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Does economic policy uncertainty matter for insurance development? Evidence from 16 OECD countries

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Abstract

We examine the influence of economic policy uncertainty (EPU) on the liveliness of local insurance markets across 16 OECD countries during the 1998–2017 period. Our static panel data estimations suggest that global policy uncertainty is negatively associated with the life insurance development of a country, as measured by national life insurance penetration (gross insurance premium per GDP in %). Meanwhile, such uncertainty does not significantly affect non-life insurance development in our sample. Furthermore, the analysis shows that the impacts of global EPU on life insurance markets are particularly stronger in periods of increasing EPU.

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Notes

  1. Professor of International Business and Economics at Booth School of Business, University of Chicago, one of three researchers who created the EPU index.

  2. Due to the availability of all sources (especially EPU), the final data includes 16 OECD countries. Table 8 in the Appendix reports the country list. It consists of Australia, Canada, Czech Rep., Finland, France, Hungary, Italy, Japan, Korea, Mexico, the Netherlands, Poland, Spain, Switzerland, the U.K. and the U.S.

  3. Our contribution also lies in providing a comprehensive list of determinants of non-life insurance development, which is less studied in the literature.

  4. We also employ Pool OLS, Robust Pool OLS and the Feasible Generalized Least Squares (FGLS)model for robustness checks.

  5. The results are provided upon request. We thank the anonymous referee for this point.

  6. For example, Alhassan and Fiador (2014) report that economic growth stimulates greater demand for insurance.

  7. Studies on the impact of EPU on the insurance market are very limited in the literature.

  8. All data on insurance premiums are collected in USD for comparability across countries.

  9. See Table 8 in the Appendix for the country list.

  10. We also check the case of a sample without countries that do not have EPU; the effects of EPU on insurance markets are consistently negative.

  11. In the empirical estimation, we have tested this multicollinearity by incorporating both life expectancy and income level in the model. We found that the coefficient of income level is significantly positive, while the coefficient of life expectancy is negative and insignificant. This reaffirms the problem of multicollinearity in the estimation, so that dropping life expectancy is econometrically justifiable.

  12. We thank the editor and two anonymous referees for pointing this out.

  13. We thank the anonymous referee for this helpful suggestion. The results are provided upon request.

  14. See Lucy Hook’s article (2018) ‘What's going on with Solvency II?’ published by Insurance Business at https://www.insurancebusinessmag.com/uk/news/breaking-news/whats-going-on-with-solvency-ii-104875.aspx for more details.

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Acknowledgements

The authors are thankful for the helpful comments from the editor and two anonymous reviewers. All remaining errors are our own.

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Authors and Affiliations

  1. School of Banking, University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu, District 3, Ho Chi Minh City, 700000, Vietnam

    Nguyen Phuc Canh

  2. School of Economics and Finance, Massey University, Palmerston North, New Zealand

    Udomsak Wongchoti

  3. School of Public Finance, University of Economics Ho Chi Minh City, Ho Chi Minh City, 700000, Vietnam

    Su Dinh Thanh

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  1. Nguyen Phuc Canh
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Appendix

Appendix

Table 8 Primary data and sources
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Table 9 Economic policy uncertainty and life insurance development: robustness check by different estimators
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Table 10 Economic policy uncertainty and non-life insurance development: robustness check by different estimators
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Canh, N.P., Wongchoti, U. & Thanh, S.D. Does economic policy uncertainty matter for insurance development? Evidence from 16 OECD countries. Geneva Pap Risk Insur Issues Pract 46, 614–648 (2021). https://doi.org/10.1057/s41288-020-00192-5

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