compares the efficiency of general insurance companies. The next difference is that this study measures the efficiency of insurance companies for the period 2012 to 2016 which is different from the research of Khan at al., (2014) which measures the efficiency of insurance companies for the period 2006 to 2010.
The strength of this research is that this research looks at the comparison of the latest data from 2014 to 2018. Also, this study compares the efficiency of these two insurance companies using Data Envelopment Analysis (DEA). DEA was first developed by Farrel in 1957 which measured the technical efficiency of one input and one output into multi-input and multi-output, using the relative efficiency value framework as the ratio of input to output (Sutawijaya & Lestari, 2009). The choice of the DEA method has advantages over other methods. Purwantoro (2003) states that the advantages of the DEA are: a) Can measure the relative efficiency of several similar DMUs by using many input and output variables. b) There is no need to assume a functional relationship between the input and output variables. c) DMUs can be compared directly with each other. d) Input and output variables can have different units of measurement The purpose of this study is to analyze the comparisons of efficiency between conventional life insurance and shariah life insurance in Indonesia for the 2014-2018 period using the Data Envelopment Analysis (DEA) method, as well as to test whether or not there are significant efficiency differences between the two.
The benefit of this research is to give an overview of the performance assessment of DEA method and to be input in improving the efficiency of insurance. As for the academics, the benefit of this research is to enrich the literature of this matter and to be used as a review for further research, especially ones about the efficiency of the insurance company.
The benefit of this research for insurance companies is that it can provide an overview of performance appraisal using the DEA method and become an input in increasing efficiency. The benefit for users of the company's financial statements is that they can provide information on the comparison of the efficiency of conventional and sharia life insurance companies so that they are taken into consideration in making decisions. For researchers, this research can add insight and knowledge about company performance, especially regarding the efficiency of the performance of insurance companies. For academics, this research can add to the library treasury and can be used as study material for further research on the efficiency of insurance companies.

The Concept of Efficiency
In general, efficiency is often associated with the performance of a company. This is because efficiency reflects the comparison between output and input in the company. Efficiency is the ability of a company to prepare work correctly or can be mentioned as a ratio of output and input, or the amount of output obtained from an input used. The company is called efficient if the company can maximize output by using fixed inputs or by minimizing the use of inputs in achieving the same amount of output (Bastian, 2009;Ibrahim & Rahmati, 2017).

Data Envelopment Analysis (DEA)
Data Envelopment Analysis (DEA) is a mathematical programming technique that is used to measure the efficiency of an organization called a decisionmaking unit (DMU) by using lots of inputs and lots of output. The DEA approach can overcome the shortcomings of ratio analysis or multiple regression analysis. Efficiency measured using the DEA approach is relative efficiency, not an absolute value that can be achieved by an organization. Efficiency is a relative efficiency of a DMU compared to other DMUs in a sample that has similar inputs and outputs (Muharam & Pusvitasari, 2007). DMU whose performances are best is rated 100% while other DMUs whose performances are below the best DMU have varied values between 0% -100% according to comparisons with the best DMU.
There are two models of efficiency measurement based on the DEA method. There are: a) CCR Model (Charnes-Cooper-Rhodes. 1978) CCR Model is also known as CRS because this model uses assumptions with the constant Return to Scale (CRS), which means proportional change at the input level will produce the same proportional change at the output level. b) BCC Model (Bankers. Charnes and Cooper. 1984) BCC Model also is known as Variable Return to Scale (VRS) which assumes that proportional change at the input level will not produce the same proportional change at the output level (bias greater or smaller). Huang and Eling (2013) state that there are two approaches in determining input and output relations:

Input and Output Relations in Efficiency Measurement
1) The value-Added Approachwhich is a combination of a production approach and an intermediation approach that assumes that the insurance company provides three main services as follows: a) Insurance companies operate based on risk pooling and risk-bearing. The company receives premiums from participants and redistributes them to participants who suffer losses. b) Insurance companies provide 'real' services in the form of protection programs. c) Insurance companies act as financial intermediaries by investing their funds and funds from participants in the capital market that are then used to fulfill the obligations of payment of participant claims.
2) An intermediation Approach is an approach that treats insurance companies as financial intermediaries. Insurance companies manage assets, borrow funds from policyholders, and invest them and the results are used to pay insurance claims, taxes, and other fees.
The approach used in this study is the value-added approach. The value-added approach is the most suitable approach for the insurance industry. This approach uses the components of the company's assets and liabilities which include investment activities, company capital, and expenses that are liabilities of the company. This value-added approach is also often referred to by other studies that discuss the efficiency of the insurance industry (Huang & Eling, 2013).
Input variables of this study are assets, capital, general and administrative costs, and commission expenses. While the output variables are premium and investment income, these input and output variables reflect the three main services of insurance companies.  (2015), Ismail et al., (2011). The approach used in this study is a value-added approach. Huang & Eling, (2013) states that the value-added approach is the most appropriate approach for the insurance industry. This approach uses the asset component and company which consist of investment activity, company liability, company capital, and liability expenses of the company. The input variable in this study is based on the approach of asset value-added, capital, administration and general fee, and commission expenses.

