Summary
This study is the first study after Beenstock, Dickinson, and Khajuria (1986) that specifically identifies those factors that are most relevant to demand for life insurance and extends the coverage from 10 to 25 OECD countries. Furthermore, this is the first study in this area to use GMM estimation as a way of unraveling some of the statistical inconsistencies that one could have observed in the past studies owing to their use of OLS estimate. (The exception is Beck and Webb, 2003, who used the instrumental variables.) Furthermore, this study is the first study to conduct an empirical study of demand for life insurance for the OECD countries for the 1990s. The main conclusion of this article is that socioeconomic and product market factors play significant roles in isolation, but have equally important cross effects.
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Extract
The Demand for Life Insurance in Oecd Countries
INTRODUCTION
Life insurance demand has experienced a rapid growth over the last few decades, significantly outpacing worldwide income growth. Widespread socioeconomic changes have underpinned this development; particularly, the dramatic extension of life expectancy and the higher enrolment rate in tertiary education. All of these factors contribute to increasing the cost of dependence and provide the rationale for life insurance coverage. In addition, the limits of social welfare as tax pressure reaches a breaking point are now widely expected to stimulate life insurance consumption in the coming years, as households anticipate public institutions' covering fewer of their future financial needs. Market structure developments have similarly contributed to the increasing popularity of life insurance. The increasing openness of domestic markets to foreign competition following international trade agreements, especially the Uruguay round, have resulted in more attractive and better priced products that are better suited to customer demand. Furthermore, the development of financial savings in a retirement perspective is seen to bolster life insurance demand in rapidly aging economies.Despite the increasing number of studies regarding the determinants of life insurance consumption, several issues remain unclear. In particular, what are the effects of social security expenditures? Likewise, is a longer life expectancy associated with a higher or lower demand for life insurance? Earlier papers concerned with micro-level determinants (e.g., Burnett and Palmer, 1984; Fitzgerald, 1987) and focused on the U.S. insurance market (e.g., Mantis and Farmer, 1968; Chen, Wong, and Lee, 2001) could not properly address these questions. In fact, only cross-country comparisons allow studying socioe...See the full content of this document
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