Essays on Insurance Economics

Is the relationship between insurance consumption and its determinants spurious? Is general insurance a luxury service? Do bequest motives matter for life insurance consumption? Is private credit important for the development of life insurance? Do socioeconomic development and informal risk sharing institutions matter for formal insurance consumption? This thesis investigates these and other related issues using international datasets and relatively new panel data method, namely the Common Correlated Effects Pooled (CCEP) estimator. A novelty of the CCEP is that it takes into account the impacts of unobserved common factors. The thesis consists of an introduction, three empirical chapters and conclusions. Chapter 2 studies the relationship between nonlife insurance consumption and income/wealth per capita. Estimation results suggest that income elasticity is below unity and that nonlife insurance is positively related to GDP per capita, the law, risk aversion, infrastructural development, and negatively related to socioeconomic development. Chapter 3 explores life insurance consumption driven by bequest motives. We found that life insurance consumption is positively related to GDP per capita, old age dependency ratio, infrastructural development, and social security and welfare; and negatively related to the extended family institution, savings, inflation, and risk aversion. Estimation results suggest the presence of altruistic, and bequest as exchange old age security motives. Chapter 4 investigates the long run relationship and causality direction between private credit consumption and life insurance development. Life insurance development may be explained by GDP per capita, formal and informal credit consumption, infrastructural development, life expectancy, institutional quality, inflation, and Islam, and Orthodox being the dominant religions. Cointegration test results suggest that life and nonlife insurance consumption and its determinants exhibit a long run relationship; and that there is a long run bi-directional causality relationship between life insurance development and private credit consumption. The thesis concludes that insurance development requires institutional and infrastructural development-in particular- telecommunications infrastructure, to facilitate cost effective insurance supply.