The S-Curve Relation Between Per-Capita Income and Insurance Penetration

Rudolf Enz
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Rudolf Enz: Swiss Re, Economic Research & Consultiing, Zurich, Switzerland. E-mail Rudolf_Enz@swissre.com

The Geneva Papers on Risk and Insurance - Issues and Practice, 2000, vol. 25, issue 3, 396-406

Abstract: Models that assume a constant income elasticity of demand for insurance have the unrealistic implication that insurance penetration grows without constraint. This article introduces a logistic function that allows income elasticity to 0vary as the economy matures. Econometric estimations yield a so-called S-curve, for which the income elasticity of demand is equal to one at specific low and high levels of income, but may reach two or more at intermediate income levels. Long-term forecasts for insurance premiums based on GDP projections are possible for countries that either conform to the S-curve model or deviate consistently from it. Analysing deviations from the S-curve allows the identification of outlier countries, in which factors other than GDP drive insurance demand. The Geneva Papers on Risk and Insurance (2000) 25, 396–406. doi:10.1111/1468-0440.00072

Date: 2000
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