Cointegration and causality between macroeconomic variables and life insurance demand in India

Abstract

Purpose The purpose of this paper is to analyze the macroeconomic determinants of life insurance demand in India. The recent decline in life insurance activity calls for a study on the factors influencing life insurance demand in India. Design/methodology/approach This study employs econometric techniques like augmented Dickey-Fuller test, Johansen cointegration test, vector error correction models and the Granger causality test to estimate the macroeconomic predictors of life insurance demand in India, during the period 1980-1981 to 2013-2014. Findings Financial sector development and inflation positively influence life insurance demand in India. The real rate of interest and income are negatively related to life insurance consumption. The study finds an insignificant relation between the level of social security expenditure and life insurance buying. Financial sector development is found to Granger-cause life insurance demand. Research limitations/implications Product-wise analysis of life insurance demand is not attempted due to lack of unit-level data. The impact of regulatory changes on life insurance demand in India is not attempted. Practical implications Intervention by the policy makers is required to arrest the decline of life insurance activity in India. Efforts are required to widen the financial sector of the Indian economy to accelerate the growth of life insurance activity. Originality/value The paper introduces a new measure of life insurance demand, the total regular new business premium, in the estimation of life insurance demand determination.

Financial sector development and life insurance inclusion in India: an ARDL bounds testing approach

“…These are premium based measures and include renewal premiums, which constituted 58% of the gross premiums collected in India in 2018(IRDA, 2019. Renewal premiums may not be a representative measure of life insurance demand since they arise on account of prior period decisions and do not reflect new buying decisions (Cargil and Troxel, 1979;Mathew and Sivaraman, 2017). Renewal IJSE 48,4 premiums, thus, may not contribute to actual demand for life insurance in the current year.…”

“…Moreover, the FSA includes only the first time purchase of the service of the life insurance provider, thus indicating the inclusion of an individual into financial risk protection. The FSA excludes sum assured on the existing policies, which are results of prior period decisions (Cargill and Troxel, 1979;Ahuja, 2004;Mathew and Sivaraman, 2017). Buying a life insurance cover for the first time in a life time means that an individual gets "included" in life insurance activity, implying life insurance inclusion.…”

Consumer acceptance toward takaful in Pakistan

“…The high growth in takaful has attributed to several indicators, such as a consumer level of education, consumer’s income, awareness, religious behavior and the development of Islamic financial products (Sherif and Shaairi, 2013). Additionally, insurance products are associated with several problems which ultimately decline their client behavior to adopt insurance products (Mathew and Sivaraman, 2017; AL-Alhassan et al , 2015). However, Islamic insurance still far behind the conventional insurance scheme, particularly in family insurance (Ahmad et al , 2012, 2013).…”

Do People Choose Life Insurance for Protection or for Saving?

“…13 Indian LI literature has been wide-spreading addressing multiple facets, for example, macroeconomic issues like role of the LI reforms, role of LI in the economic development, impact of liberalization on the LI market, costs efficiency of the LI schemes, solvency test of the LI market, disinvestment impacts on the LI sector, risk management techniques of the LI industry, long term relationship between the LI industry and economic development, causes and remedies of policy lapses, service quality perception indicators, and the LI sector performance analysis have been documented. [26][27][28][29][30][31][32][33][34][35] Moreover, studies on customer-related aspects such as the buying behaviour about LI, motivators of the LI demand, attitudes towards the LI companies, role of post office saving bank accounts in spreading the LI, dispute settlement mechanisms, understanding rural customers' behaviours and customer satisfaction, preferences and satisfaction levels in changing environment and assaying the Life Insurance of India (LICI)'s success in countering private players' exaggerated advertisements, status, and role of microinsurance have been attempted. [36][37][38][39][40][41][42][43][44] Furthermore, financial illiteracy to lack of trust in insurance products causing India's poor demand for LI have also been identified notwithstanding Indian LI market is considered as the world's most dynamic and innovative microinsurance market.…”