Reliance on Insurance: An Investigation into the Current Dynamics in the Balkans

This paper aims to analyze the drivers behind insurance market development in a highly dynamic region such as the Balkans. The majority of the Balkan countries are working to progress with the integration process, provide the enabling conditions for accession, conduct reforms, fight corruption, and promote stable economic growth. In this regard, it becomes important to understand where one important pillar of the financial system stands: the insurance industry. In this study, we focus on the reliance of the people of the Balkans on insurance, as captured by the insurance consumption. The empirical analysis builds on annual data obtained for 8 Balkan countries, namely Albania, Kosovo, Croatia, Greece, North Macedonia, Romania, Montenegro, and Bulgaria for the years 2010–2022. These countries are characterized by numerous similarities with respect to the context of insurance sector development, structural factors, and the historic past. The very inception of the modern, private insurance markets for the sample countries occurred relatively late, in the 90s. This is the first cause explaining why such a group of countries is lagging in terms of insurance market development. To understand other reasons as to why the insurance consumption in the region is low and the sector is generally falling behind, three regression models are estimated explaining respectively premium volume, insurance density and penetration. Four groups of factors: financial, demographic, regulatory and economic were employed across three regressions, thus allowing to check the marginal impact and statistical significance of each variable. Data for the independent variables is taken from the World Bank: inflation rate, financial development, trade, income, population, regulatory quality and corruption. Given the numerous functions that the insurance industry serves, such as protection and security, risk transfer, investments, and contribution to economic growth, it becomes necessary to carefully analyze its significant drivers, supporters and impediments. The in-depth panel data regression analysis allows us to achieve the main aim of this paper, hence being able to point out the main factors which can be incorporated in future reforms and policies to trigger further development and expansion of the industry. This research will certainly serve the policymakers in their day-to-day decisions, as well as firms, practitioners, and academicians.