The relationship between insurance and banking sectors: does financial structure matter?

Guan-Chun Liu and Chien-Chiang Lee ()
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Guan-Chun Liu: Shanghai University of Finance & Economics

The Geneva Papers on Risk and Insurance - Issues and Practice, 2019, vol. 44, issue 4, No 2, 569-594

Abstract: Abstract This paper employs panel data of 36 countries over the period from 1980 to 2015 to investigate whether financial structure matters for the linkage between the insurance and banking sectors. Panel co-integration tests find that the significant relationship varies across different financial structures. Specifically, a developed financial system and market-based structure reinforce their long-run linkage. Panel Granger causality tests show that the market-based structure strengthens the insurance–bank nexus for the financially underdeveloped group of countries and that a financially developed system is conducive to realising a short-run dynamic linkage for a bank-based economy. More importantly, the linkages between insurance and banking sectors can be complementary or substitutive, depending on the relative importance of risk transfer and capital allocation in the insurance market. These findings offer useful insights into achieving the two sectors’ co-evolution and further provide some evidence from the market-based and financial services viewpoints.

Keywords: Financial structure; Insurance; Banking sector; Market-based structure; Complementary or substitutive (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41288-019-00135-9

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