The S-Curve Relation Between Per-Capita Income and Insurance Penetration

Abstract

Models that assume a constant income elasticity of demand for insurance have the unrealistic implication that insurance penetration grows without constraint. This article introduces a logistic function that allows income elasticity to 0vary as the economy matures. Econometric estimations yield a so-called S-curve, for which the income elasticity of demand is equal to one at specific low and high levels of income, but may reach two or more at intermediate income levels. Long-term forecasts for insurance premiums based on GDP projections are possible for countries that either conform to the S-curve model or deviate consistently from it. Analysing deviations from the S-curve allows the identification of outlier countries, in which factors other than GDP drive insurance demand.