Investor confidence and life insurance demand: can economic condition limit life insurance business?

Danish Ahmed, Yuantao Xie and Khelfaoui Issam

International Journal of Emerging Markets, 2021, vol. 18, issue 7, 1537-1564

Abstract: Purpose - Life insurance is bought with a prior belief that promise stipulated in policy will be honored when due. Discernibly, this belief is backed by the confidence that financial markets and economy will demonstrate satisfactory performance. However, individuals' confidence levels may get shaken through naïve reinforcement learning if they witness negative market or economic condition. Considering this the authors investigate the relationship between investor confidence and life insurance demand. Design/methodology/approach - The authors used bias corrected bootstrapped sample of OECD economies to examine the link between investor confidence and life insurance demand when two possible economic conditions were witnessed: 1) normal/economic expansion and 2) economic/debt impairment. The findings are robust to alternate estimation techniques and endogeneity. Findings - The authors found that lower investor confidence, sovereign debt impairment and negative market condition will have negative repercussion on life insurance demand. On the other hand, investor confidence-life insurance demand nexus is merely influenced by market and economic condition. Originality/value - This is a premier research explaining the nexus between investor confidence and life insurance demand in the context of life-cycle hypothesis, sovereign ratings channel and experience-confidence-belief framework. The finding will help economic policy-makers in developing pre-emptive measures to protect life insurance businesses from negative repercussions of lower confidence and negative market conditions.

Keywords: Life insurance; Demand; Investor confidence; OECD; Economic condition; Market condition; Sovereign rating (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-06-2020-0650

DOI: 10.1108/IJOEM-06-2020-0650

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