Foreign capital impact on insurance market development in EU-15 countries

Abstract

Objective: The objective of the article is to investigate how foreign capital influenced the development of insurance markets in EU-15 countries.

Research Design & Methods: A critical review of literature is undertaken, contents of factors which influence development of insurance markets are analysed, and econometric methods are applied. A panel model is constructed and results of its estimation are analysed.

Findings: Insurance markets in particular countries develop under the influence of many factors. The share of foreign insurance companies is treated as a structural factor. There is previous research into this subject was conducted, whose results do not confirm a clear impact of foreign capital on the insurance market’s development. The study indicates that the development of insurance markets – measured with the penetration rate and with the ratio of insurance density – is affected by shares of foreign capital in life insurance companies.

Implications & Recommendations: To verify the hypothesis concerning the impact of foreign capital on the development of insurance markets, scholarship requires further studies of another group of countries (insurance markets).

Contribution & Value Added: This study will contribute to the development of theories concerning factors of the development of insurance markets.

Keywords

international finance, insurance market, insurance companies, foreign capital, panel data model, random estimation.

References

1. Arena, M. (2008). Does insurance market promote economic growth? A cross-country study for industrialized and developing countries. Journal of Risk and Insurance, 75(4), 921-946. https://doi.org/10.1111/j.1539-6975.2008.00291.x
2. Beck, T., & Webb, I. (2003). Economic, demographic, and institutional determinants of life insur-ance consumption across countries. World Bank Economic Review, 17(1), 51-88.
3. Bednarczyk, T. (2012). Wpływ działalności sektora ubezpieczeniowego na wzrost gospodarczy. Lu-blin: Wydawnictwo Uniwersytetu Marii Curie-Skłodowskiej.
4. Bukowski, S., & Lament, M. (2019). Impact of foreign capital on the insurance market development in the Visegrad Group countries. Journal of Management and Financial Sciences, 38, 33-45.
5. Brokešová, Z., & Vachálková, I. (2016). Macroeconomic environment and insurance industry devel-opment: The case of Visegrad group countries. Central European Review of Economic Issues. Economická Revue, 19, 63-72.
6. Browne, M.J., & Kim, K. (1993). An international analysis of life insurance demand. The Journal of Risk and Insurance, 60(4), 616-634. https://doi.org/10.2307/253382
7. Burić, M.N., Smolović, J.C., Božović, M.L., & Filipović, A. L. (2017). Impact of economic factors on life insurance development in Western Balkan Countries. Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu, 35(2), 24-32.
8. Carson, J.M., Chen, P.H., & Outreville, J.F. (2014). Does foreign direct investment affect the supply of life insurance in developing countries?. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.684.9911&rep=rep1&type=pdf on June 5, 2018.
9. Chui, A.C., & Kwok, C.C. (2008). National culture and life insurance consumption. Journal of Interna-tional Business Studies, 39(1), 88-101. https://doi.org/10.1057/palgrave.jibs.8400316
10. Cristian, B.C. (2010). Current coordinates of the Romanian insurance sector. Annals of Faculty of Economics, 1(2), 504-508.
11. Dickinson, G. (2000). Encouraging a dynamic life insurance industry: economic benefits and policy issues. London: Center for insurance and investment studies. Retrieved from www.oecd.org. on June 5, 2018.
12. EBRD (2019). Transition Report 2018-19.
13. Enz, R. (2000). The S-curve relation between per-capita income and insurance penetration. The Geneva Papers and Insurance, 25(3), 396-406. https://doi.org/10.1111/1468-0440.00072
14. Haiss, P., & Sümegi, K. (2008). The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis. Empirica, 35(4), 405-431. https://doi.org/ 10.1007/s10663-008-9075-2
15. Han, L., Li, D., Moshirian, F., & Tian, Y. (2010). Insurance development and economic growth. Ge-neva Papers on Risk and Insurance, 35(1), 183-199. https://doi.org/10.1057/gpp.2010.4
16. Hwang, T., & Greenford, B. (2005). A cross-section analysis of the determinants of life insurance consumption in Mainland China, Hong Kong, and Taiwan. Risk Management and Insurance Re-view, 8(1), 103-125. https://doi.org/10.1111/j.1540-6296.2005.00051.x