SHARE | Volume 9 | Number 2 | Jul -Dec 2020
The studies about efficiency of either conventional insurance or shariah insurance have been conducted by a few researchers which are studies done by Janjua & Akmal, (2015) about the comparative study of the efficiency of shariah-based insurance and conventional insurance in Pakistan in the period of 2006-2011 which shows that shariah insurance is more efficient that conventional insurance. A few other studies like one done by Yakob et al., (2014) and Abduh et al., (2012) show that Shariah Company shows a better risk management performance when compared to conventional ones. Out of those study findings, this research aims to study the same comparison of two insurances in Indonesia which is the Muslim-majority country in the world.

Population and Research Sample
The population used for this study was conventional life insurance and shariah life insurance companies that were registered in OJK during the period of 2014-2018. The total population of Sharia insurance companies in Indonesia is 24 companies. Meanwhile, there are 50 conventional insurance companies (OJK, 2020). Sampling in this study was carried out with certain considerations according to the criteria. The samples taken were ten conventional life insurance companies and ten Sharia life insurance companies with the largest number of participants during the 2014-2018 observation period.
Sampling was done by purposive sampling which is the selection of samples that are not random whereby the information is obtained with certain considerations. A total of ten shariah insurance companies and ten conventional insurance companies were selected as the samples based on the largest number of policies or participants during the 2014-2018 period.
Every sample in this study was taken based on the following criteria.
a. It is a conventional life insurance company or a shariah life insurance company operating in Indonesia during the 2014-2018 period. b. It presented financial reports in the 2014-2018 period which have been published in the Financial Services Authority. c. It is a conventional life insurance company or a shariah life insurance company that has complete data relating to input and output variables.
The sample in this study was taken based on the following criteria:

Source and Data Collection Method
This study uses secondary data obtained from the annual financial statements of conventional and shariah life insurance companies which are published through the website of each company and the report of OJK for the 2014-2018 period. Data was collected using the documentation method; which is a method for collecting data in the form of financial statements, published reports, notes, and other information related to the research variable.

Data Envelopment Analysis (DEA) Method
DEA is a linear program-based non-parametric approach for calculating the ratio of output to input across all units compared to a population supported by efficiency software packages, such as Banxia Frontier Analysis (BFA), Warwick Data Envelopment Analysis (WDEA), A Data Envelopment Analysis Program (DEAP), and Linear Interactive Discreet Optimizer (Lindo). This research uses DEAP 2.1 software. This is because the DEAP software is more complete and easier to use.
The DEA method is designed to measure the relative efficiency of a DMU with many input conditions and lots of output. This condition is difficult to do by other methods of measuring efficiency. The relative efficiency of a DMU is the efficiency of a DMU compared to other DMUs in the sample. Insurance efficiency research in this study used the DEA CCR model and the DEA BCC model and based on the assumption of output orientation. The general equation for the DEA method is: where: hs = s insurance efficiency = observed s insurance output = observed s insurance input = the total of output i produced by s insurance = the total of input j used by s insurance = the total of output i earned by s insurance = the total of input j given by s insurance, and I calculated from 1 to m while j calculated from 1 to n

Hypothesis Testing
The next data analysis is testing the hypothesis of the efficiency values of both. The model used to test the hypothesis is the non-parametric statistical technique with the Mann Whitney U-Test different test. The purpose of the Mann Whitney difference test is to determine whether there is a significant difference between the efficiency of conventional and shariah life insurance companies.
The purpose of the Mann Whitney test is to determine whether there is a significant difference between conventional life insurance companies and shariah life insurance companies.
The model used to test the hypothesis is a non-parametric statistical technique in the form of the Mann Whitney U-Test difference test. The purpose of the Mann Whitney difference test is to determine whether there is a significant difference between conventional life insurance companies and Sharia life insurance companies. The Mann Whitney U Test is a non-parametric test used to determine the difference in the median of the two independent groups if the dependent variable data scale is ordinal or interval or ratio but not normally distributed. The Mann Whitney U Test is different from other methods because the Mann Whitney U Test not only tests the Median difference but also tests the Mean. This is because in various cases, the median of the two groups could be the same, but the resulting P-value was small, namely <0.05, which means there was a difference. This is because the mean of the two groups is significantly different.

