What Drives Property Insurance Demand in Croatia?

Abstract

Property insurance is an important part of risk management, insurance coverage and vehicle of catastrophic losses financing. In developed countries, property insurance plays an important role in the structure of non-life premium, while in developing markets, such as Croatian, property insurance penetration is rather low. Unfortunately, the recent earthquakes in Zagreb (Croatia) and the surrounding area in 2020 have once again highlighted a large protection gap, resulting in a dominant role of government in financing catastrophic losses. The aim of this paper is to discuss and investigate the factors that determinate property insurance demand in Croatia. Using the VAR (Vector AutoRegression) methodology extended via spillover index approach, we analyse a comprehensive data set ranging from the economic, financial, social to insurance indicators. The conclusions of this research point that some of the expected drivers of insurance demand such as mortgage loans, consumer confidence and loss experience, are not important in Croatia, and that property insurance is dominantly driven by economic development.