The Impacts of Risk Management Structure on Efficiency Performance in Politically Connected Malaysian General Insurance Companies

In today’s challenging business world, insurers should focus on improving their competitive advantages to secure
increased profits and reduced costs. This study investigates whether political connections affect the relationship
between risk management and the operating efficiency of general insurance companies operating in Malaysia for the
period 2008-2011. First, this research applies the two-stage data envelopment analysis (DEA) methodology,
decomposing the typical two-stage operating process of general insurance companies: marketing efficiency and
profitability efficiency of the sample firms. The sample firms have to first improve their marketing efficiency, and
then proceed to improve their profitability efficiency. Second, this study applies panel data regression to test the
impact of risk management on general insurers’ performance. Consistent with prior studies, we rerun our regression
analysis using Tobit regression. Consistently, we find that risk management only has a negative impact on the
operating efficiency of Malaysian general insurers with political connections.