Application of reduced social welfare functions for estimating household insurance expenditures in Poland

Abstract

Due to the role of insurance in economy, the factors determining the demand for insurance (e.g. income) have been the subject of many studies. On the other hand, income inequalities significantly affect many purchasing decisions and the perception of income among individuals. The aim of this study is to verify the relationship between social welfare and insurance expenditure. This verification was carried out on the basis of data on various socio-economic groups in Poland by using reduced social welfare functions such as: the Sen Index, Kakwani Index, Dagum indexes and the ‘naïve’ welfare function (income). As part of the research, a linear regression was applied between the dependent variable (average monthly expenses on insurance per 1 person in households by socio-economic groups) and the explanatory variable (reduced welfare functions) for a given social group. Reduced social welfare functions was determined on the basis of the average monthly disposable income per capita in households and the Gini coefficient for this group. Social welfare in the form of reduced welfare functions turned out to be a statistically better predictor of insurance expenditure than the income itself for social groups with relatively small income disparities (low Gini coefficient). For the group of farmers in Poland, where the income disproportions were statistically the largest, income turned out to be a better predictor.