Abstract
This paper intends to explore the economic factors which stimulate the demand for insurance products in Albania due to the fact that insurance industry has a significant effect on the economic development of a country. Albania is a developing country and insurance market has progressed moderately. Considering density insurance as a proxy of life and non-life insurance market development, the authors have examined the economic determinants of the Albanian insurance market during the period of 2009-2020 based on quarterly data. The analysis is performed using Vector Error Correction Model designing separate models for each of the insurance segments: life and non-life ones. Among several economic variables, this paper examines the effect of GDP, inflation, real interest rate and unemployment. According to the empirical results, GDP per capita has the most significant impact while unemployment is found to be insignificant in respect to life and non-life insurance density. The results are mostly in accordance with the empirical research work, and they are valuable to both academics and experts in insurance industry. The paper contributes to the existing international literature, especially to the literature related to developing countries, being the first one investigating the influence of a set of economic factors on life and non-life insurance industry in Albania. On the other hand, the results of the paper suggest that insurance companies monitor should evaluate these factors in order to increase and improve insurance service available to the public.
Highlights
The role of financial institutions in the economic development of a country has attracted the attention of many researchers who emphasize that financial institutions promote savings and improve the efficiency of capital distribution by directly affecting economic growth rate [40,41,69]
The researches in the field of financial intermediation confirm the role of insurance sector in the economic development by promoting financial stability, managing risk more efficiently, promoting employment, facilitating trade, and encouraging loss mitigation. [25,27,38,53,54,65,68]
After the licensing of the first private insurance companies (1999), improvement of the insurance legal framework and participation of foreign capital, the insurance market in Albania has gradually progressed. It is still dominated by the non-life insurance sector, where the “Motor third party liability” accounts for the major part of the total gross written premiums
Summary
The role of financial institutions in the economic development of a country has attracted the attention of many researchers who emphasize that financial institutions promote savings and improve the efficiency of capital distribution by directly affecting economic growth rate [40,41,69]. The researches in the field of financial intermediation confirm the role of insurance sector in the economic development by promoting financial stability, managing risk more efficiently, promoting employment, facilitating trade, and encouraging loss mitigation. In contrast with developed countries, the life and non-life insurance sector in Albania is still underdeveloped, and significantly below the average of the European Union (EU) member states. In 2019 an EU citizen spent USD 1,300 for the life insurance sector and USD 1,074 for the products of the non-life insurance sector [66].
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