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Threshold effect for the life insurance industry: evidence from OECD countries
Ingrid-Mihaela Dragotă1, Cosmin Octavian Cepoi2, Lavinia Ştefan3
1Department of Finance, Faculty of Finance and Banking, Bucharest University of Economic Studies, 5-7, Mihail Moxa St., Room 3110, Bucharest, Romania.
Abstract:
We investigate the impact of new financial and economic determinants on life insurance demand for 29 OECD countries for the period 2005-2017 while controlling for a set of widely used socio-demographic and economic characteristics. Based on a panel smooth transition regression model, we find a regime-switching effect characterising the impact of bank concentration and interest rate on the size of the life insurance market, in light of the old-age dependency ratio as the threshold variable. We also show that life insurance development is boosted in countries with high scores for investment freedom and with high levels of foreign direct investment rates, regardless of the level of the old-age dependency ratio. The impact of GDP per capita on the demand for life insurance products is positive and statistically significant, regardless of the level of the threshold variable.
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