A study on the macroeconomic factors affecting life and non-life insurance premiums

Abstract

Amidst macroeconomic shifts catalyzed by events like the Covid-19 pandemic and the Russian-Ukrainian conflict, Europe is experiencing changes that ripple across various sectors. Among these, the insurance sector, through its functions assumes a critical role, not only fostering economic growth but also contributing to the stability of financial systems. This study delves into the relationship between the macroeconomic determinants and the insurance sector, focusing on life and non-life insurance premiums. Through an exhaustive review of existing literature, this research identifies key macroeconomic determinants, namely Gross Domestic Product (GDP), inflation, unemployment, and interest rates. The researcher utilizes panel data analysis to establish correlations between these determinants and insurance premiums across 26 European countries. Additionally, the study employs time series analysis to assess the correlations between these macroeconomic variables and the insurance premiums in Malta. Notably, this study fills a gap in the literature, as it sheds light on the scarcity of research in this domain, with a pioneering effort in the context of Malta. Particularly noteworthy is the robust and positive link between GDP and Gross Written Premiums (GWP) in both life and non-life insurance in the EU. This underlines the pivotal role of economic growth in driving insurance demand for insurance coverage. Within the broader panel data framework, GDP, unemployment, and interest rates emerge as significant influencers of life insurance GWP. Notably, interest rates exhibit a significant inverse correlation, underscoring their impact on life insurance demand. In the context of non-life insurance, GDP, interest rates and inflation exhibited significance, with interest rates demonstrating a significant inverse relationship with non-life insurance GWP. Zooming into the Maltese scenario, the research reveals distinct patterns. In the domain of life insurance, unemployment and interest rates emerge as pivotal determinants, standing in contrast to GDP and inflation, which prove insignificant. For Malta, GDP assumes the role of the most influential factor driving non-life insurance GWP, while unemployment, interest rates and inflation showed no significant correlation.