The Nexus between Macroeconomic Variables and Demand for Life Insurance in Malaysia

Abstract

The insurance industry's growth has an all-encompassing impact on the economic state of a nation. In the recent era of COVID-19 pandemic, insurance companies experienced a slowdown in the premiums particularly in the life sector. Premium volumes worldwide declined as consumers chose to reduce discretionary expenditure on life insurance policies. Life insurance is one of the ways to provide income protection for the dependents or beneficiaries upon the passing of an insured person, total permanent disability, or maturity of the policy contract. This study therefore takes stock of the recent events in examining the nexus between macroeconomic variables and life insurance demand in Malaysia. The ordinary least square (OLS) methodology is employed using 34 years data spanning from 1988 until 2021. The findings from this study revealed that apart from household savings and the stock market, inflation, income, and unemployment are significant factors in determining the life insurance demand. These empirical findings are expected to contribute to enriching the existing literature and to create awareness of the benefits that life insurance may offer in potential risks transfer to the insurer. From the macroeconomic perspective, the findings may assist policymakers in developing pre-emptive measures to protect life insurance businesses from the negative repercussions of lower market confidence following an economic downturn. An insight into the long-run relationship between the macroeconomic variables and life insurance demand using cointegration techniques is suggested for future researchers.