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The S-Curve Relation Between Per-Capita Income and Insurance Penetration

Author

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  • Rudolf Enz

    (Swiss Re, Economic Research & Consultiing, Zurich, Switzerland. E-mail Rudolf_Enz@swissre.com)

Abstract

Models that assume a constant income elasticity of demand for insurance have the unrealistic implication that insurance penetration grows without constraint. This article introduces a logistic function that allows income elasticity to 0vary as the economy matures. Econometric estimations yield a so-called S-curve, for which the income elasticity of demand is equal to one at specific low and high levels of income, but may reach two or more at intermediate income levels. Long-term forecasts for insurance premiums based on GDP projections are possible for countries that either conform to the S-curve model or deviate consistently from it. Analysing deviations from the S-curve allows the identification of outlier countries, in which factors other than GDP drive insurance demand. The Geneva Papers on Risk and Insurance (2000) 25, 396–406. doi:10.1111/1468-0440.00072

Suggested Citation

  • Rudolf Enz, 2000. "The S-Curve Relation Between Per-Capita Income and Insurance Penetration," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 25(3), pages 396-406, July.
  • Handle: RePEc:pal:gpprii:v:25:y:2000:i:3:p:396-406
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    Cited by:

    1. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    2. Udaibir S Das & Richard Podpiera & Nigel Davies, 2003. "Insurance and Issues in Financial Soundness," IMF Working Papers 03/138, International Monetary Fund.
    3. Lee, Chien-Chiang & Chiu, Yi-Bin, 2016. "Globalization and insurance activity: Evidence on the industrial and emerging countries," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 328-349.
    4. Sawada, Yasuyuki & Takasaki, Yoshito, 2017. "Natural Disaster, Poverty, and Development: An Introduction," World Development, Elsevier, vol. 94(C), pages 2-15.
    5. Alhassan, Abdul Latif & Biekpe, Nicholas, 2016. "Determinants of life insurance consumption in Africa," Research in International Business and Finance, Elsevier, vol. 37(C), pages 17-27.
    6. Liu, Guan-Chun & Lee, Chien-Chiang & Lee, Chi-Chuan, 2016. "The nexus between insurance activity and economic growth: A bootstrap rolling window approach," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 299-319.
    7. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1111-7 is not listed on IDEAS
    8. Huang, Wei & Eling, Martin, 2013. "An efficiency comparison of the non-life insurance industry in the BRIC countries," European Journal of Operational Research, Elsevier, vol. 226(3), pages 577-591.
    9. Yasuyuki Sawada, 2007. "The impact of natural and manmade disasters on household welfare," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 59-73, December.
    10. Chen, Sen-Sung & Cheng, Shu-Ching & Pan, Guochen & Wu, Tsung-Pao, 2013. "The relationship between globalization and insurance activities: A panel data analysis," Japan and the World Economy, Elsevier, vol. 28(C), pages 151-157.
    11. World Bank, 2013. "Lebanon - The Insurance Sector : A Market and Risk Based Review," World Bank Other Operational Studies 16685, The World Bank.
    12. Lee, Chien-Chiang & Chiu, Yi-Bin & Chang, Chi-Hung, 2013. "Insurance demand and country risks: A nonlinear panel data analysis," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 68-85.
    13. Concha, Ángela & Taborda, Rodrigo, 2014. "Insurance use and economic growth in Latin America. Some panel data evidence," REVISTA LECTURAS DE ECONOMÍA, UNIVERSIDAD DE ANTIOQUIA - CIE, issue 81, pages 31-55, February.
    14. Lee, Chien-Chiang & Lee, Chi-Chuan & Chiu, Yi-Bin, 2013. "The link between life insurance activities and economic growth: Some new evidence," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 405-427.
    15. Lee, Chien-Chiang & Chang, Chi-Hung & Arouri, Mohamed & Lee, Chi-Chuan, 2016. "Economic growth and insurance development: The role of institutional environments," Economic Modelling, Elsevier, vol. 59(C), pages 361-369.
    16. J. François Outreville, 2011. "The relationship between insurance growth and economic development - 80 empirical papers for a review of the literature," ICER Working Papers 12-2011, ICER - International Centre for Economic Research.
    17. Hiroyuki Nakata & Yasuyuki Sawada, 2007. "Demand for non-life insurance: A cross-country analysis," CIRJE F-Series CIRJE-F-461, CIRJE, Faculty of Economics, University of Tokyo.
    18. repec:jed:journl:v:42:y:2017:i:4:p:23-57 is not listed on IDEAS
    19. repec:eee:intfin:v:51:y:2017:i:c:p:155-170 is not listed on IDEAS
    20. Jiří Šindelář, 2016. "Quantitative Forecast of Demand for Life Insurance in CR in 2015-2018: Macroeconomic Growth versus Industry Restructuring," Český finanční a účetní časopis, University of Economics, Prague, vol. 2016(1), pages 5-23.
    21. Dragos Simona Laura & Mare Codruta & Drule Alexandra Maria, 2016. "Overall Governance Index for Developed and Emerging European Life Insurance Markets," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(10), pages 381-391, October.
    22. Idrissa Ouedraogo & Samuel Guerineau & Relwende Sawadogo, 2016. "Life Insurance Development and Economic Growth: Evidence from Developing Countries," Working Papers halshs-01385002, HAL.
    23. Lee, Chien-Chiang & Chiu, Yi-Bin, 2012. "The impact of real income on insurance premiums: Evidence from panel data," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 246-260.
    24. Schaper, Philipp, 2017. "Under pressure: how the business environment affects productivity and efficiency of European life insurance companiesAuthor-Name: Eling, Martin," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1082-1094.
    25. Lee, Chien-Chiang & Chang, Chi-Hung, 2015. "Financial policy and insurance development: Do financial reforms matter and how?," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 258-278.

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