Figure 6: Evolution of insurance-growth empirical research papers.

<!-- Start of picture text --> 4.5<br>4<br>3.5<br>3<br>2.5 Number supply leading<br>2<br>Number demand leading<br>1.5<br>1 Number neutral/ both ways<br>0.5<br>0<br><!-- End of picture text --> Source: Table 1 Where reverse or neutral causality has been found there is evidence that, statistical methodology aside, this may arise from the aggregation of data from classes of insurance with different characteristics<sup>40</sup> . Kugler and Ofoghi disaggregate UK insurance data by line of business to explore earlier findings by Ward and Zeubregger (2000) of no relationship in the UK and USA between insurance and economic development. They find causality where Ward and Zeubregger do not, but at a more granular level, and attribute this to cointegration effects. The three classes of insurance testing as most clearly supply leading, are life, health and property. Property insurance enables banks to lend for housing and for major projects, and private health insurance can enable governments to create fiscal space and focus resources on the poorer sections of society. Results for most other classes were neutral, although there does appear to be some support for a longer run causality from motor insurance to economic growth. Liability classes such as Motor Third Party and Contractors All Risks that effectively increase access for the uninsured may not be directly supportive of growth, but as public policy has demonstrated, are seen as increasing welfare.

Life insurance appears to be heavily influenced by cultural factors and social policy – with above expected penetration levels seen in East and North Asia and well below expected levels observed in MENA. Traditional life insurance is now the main source of long term funds in the world with the universal move from defined benefit to defined contribution pension plans, and countries where this sector is undeveloped are likely to be more dependent on international capital flows if they are not resource rich. In China local governments are now turning to the life insurance sector for funding as central monetary policy is tightened<sup>41</sup> .

Secondly, and despite the recent positive research, the direction of causality is probably not an iron law even for economically supportive insurance classes – conditioning variables and choice of time frame can individually or in combination modify and even reverse the direction. If the policy environment for domestic insurance development is negative in a country the supply leading effect is likely to be muted. In addition certain classes of insurance, such as professional liability may be a function of local legal approaches rather than intrinsic to economic development. The overweighting of North America in the Property and Casualty (General Insurance) column in Figure 3 above reflects the important role that liability insurance plays in what is the most litigious society in the world. The fact that liability insurance is not supply leading in such circumstances is perhaps not surprising.

> <sup>40</sup> Life, health and property and casualty all exhibit quite different slopes when regressed against national income.

> <sup>41</sup> Asia Insurance Review, May 7<sup>th</sup> , 2014

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