Measured Contribution of Insurance to Growth
Given the multiple potential benefits ofa vibrant insurance sector, how much ofa contribution does insurance make inpractice? While still sparse, the researchpoints to several relatively robust inferences:
1: Insurance Contributes Positively toEconomic Growth.
The deepening of insurance markets makesa positive contribution to economic growth.While life insurance is causally linked togrowth only in higher income economies,nonlife insurance makes a positivecontribution in both developing and higherincome economies. Some research suggeststhat the positive contribution of lifeinsurance to growth is primarily through thechannel of financial intermediation and longterm investments. However, it is importantto note that these studies do not addressthe important contributions to individualand social welfare from risk management.
2: Strong Complementarity betweenInsurance and Banking.
Insurance and banking system deepeningappear to play complementary roles in thegrowth process. Although insurance andbanking separately each make positivecontributions to growth, their individualcontributions are greater when both arepresent. There is also some evidencethat the development of insurancemarkets contributes to the health ofsecurities markets.
As suggested above, there are manyreasons why this complementaryrelationship might hold, including thelikelihood that the presence of property casualty insurance avoids inefficiently highlevels of bankruptcy and helps to facilitatecredit transactions for houses, consumerdurables, and small- and medium-sizedbusinesses that banks typically finance.Separate evidence that a growing presenceof life insurance providers and pensionfunds is associated with more efficientbanks suggests that they promote somecapital market discipline on the investmentside that is also complementary.
Drivers of Insurance