Threshold effect for the life insurance industry: evidence from OECD countries

Ingrid-Mihaela Dragotă (), Cosmin Octavian Cepoi () and Lavinia Ştefan ()
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Ingrid-Mihaela Dragotă: Bucharest University of Economic Studies
Cosmin Octavian Cepoi: Bucharest University of Economic Studies
Lavinia Ştefan: Bucharest University of Economic Studies

The Geneva Papers on Risk and Insurance - Issues and Practice, 2023, vol. 48, issue 4, No 3, 799-820

Abstract: Abstract We investigate the impact of new financial and economic determinants on life insurance demand for 29 OECD countries for the period 2005–2017 while controlling for a set of widely used socio-demographic and economic characteristics. Based on a panel smooth transition regression model, we find a regime-switching effect characterising the impact of bank concentration and interest rate on the size of the life insurance market, in light of the old-age dependency ratio as the threshold variable. We also show that life insurance development is boosted in countries with high scores for investment freedom and with high levels of foreign direct investment rates, regardless of the level of the old-age dependency ratio. The impact of GDP per capita on the demand for life insurance products is positive and statistically significant, regardless of the level of the threshold variable.

Keywords: Life insurance density; Old-age dependency ratio; Investment freedom; Bank concentration; Foreign direct investment; Panel smooth transition regression (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41288-022-00272-8

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