Life insurance is a kind of long-term investment; hence, the purpose of buying life insurance is to cover both current and future damages for the insured. Although insurance plays a crucial rule in fiscal and economic development, in MENA countries, insurance, especially life insurance, remains undeveloped, with a low penetration rate. Therefore, the purpose of this paper is to determine the factors that affect life insurance demand.
To analyze the determinants of life insurance demand during 2004-2012, a panel data model was estimated with Eviews software. Data on population, gross domestic product (GDP), interest rate, inflation rate, and human development index are extracted from the World Bank, and data on life insurance premium are gathered from Sigma International reports.
Results show that the price elasticity of life insurance demand is −0.77, the elasticity of life insurance subject to HDI is 1.68, the elasticity of life insurance subject to GDP is 0.92, and the elasticity of life insurance subject to interest rate is −0.33. The demand for life insurance has a positive significant relationship with population size.
The low elasticity of life insurance demand subject to GDP, interest rate, and inflation rate shows that the life insurance penetration rate in MENA countries is due to the dominance of compulsory insurance, and not due to voluntary purchasing of life insurance. The higher effect of HDI on the life insurance demand illustrates that, for developing the life insurance market, it is first necessary to improve the standard of life, education status, and the economic base.
As in the MENA region life insurance has remained undeveloped and there are no related studies in this area, it can be hypothesized that the life insurance penetration rate in MENA is due to the dominance of compulsory insurance and not due to voluntary purchasing of life insurance. The higher effect of HDI on life insurance demand illustrates that, for developing the life insurance market, it is first necessary to improve the standard of life, education status, and economic base.