Descriptive analysis
Descriptive analysis is an analysis in which the data collected is then analyzed and interpreted objectively so that it provides information and an overview according to the topic discussed. The data in this study were analyzed by using DEAP 2.1 and SPSS software. The objective of using DEAP 2.1 software was to analyze the efficiency of conventional life insurance companies and sharia life insurance companies by processing the data from the variables studied, namely assets, capital, general and administrative expenses, commission, premiums, and investment income while the SPSS software was used to perform discrimination test to find out whether there is a significant difference between the degree of efficiency of conventional life insurance companies and sharia life insurance companies.
The development of input collection activities in conventional life insurance companies in Indonesia from 2014 to 2018 is provided in Table 3 Table 4 below. Based on the table above, in general, the number of inputs collected by sharia life insurance companies in Indonesia from 2014 to 2018 was also increasing. The development can be seen from the composition of the total inputs of each sharia life insurance company. However, there were only three sharia life insurance companies that were able to collect an average total input above 300 billion rupiahs per year, namely PT Prudential Life Assurance, PT Asuransi Takaful Keluarga, and PT Asuransi Allianz Life Indonesia. Meanwhile, the seven other sharia life insurance companies were only able to collect an average total input below 300 billion rupiahs per year.

DEA Result
The Efficency of Conventional Life Insurance Companies

The efficiency of Shariah Life Insurance Companies
The results of processing the DEA-CCR liner program for shariah life insurance companies can be referred to table 5. Regarding Table 7, the efficiency value with the model CCR shows that there are only 2 shariah life insurance companies that achieve 100 percent efficiency (efficient) in 2014-2018; namely PT Asuransi Allianz Life Indonesia and PT Panin Dai-Ichi Life. The table also shows that there are 8 shariah life insurance companies that are unable to achieve 100 percent efficiency (   The table also shows that there are 6 shariah life insurance companies that do not achieve 100 percent efficiency (

Hypothesis Testing Results
Before testing the efficiency differences between conventional and shariah life insurance. Normality and homogeneity tests must be carried out as different test conditions using Mann-Whitney U-Test.
Before testing the difference in efficiency between conventional life insurance companies and shariah life insurance companies, the normality and homogeneity tests must be carried out first. The normality test and homogeneity test are carried out to determine whether the statistical discrimination test would be carried out using the Mann Whitney U-Test or the Independent T-Test. The Mann Whitney U-Test is used when the data are homogeneous and come from a population that is not normally distributed while the Independent T-Test is used when the data are homogeneous and come from a normally distributed population (Carver, R. H., & Nash, 2012).

Normality Test Results
The purpose of the normality test is to find out whether the data collected has been distributed normally or not. The results of the normality test can be seen in the following table: The results of the normality test state that the two data groups (CCR and BCC models) and the two sample groups have a significance value of 0.000 smaller than α = 0.05. It can be concluded that the two groups of data are not normally distributed.

Homogeneity Test Results
The homogeneity test aims to determine whether a data variant of two or more groups is homogeneous (same) or not. The homogeneity test results can be observed in the following table: In 2018 conventional life insurance companies had an average efficiency value with a CCR model of 92.7 percent and a BCC model of 95.5 percent. Shariah life insurance companies had an average value of efficiency with the CCR model of 92.6 percent and the BCC model of 93.7 percent. Therefore, in 2018 conventional life insurance companies were more efficient than shariah with both the CCR and BCC models.
Regarding the calculation results using the CCR and BCC models in the 2014-2018 period, it is seen that conventional life insurance companies had a higher average value of three years efficiency with the CCR model and four years higher with the BCC model than shariah life insurance companies. Based on the results of the research during these five years of observation, it can be concluded that conventional life insurance companies achieved a better level of efficiency than the shariah life insurance companies based on both the CCR model and the BCC model. The results of this study are in line with the research of Abduh et al., (2012) which states that conventional life insurance is better than shariah life insurance.
The results of testing different test hypotheses with the Mann Whitney U-Test model indicate that there is no significant difference in efficiency between conventional life insurance companies and shariah life insurance. These results indicate that managerial capabilities between conventional life insurance companies and shariah life insurance companies at an equivalent size generally have no difference in managing input factors to produce optimal output (Sari, D., 2015). Although the market share of shariah life insurance companies is very small compared to conventional life insurance companies, shariah life insurance companies can achieve an efficiency level that is equivalent to conventional life insurance companies. Therefore, shariah life insurance companies have great potential to achieve a higher level of efficiency than conventional by increasing market share in Indonesia.
The results of this study do not match the research of Ismail et al., (2011) which states that there is a significant difference in efficiency between Islamic insurance and conventional insurance. It can be inferred that the form of the organization does not have direct implications for its efficiency.

CONCLUSIONS AND IMPLICATION
According to the results of the research conclusions can be drawn as follows:

IMPLICATION
The implications of this study are as follows: 1. For a company, it can provide an overview of the performance appraisal with the DEA method and be used as input in determining steps and efforts to improve efficiency. 2. For users of the company's financial statements, it can provide information about the comparisons of the efficiency between conventional and shariah life insurance companies for use in making important decisions. 3. For academics, it can add to the treasury of the literature and can be used as study material for further research regarding the efficiency of insurance companies.