Non-linearity between life insurance and economic development: A revisited approach

Abstract

This paper investigates the non-linear link between economic development and activities of the life insurance market. We ask whether the relevance of institutional environments on the development of the life insurance market is different across countries. Applying a novel threshold model with the instrumental variable approach, we find overwhelming evidence in support of an income threshold. Moreover, legal and political circumstances have an overwhelming positive effect on life insurance in low-income countries, but the effect is marginal in high-income countries. Our findings clearly demonstrate that the role of institutions on activities in the life insurance market diminishes with the evolvement of economic development. © 2012 The International Association for the Study of Insurance Economics.