Do macro-economic factors influence the life insurance industry in India An empirical approach

Abstract

The insurance industry has marked its importance in augmenting the process of economic growth through its prominent contribution in terms of financial intermediation, capital accumulation, resource allocation and risk protection. The Indian insurance industry has shown a sharp rise since the formation of Insurance Regulatory and Development Authority in 1999. Assuming the important and potential role of insurance, this study aims to investigate the macro-economic factors that may influence the life insurance sector in India with time-series data covering a period of 39 years (1980-2018). Employing Engle-Granger co-integration, ordinary least square regression and causality analysis it is found that foreign direct investment (FDI), broad money (M2) and gross capital formation (GCF) positively and significantly influence insurance sector growth in India. Engle-Granger causality test reveals one way causal relationship from GCF to life insurance penetration, whereas FDI and M2 are in reverse causality that runs from insurance penetration. The practical implication of this study lies in utilising the findings of this study by the policymakers in framing favourable policies to ensure sustained growth of the life insurance sector in India. The study is limited to the consideration of macro-economic factors only.