What is it about?
Our research assesses the specificities of the life insurance market at the county level. The behavioral mechanisms are highlighted through cross-section linear regressions with spatial interactions on a database of 42 counties in Romania in 2015. One important result is the positive effect of insurance literacy, estimated in a national survey, on the demand for life insurance. Another significant result is the spatial diffusion process identified in life insurance density between neighboring counties. Among the control variables, we identified a significant positive impact of income and urbanization on the demand for life insurance and a negative impact of the unemployment rate.
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Why is it important?
Many scholars in the field find a wide range of economic and sociodemographic determinants in he demand for life insurance. By using a subnational approach, we test the relationship between demand for life insurance and insurance literacy in terms of diffusion in the Romanian life insurance market. We use county-level data for Romania’s 42 counties. The level of insurance literacy is derived from national survey. First, we show that demand for life insurance is positively related to insurance literacy at the local level in the presence of both classical control variables—such as income, urbanization, and education—and less used variables in empirical studies on this topic—such as the unemployment rate and internal migration. Second, we validate significant diffusion processes between the Romanian counties in terms of demand for life insurance, using spatial analysis.
Perspectives
The first result of our study is that the level of knowledge about insurance is a very significant positive determinant of the development of the life insurance market in Romania. Thus, education in general is not the best proxy for the level of knowledge that is necessary and sufficient for motivating Romanians to buy life insurance products; rather, what is necessary is the level of financial knowledge. Moreover, we showed that the unemployment rate is a negative factor, adding to the scarce literature evaluating this variable. The second result of our research, related to H2, is the presence of spatial diffusion in life insurance density in Romanian counties. We assume that this is due to internal migration and commuting, along with the movement of students between university centers and their homes. More “in-depth” studies could identify more precisely the channels for this type of information and financial behavior. Consequently, our subnational analysis takes into account the country’s regional peculiarities and allows national authorities to formulate regional policies that can be more successful in achieving the sustainable and relatively uniform growth targets of subregional life insurance markets.
Prof. INGRID-MIHAELA DRAGOTA
THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES
Read the Original
This page is a summary of: Insurance Literacy and Spatial Diffusion in the Life Insurance Market: A Subnational Approach in Romania, Eastern European Economics, May 2019, Taylor & Francis,
DOI: 10.1080/00128775.2019.1618194.
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