Data Envelopment Analysis Journal > Vol 5 > Issue 1

Measuring Managerial Ability in the Insurance Industry

Rajiv D. Banker, Fox School of Business, Temple University, USA, , Jingshu Luo, Madden School of Business, Le Moyne College, USA, , Hyunjin Oh, Fox School of Business, Temple University, USA,
Suggested Citation
Rajiv D. Banker, Jingshu Luo and Hyunjin Oh (2021), "Measuring Managerial Ability in the Insurance Industry", Data Envelopment Analysis Journal: Vol. 5: No. 1, pp 115-143.

Publication Date: 22 Jun 2021
© 2021 R. D. Banker, J. Luo and H. Oh
Performance measurement,  Productivity measurement and analysis
Managerial abilityproperty–casualty insurersefficiencyDEA


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In this article:
1 Introduction 
2 Measure of Managerial Ability 
3 Data and Empirical Results of Managerial Ability 
4 Validation of Managerial Ability 
5 Alternative Production Function Model 
6 Conclusion 


This paper introduces the managerial ability measure for the property–casualty insurance industry using Data Envelop Analysis (DEA). We extend the managerial ability measure introduced in Demerjian et al. (2012) to the insurance industry by adapting it to the industry-specific production function. In particular, we measure managerial ability as managers' success in generating insurance premiums. We find that this measure is strongly associated with manager-fixed effects and is positively associated with return on assets (ROA). Also, replacing low-ability CEOs with high-ability CEOs leads to an increase in ROA. We further investigate the type of firms with high managerial ability. We find that CEOs who manage more affiliated insurers have higher managerial ability. We also find that firms managing more risks require higher managerial ability. Specifically, firms ceding more insurance policies to reinsurers have less capable managers, while firms assuming more insurance policies from other insurers have more capable managers.