What Drives the Development of Insurance&

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Submitted By mustadan
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WPS5572 Policy Research Working Paper 5572

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What Drives the Development of the Insurance Sector?
An Empirical Analysis Based on a Panel of Developed and Developing Countries
Erik Feyen Rodney Lester Roberto Rocha

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Public Disclosure Authorized

The World Bank Financial and Private Sector Development Finance and Policy Units February 2011

Policy Research Working Paper 5572

Abstract
The insurance sector can play a critical role in financial and economic development. By reducing uncertainty and the impact of large losses, the sector can encourage new investments, innovation, and competition. As financial intermediaries with long investment horizons, insurance companies can contribute to the provision of long-term instruments to finance corporate investment and housing. There is evidence of a causal relationship between insurance sector development and economic growth. However, there have been few studies examining the factors that drive the development of the insurance industry. This paper contributes to the literature by examining the determinants of insurance premiums (both life and non-life premiums) and total assets for a panel of about 90 countries during the period 2000-08. The results show that life sector premiums are driven by per capita income, population size and density, demographic structures, income distribution, the size of the public pension system, state ownership of insurance companies, the availability of private credit, and religion. The nonlife sector is affected by these and other variables. While some of these drivers are structural, the results also show that the development of the insurance sector can be influenced by a number of policy variables.

This paper is a product of the Finance and Policy Units, Financial and Private Sector…...

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