Thirdly, while the empirical literature drops hints, it still does not rigorously verify the key transmission mechanisms from insurance sector development to more general economic development, although there is evidence that a productive interaction between credit and insurance is at work. In this regard a search for papers on the nexus between housing and insurance proved to be largely fruitless despite these two economic sub categories being grouped together in some national accounts. Similarly, while plenty of anecdotal evidence exists, no rigorous research could be found on the relationship between distribution systems and insurance sector development. There is some evidence that bancassurance is a more efficient distribution system than traditional agency systems in emerging and industrial countries<sup>42</sup> , presumably reflecting both more widely and densely distributed branches and greater levels of trust.

A number of the studies reviewed in the paper suggest policy settings that can lead to more efficient and effective insurance markets. Vlamannati (2010), uniquely, constructs an index of regulatory reform using Indian data. Reform indicators include the licensing of private insurers, the various stages of reform following the setting up of the Malhotra Committee in 1993, and changes in FDI caps for the sector. While interpretation of results is tricky the author finds that the rate of regulatory reform in the sector contributes to economic growth. In consequence he recommends a full opening up of the sector. Avram and her co-authors (2010) , using a large multi country panel, similarly find that policy settings are important with the quality of a country’s legal system and enforcement of property rights being highlighted<sup>43</sup> . Chang et al (2013) find causality running in different directions in different OECD countries and attribute this to country specific factors including the idiosyncratic interaction of the insurance and banking sectors in different jurisdictions (echoing Webb et al., 2002 and Beck and Webb, 2003).

These implications from the insurance-growth literature are broadly consistent with the findings of the papers on insurance sector drivers discussed in Annex 1. Market liberalization is generally positive as are a strong legal system and enforcement of property rights. Private credit is closely correlated with insurance sector development. At the main subsector level, bond market development is good for life insurance markets, while the size of the car fleet is a direct driver of property and casualty (general) insurance premium growth.

Despite the fact that the researchers are still to some extent in Plato’s cave<sup>44</sup> , there are now sufficient indicators to help focus the allocation of developmental resources to support insurance sector development in emerging markets. In addition to the obvious need to encourage supportive macroeconomic management, honest judiciaries with knowledge of the financial sector need to be established and backed up by strong law securing property rights. Retail credit market development is important and there is now enough research and anecdotal evidence to justify supporting the legal and regulatory environment for insurer/ bank partnerships. Bond markets are important if life insurance is to become an important contributor to growth in emerging markets. Islamic risk sharing mechanisms (Takaful) are still largely an experiment in progress but appear to be worth supporting based on progress to date (Gonulal et al, 2012).

The papers dealing with the risk management needs of the poor tend to be highly focused on individual geographical regions and particular risk management needs (mainly death of the wage earner, health and crop). This is inevitable as few microinsurance arrangements have developed a national profile. However the literature is now exhibiting a consistent set of themes. Acceptable price, fit with specific needs (including household cash flows) and trust are

> <sup>42</sup> Bancassurance: Emerging trends, opportunities and challenges, Swiss Re. Sigma 5/ 2007

> <sup>43</sup> Also see Echo et al, 2004, Law and the Determinants of Property Casualty Insurance, The Journal of Risk and Insurance 71: 265-283

> <sup>44</sup> For example very little work has been done on the role of property insurance, although there is evidence that this class may be important.

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