The impact of real income on insurance premiums: Evidence from panel data

Chien-Chiang Lee () and Yi-Bin Chiu

International Review of Economics & Finance, 2012, vol. 21, issue 1, 246-260

Abstract: This study applies a recently-developed panel smooth transition regression (PSTR) model and takes into account the potential endogeneity biases in order to establish country-specific and time-specific elasticities of insurance premiums with respect to real income for 36 selected countries from the period 1979–2007. The PSTR model endogenously determines the non-linear insurance-income nexus and allows for a continuum of an intermediate regime among extremes. We find overwhelming evidence in support of a non-linear income threshold. The life and non-life insurance premiums are inelastic and elastic with respect to real income, suggesting that they are a necessary good and luxury good respectively. Furthermore, as time goes on, the income elasticities of insurance premiums present a similar upward trend, implying that the impact of economic development on insurance premiums is more important in recent periods.

Keywords: Insurance premiums; Real income; Non-linearity; Panel smooth transition regression; Instrumental variable (search for similar items in EconPapers)
JEL-codes: C33 G22 O16 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:21:y:2012:i:1:p:246-260

DOI: 10.1016/j.iref.2011.07.003

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