A Cointegration Study of Life Insurance Demand in Malaysia

Abstract

The expansion of the insurance sector has a profound effect on a country's economy. Insurance companies experienced a slowdown in premiums during the COVID-19 pandemic, particularly in the life sector. Due to consumers' discretionary decision to spend less on life insurance policies, premium volumes decreased globally. One way to provide income protection for dependents or beneficiaries upon the death of an insured person, total permanent disability, or policy contract maturity is through life insurance. This study, therefore, this study considers recent events as it examines the factors that influence the demand for life insurance in Malaysia. The ordinary least square (OLS) method is employed using 34 years of data spanning from 1988 until 2021. The result of VECM showed that Income positively affects demand in the long run, while the other two variables, savings, and unemployment negatively affect demand in the long run. The empirical findings are expected to enrich the existing literature and to create awareness of the benefits that life insurance may offer in potential risks transferred to the insurer. Furthermore, the research findings could also help policymakers create preventative measures to protect life insurance companies from the consequences of diminished market confidence in the slowdown of the business cycle.