17. Kurylo, V., Kurylo, L., Zhovnirchyk, Y., Kartashov, Y., & Sokol, S. (2017). The development of the insurance market of Ukraine amid the global trends in insurance. Investment Management and Financial Innovations, 14(1), 213-225. https://doi.org/ 0.21511/imfi.14(1-1).2017.07
18. Levine, R. (2004). Finance and growth: theory and evidence (NBER Working Papers, 10766). Nation-al Bureau of Economic Research, Cambridge.
19. Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35(2), 688-726.
20. Li, D., Moshirian, F., Nguyen, P., & Wee, T. (2007). The demand for life insurance in OECD coun-tries. Journal of Risk and Insurance, 74(3), 637-652. https://doi.org/10.1111/j.1539-6975.2007.00228.x
21. Ma, Y.L., & Pope, N. (2003). Determinants of international insurer’s participation in foreign non-life markets. Journal of Risk and Insurance, 70(2), 235-248. https:/doi.org/10.1111/1539-6975.00058
22. Medveď, D., & Kavčič, S. (2012). An empirical study of efficiency in Croatia and Slovenia insurance markets. Ekonomska Istraživanja, 25(1), 105-120.
23. Moshirian, F. (1999). Sources of growth in international insurance services. Journal of Multinational Financial Management, 9(2), 34-49.
24. Moshirian, F. (1997). Foreign direct investment in insurance services in the United States. Journal Multinational Financial Management, 7(2), 159-173.
25. OECD (2008). Insurance Statistics Yearbook 1997-2006.
26. OECD (2011). Insurance Statistics Yearbook 2003-2010.
27. OECD (2015). Insurance Statistics Yearbook 2007-2014.
28. OECD (2016). OECD Business and Finance Outlook 2015.
29. OECD (2017). OECD Business and Finance Outlook 2016.
30. Outreville, J.F. (1996). Life insurance market in developing countries. Journal of Risk and Insurance, 63(2), 263-278. https://doi.org/ 10.2307/253745
31. Outreville, J.F. (1990). The economic significant of insurance markets in developing countries. Journal of Risk and Insurance, 18(3), 487-498.
32. Owsiak, S. (2002). Metodologiczne aspekty badań nad sektorem finansowym. In S. Owsiak (Ed.), Sektor finansowy w Polsce. Warszawa: PWE.
33. Pelegrin, F., Schich, S., & de Serres, A. (2002). Increases in business investment rates in OECD coun-tries in the 1990s: How much can be explained by Fundamentals? (OECD Economic Department Working Papers, No. 327).
34. Pye, R. (2005) The evolution of financial services in transition economies: An overview of the insur-ance sector. Post-communist Economies, 17(2), 205-223.
35. Sankaramuthukumar, S., & Alamelu, K. (2012). A SWOT analysis of Sri Lankan insurance sector. The Journal of Risk and Insurance, 9(1), 27-47.
36. Sawadogo, R, & Guèrineau, S. (2015). Does insurance development affect the financial markets in developing countries?. Etudes et Documents, 20, CERDI. Retrieved from http://cerdi.org/production/show/id/1718/type_production_id/1 on October 15, 2018.
37. Sen, S. (2007). Are life insurance demand determinants valid for selected Asian economies and India? (Paper for Presentation at Annual Meeting of APRIA, 1-27). Institute for Social and Eco-nomic Change. Retrieved from https://www.scribd.com/document/230968492/13507Paper-APRIA-Subir-Draft on October 15, 2018.
38. Sen, S., & Madheswaran S. (2013). Regional determinants of life insurance consumption: evidence from selected Asian economies. Asian-Pacific Economic Literature, 27(2), 86-103. https://doi.org/10.1111/apel.12024
39. Ward, D., & Zurbruegg, R. (2000). Does insurance promote economic growth? Evidence from OECD countries. Journal of Risk and Insurance, 67(4), 489-506. https://doi.org/10.2307/253847
40. Wieczorek-Kosmala, M. (2016). Non-life insurance markets in CEE countries – part I: products’ structure. Journal of Economics and Management, 25(3), 109-125.
41. Zhang, C., & Zhu, N. (2005). Determinants of the development of insurance in China under the glob-alization (Working Paper Centre D’Études et de Recherches sur le Développement Internation-al). Retrieved from https://pdfs.semanticscholar.org/5b03/2f2e73daba3584185301f73be197250e7fe9.pdf on Oc-tober 15, 2018.
42. Zheng, W., Liu, Y., & Deng, Y. (2009). A comparative study of international insurance sector.
43. The Geneva Papers on Risk and Insurance – Issues and Practice, 34(1), 85-99. https://doi.org/10.1057/gpp.2008.37
44. Zietz, E. N. (2003). An examination of the demand for life insurance. Risk Management and Insur-ance Review, 6(2), 159-191. https://doi.org/ 10.1046/J.1098-1616.2003.030.x