Ownership type, business model, market structure, and the performance of Takaful and conventional insurance companies in Malaysia

Abstract

The paper evaluates the performance of the Takaful and insurance companies in Malaysia. It examines the impact of ownership, business model, and market structure on conventional and Takaful companies’ performance. The inter-firm comparisons provide information about the performance and competitiveness of firms operating under different modes of business. The study adopts the unbalanced panel data approach with Panel Corrected Standard Error (PCSE) regression to analyse the data of 44 Malaysian Takaful and insurance companies with 255 firm observations over the period from 2011 to 2016. The study’s findings show that Takaful and insurance companies perform at par in terms of their premiums. However, Takaful has better investment income. Foreign-owned firms perform better than local firms. The efficient market hypothesis is more powerful than the structural conduct hypothesis in explaining the firms’ performance. The study’s implications are expected to help improve and develop the Takaful and insurance sector as an efficient industry in-line with regulation changes. To the best of our knowledge, this paper is the first to compare the Takaful with conventional insurance in Malaysia concerning their performance, market structure, and ownership.