The compulsory public pension and the demand for life insurance: the case of Sweden, 1884–1914

Abstract

We employ cost‐of‐living surveys, business archives, and firm data to examine the impact of the compulsory pension on the demand for life insurance in Sweden from 1884 to 1914—a period that covers the implementation of the first public compulsory old‐age pension reform and the take‐off of industry life insurance. As predicted on the basis of the contemporary literature on crowding‐out effects, we find that the compulsory pension reduced the demand for life insurance. Our panel‐data analysis of lapse rates on insurance policies shows a significant crowding‐out effect of pension payments. We conclude that the introduction of the general compulsory pension had a crowding‐out effect on households’ holdings of insurance policies.

Life insurance purchase behaviour: A systematic review and directions for future research

“…A high institutional quality score boosts life insurance penetration by stimulating the demand for life insurance (Alhassan & Biekpe, 2016;Beck & Webb, 2003). Studies under review determined a negative effect of social security benefit plans provided by the government on demand for life insurance (Andersson & Eriksson, 2015;Li et al, 2007;Zerriaa et al, 2017;Zerriaa & Noubbigh, 2016). They argued that the demand for private life insurance reduces with the increase in the social security provisions, as the social security provisions act as a substitute for private life insurance.…”

Managing policy lapse risk in Sweden’s life insurance market between 1915 and 1947

“…In fact, Kuo, Tsai and Chen (2003) cite evidence from the US that life insurance policy lapses are directly related to interest rate shocks. Andersson and Eriksson (2015) report an increased incidence of life insurance policy lapses in 1913/14 in Sweden after compulsory State pensions were introduced by the government (Svensk Författningssamling (Swedish Compulsory Pensions Law), no. 120, 1913).…”

“…From the onset of World War I right up to the end of World War II, international life insurance markets, including Sweden, were affected both by socio-economic developments and major institutional structural changes that created opportunities and challenges for insurers (Andersson, Eriksson and Lindmark, 2010;Andersson and Eriksson, 2015;Eriksson, 2010). Over this period, economic growth and rising standards of living transformed the aspirations of Sweden's working-class and consequently, increased the demand for self-protection through private insurance.…”

Does Social Security Crowd Out Private Savings? The Case of Bismarck’s System of Social Insurance

“…They show that the expansion of Medicaid to pregnant women and children in the late 1980s crowded out private health insurance in the US by about 50 percent of the increase in coverage. Andersson and Eriksson (2015) claim that the introduction of a compulsory public pension system in Sweden in 1914 reduced the demand for life insurance significantly but had no measurable effect on private savings at banks. Surprisingly enough, researchers have long neglected the German experience.…”