Academic journal article Risk Management and Insurance Review

Stimulating the Demand for Insurance

Academic journal article Risk Management and Insurance Review

Stimulating the Demand for Insurance

Article excerpt


This article acts as a review and also a guide to policymakers who are interested in understanding the determinants of insurance demand and how it affects general economic development. By providing a synopsis and evaluation of existing empirical research on the development of insurance markets, this article provides a discussion of the factors that promote insurance market development. This article then highlights certain issues that both insurance companies and policymakers can utilize further in their own markets to design future policies that can be geared to promote insurance market development.


From an economic viewpoint, traditional neoclassical growth theory suggests that without technological development economies can only grow at a steady rate. This conclusion implies little scope for government involvement in trying to further stimulate economic growth. However, and in response to this scenario, alternative theories have developed which suggest this does not necessarily have to be the case. In particular, endogenous growth theorists have highlighted how investment and growth in one sector of an economy can provide positive externalities for other areas of the economy. Therefore, economic growth within these models can potentially accelerate beyond a steady state if regulation is successful in helping and promoting industries that generate positive externalities for the rest of the economy. But what sectors should policymakers develop? Recent research tends to indicate that financial services, and its various components, including insurance and banking, have substantial potential for spreading positive externalities throughout the commercial sector of an economy.

Within this research agenda, interest in the role of financial development in economic growth has moved to the fore of economic analysis, with a large and growing body of the literature supporting the link between financial growth and economic growth.1 These findings are not surprising given that well-functioning financial institutions should improve the efficiency of capital allocation, encourage savings, and develop capital formation, ultimately leading to a more productive, growing economy.

Consistent with these findings, specific evidence for the role of insurance market development in economic growth is provided by Outreville (1990b) and Ward and Zurbruegg (2002). These studies suggest that the insurance industry through risk transfer, financial intermediation, and employment can generate positive externalities and economic growth.

Not surprisingly, with the link between financial development and economic growth established, research efforts have moved onto understanding the underlying factors that encourage development in financial services. By identifying factors that promote the demand for financial services, it becomes possible to highlight those factors that actually aid financial development, and ultimately economic growth. For example, recent empirical research on insurance markets by Browne et al. (2000), Ward and Zurbruegg (2002), Beck and Webb (2003), and Esho et al. (2004) have shown that the level of insurance demand within an economy can be influenced by a number of particular variables, including economic, legal, political, and social factors.

Despite these existing results, there has been little guidance presented to policymakers on which specific factors they should foster to aid financial, or insurance market development. To address this problem, the objective of this article is to present a synopsis of the existing literature, relating to the demand for insurance; and in so doing provide guidance for policymakers on how to promote insurance market demand. This focus upon demand clearly neglects the importance of the supply side of the market. However, our singular concern with demand is intended to promote greater clarity in understanding the determinants of the consumption of insurance products. …

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