The contribution of non-life insurance to the economy
Our findings suggest there is a virtuous cycle between levels of non-life insurance penetration, benefits to business and wider GDP growth.
The cycle starts when businesses recognise the value of their assets and take out insurance to protect them, so freeing up more of their capital for investment. Insurers, in turn, invest premiums in domestic stock, creating GDP growth and a rise in the value of assets.
Insurance clearly also protects against financial loss following a disaster. A 1% increase in insurance penetration– a significant investment - leads to a 13% reduction in uninsured losses and a 22% reduction in taxpayer contributions to recovery following a natural catastrophe. Good levels of insurance allow a business to plan ahead – and grow – with security.
Our findings also show benefits to the wider economy. Insurers invest significant amounts of money into the economy and so promote the development of financial markets and increase the amount of capital available to businesses. A 1% increase in insurance penetration is associated with increased investment of 2% of national GDP.
Overall, the research shows that a one percentage point increase in non-life insurance penetration is linked to an average increase in per capita GDP of around $6,000 across the 42 countries analysed. As countries become richer, non-life insurance penetration increases in tandem.
The increased GDP per capita cannot be wholly attributed to growth in insurance penetration - as people become wealthier their demand for insurance is likely to increase. The relationship is complex; insurance is likely to be a driver of economic growth, but growth in the non-life insurance industry is also driven by economic expansion itself.