Law and the Determinants of Property-Casualty Insurance
APRA Working Paper No. 2001-08
35 Pages Posted: 13 Aug 2001
Date Written: June 2001
This paper examines the importance of legal rights and enforcement in influencing property-casualty insurance consumption. We extend the existing literature by examining the role both legal and political factors have on determining insurance density across countries. Also, measures of risk aversion, loss probability and price, which overcome limitations of proxies used in the existing literature on insurance demand are analysed. Using a panel data set we apply the GMM dynamic system estimator, which relaxes the assumption of strict exogeneity of the regressors and produces unbiased and efficient estimates. The results show a strong positive relationship between the protection of property rights and insurance consumption, which is robust to various model specifications and estimation techniques. Moreover, the results show the purchase of nonlife insurance is significantly and positively related to risk aversion, loss probability and income, and negatively related to price.
Keywords: Insurance, Property Rights, Law
JEL Classification: G22, K11, K40
Suggested Citation: Suggested Citation