INTERNATIONAL PROPERTY-LIABILITY INSURANCE CONSUMPTION

ABSTRACT During the 1980s and early 1990s, the world insurance market grew substantially. World insurance premiums in 1993 accounted for about 8 percent of world gross domestic product (GDP), compared to 4 percent in 1984. This article explains a substantial proportion of the variation in property-liability insurance consumption across countries belonging to the Organization for Economic Cooperation and Development (OECD). The study focuses on two lines of insurance: motor vehicle and general liability. The authors' analysis indicates that economic conditions affect the demand for insurance differently across lines of coverage. In particular, the authors' results suggest that income has a far greater effect on motor vehicle insurance consumption than on general liability insurance consumption. The authors find evidence that several factors are important in explaining the purchase of both kinds of insurance. These factors include income, wealth, the percent of a country's insurance market controlled by foreign firms, and the form of the legal system in the country. INTRODUCTION Advances in technology have spurred significant growth in international trade during the past 30 years. National economies have become increasingly intertwined as evidenced by world trade dependency [1] that reached 32 percent in 1991 (Human Development Report, 1994). In 1969, total world exports and imports were approximately $256 billion and $268 billion, respectively. By 1998, total world exports and imports had grown to $5,445 billion and $5,534 billion, respectively (International Monetary Fund, 1999). The world gross national product (GNP) has also grown significantly during this time period. In 1991, world GNP per capita was $4,010, compared to $810 in 1970 (International Bank for Reconstruction and Development/The World Bank, 1993). The service sector has continued to expand and accounted for 63.4 percent of world gross domestic product (GDP) in 1991, compared to 50.4 percent in 1960 (United Nations Conference on Trade and Development, 1993). The world insurance business, which constitutes a significant portion of the service sector, has grown at a rate of 10 percent annually since 1950. This growth rate has far exceeded that of overall world economic development. Table 1 reports that in recent years, the world insurance business has grown even more rapidly; it grew at an average annual growth rate of 26 percent from 1984 to 1993 (Swiss Reinsurance Company, 1986 and 1995). Data also show that during the same period, the non-life insurance business grew at a rate of 18 percent annually while the life insurance business grew at a rate of 36 percent annually. In 1993, world insurance premium volume was approximately $1.8 trillion and accounted for about 8 percent of world GDP, compared to 4 percent in 1984 (International Bank for Reconstruction and Development/The World Bank, 1995). These statistics indicate that the insurance business has become increasingly important in the world economy. The market share of countries belonging to the Organization for Economic Cooperation and Development (OECD) has been fairly consistent over the period 1988 through 1993. Table 2 provides a summary of non-life insurance business of OECD member countries in terms of premium volume, world market share, insurance density, and insurance penetration for the year 1993. Premium volume represents total non-life insurance premiums written in the reporting country and is a major indicator of the importance of the insurance industry in the economy of that country. The world market share of a country is the ratio of that country's premiums to total world premiums. Insurance density is calculated by dividing direct gross premiums by the population and represents average insurance spending per capita in a given country. Insurance penetration is the ratio of direct gross premiums to GDP and indicates the relative importance of the insurance business in the domestic economy. …