European motor insurance demand: a spatial approach of its effects and key determinants

The expansion of the European Union has intensified road traffic from, at least, two perspectives: it increased free mobility of people and goods, along with structural funds available for infrastructure improvement. Consequently, connections between regions/countries have improved, and a spatial diffusion effect is seen in the car transportation behaviour. We study the effect of Human Development Index (HDI) along with other important socio-economic, demographic and institutional factors on the motor insurance market in 31 European countries. Simultaneously, we evaluate if the crucial spatial diffusion effect is present on the European motor insurance market. Findings reveal that HDI, urbanization and car fleet positively impact the motor insurance market, while unemployment and population density exhibit an opposite effect. Overall, results are robust to a set of additional control factors, but sensitive relative to institutional factors and emerging and former communist countries group. Estimations confirm the assumption of spatial diffusion, while the assessment of the direct and indirect effects shows that most of the factors internally impact the dependent variable, and an international effect is at work for the HDI. Our findings may enhance the understanding of the European motor insurance market and provide some valuable insights from a policy perspective.