Beruflich Dokumente
Kultur Dokumente
Is insurance a luxury?
Theodora Galabova and Rodney Lester report on their study of the insurance industry in
developing countries.
Shortage of data
There is in fact very little research on insurance consumption. What exists is typically based on time series
data and often aggregates classes of insurance, meeting different needs and driven by diverse regulatory
and taxation environments. Even recent works incorporating modern statistical tests of bias, cointegration, and causality appear to be dependent on data
sets which, to an industry practitioner, appear to be
subject to a host of unsuspected and often idiosyncratic variables. In this article we point to an alternative way of attacking the issue and some initial
conclusions for general insurance.
Consumption smoothing
However, a vast literature documents the presence of
consumption-smoothing behaviour and protection
against future losses in all income strata in developing
0
1
3
France
5
6
7
Expenditure deciles
Denmark
Bulgaria
10
Peru
Policy implications
Previous surveys of the determinants of insurance
penetration have shown a positive relationship
between volume of non-life premiums and GDP per
capita. Countries with GDP below a given level and
countries with GDP above a given level (about
$10,000 for non-life insurance) exhibit unitary
income elasticity of demand, while countries in
between exhibit income elasticity of demand of up to
2 or even more. Our study includes some countries in
the top and bottom income groups as well as several
in the middle. Our results are largely consistent across
countries, implying that, even when insurance penetration is poised for outsize growth on the macro
level, this need not be a result only of demand in the
wealthiest strata.
In general, policies aimed at macro reform will have
a bigger effect on demand for insurance than on supply, while measures aimed at restructuring the industry will affect supply in greater degree. Both types of
policies may have wider, unexpected results. For
example, the removal of protectionist restrictions on
foreign vendors in the market probably will increase
the amount and variety of services available, but it
also may affect demand for services as consumers
confidence in the industry improves and the need to
purchase additional insurance abroad diminishes.
Also, deregulation in one big market may lead a multinational to increase its insurance spending there and
reduce it elsewhere, without reflecting changes in policy and environment in the smaller markets. Business
continued over page
Past experience
An interesting comparison may be made between the
current conditions in the insurance industry in developing countries and conditions in the credit market
in many of these same countries a few decades ago. It
was thought that credit could not be extended to large
parts of the worlds population because people in the
lowest economic strata did not understand or need
credit and did not own collateral. The experience and
financial innovation of Grameen Bank in Bangladesh
and other institutions (mostly in South and North
America) have shown that lending to the poor is a
viable proposition, although an initial period of subsidies may be required.
Similar developments in the insurance market may
be imminent. Recent efforts by the World Bank and
local non-governmental organisations (NGOs) to
introduce micro-insurance schemes in rural areas in
several developing countries have shown promising
results. In India, 12 micro-insurance projects are under
way. In addition, micro-insurance schemes are under
way in Bangladesh (life insurance), Sri Lanka (loan,
group, housing, insurance), and the Philippines (loan,
life, pension, insurance). Though still preliminary,
References
Enz, Rudolph (1999). The S-Curve relation between per-capita income and
insurance penetration, Sigma, Swiss Re.
Grimard, Franque (1997). Household consumption smoothing through ethnic ties:
evidence from Cte dIvoire, Journal of Development Economics, Vol 53,
pp391422.
Townsend, Robert M (1994). Risk and Insurance in Village India, Econometrica, Vol
62, No 3, pp53991.
Vittas, Dimitri (1995). Sequencing social security, pension, and insurance reform.
World Bank, p3.
Ward, D and Zurbruegg, R. Does insurance promote economic growth? Evidence
from OECD countries.
Wasow, Bernard (1986). Determinants of insurance penetration: a cross-country
analysis, Wasow et al, eds, The insurance industry in economic development,
New York University Press, pp16572.