Foreign Share, Insurance Density, and Penetration: An Analysis of the International Life Insurance Market

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Recent trends toward liberalization and deregulation have sparked significant interest in the topic of international insurers' participation in foreign markets. This research develops a profile of foreign national market characteristics that attract international life insurer participation and additionally, empirically assesses the value that international participation has to the host market. Characteristics that are found to be statistically significant with respect to international participation include high levels of trade liberalization and/or low insurer market share concentration, high levels of national wealth, and high levels of government expenditure on social security retirement benefits. With respect to the benefits such participation provides, we see that the presence of international life insurers share positive relationships with both life insurance consumption and the magnitude of the role life insurance plays within the broader national economy of those host markets.


The benefits and motivation of internationalization1 of the world's insurance markets, to both global insurers as well as to the markets in which they participate, have been well documented (see, e.g., Skipper, 1996; Swiss Re, 2000; Ward and Zurbruegg, 2000). In response to these benefits, the worldwide marketplace has seen significant expansion in recent years. This increase has been facilitated by international efforts focused on deregulation and liberalization of the insurance markets. However, obstacles in establishing an insurance branch or subsidiary in foreign countries still exist. According to the Organization for Economic Cooperation and Development (OECD) (1999), two major barriers in international insurance operations consist of licensing requirements for international insurers2 and operational terms that discriminate against those insurers. The degree to which national life insurance markets are controlled by international insurers varies significantly from country to country. In 2001, the percentage of international insurers' share of premium in foreign markets ranged from O to 85.2 percent (OECD, 2003).

While research has identified the barriers related to the free flow of insurance services across national boundaries (Skipper, 1986, 1987) and argued the benefits of removing trade barriers (Carris, 1990; Skipper, 1996), the existing body of literature on foreign market characteristics as they relate to the participation of international insurers is limited. Much of the earlier related financial services literature has focused on factors affecting the amount of foreign direct investment (FDI)3 in the banking industry, and to a lesser extent, the insurance industry specifically. For example, Goldberg and Saunders (1981), Hultman and McGee (1989), and Grosse and Goldberg (1991) empirically tested factors affecting foreign banking activities in the U.S. market. Yamori (1998) approached the issue by examining the internationalization patterns of Japanese banks and finds support for the traditional expectation that presence of home-market financial service organizations in foreign markets is associated with FDI in the manufacturing industry. Focarelli and Pozzolo (2005) took a more global perspective when they examined the international expansion of large banks from OECD countries. Their framework for examination included three sets of variables: economic integration, institutional characteristics, and profit opportunities. While they found that the degree of integration shared by a bank's home market and the target market is positively significant, its importance is superseded by the characteristics of the firm and the measure of potential profitability in the target market. In a more recent study, Focarelli and Pozzolo (2007) compared the pattern of internationalization of banks and insurance companies. Their findings show that economic integration between the origin and the destination countries, as well as comparative advantages, are important for both banks and insurers. …


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