Developing Insurance Markets : Do Fiscal Incentives Help Long Term Life Insurance Development?
Life insurance lags non-life insurance in many nascent markets. In order to develop the life insurance market, insurance companies sometimes present the introduction of tax incentives to stimulate consumers’ willingness to commit to long term savin...
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| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/undefined/900921632204589083/Do-Fiscal-Incentives-Help-Long-Term-Life-Insurance-Development http://hdl.handle.net/10986/36356 |
| Summary: | Life insurance lags non-life insurance
in many nascent markets. In order to develop the life
insurance market, insurance companies sometimes present the
introduction of tax incentives to stimulate consumers’
willingness to commit to long term savings associated with
life insurance. This paper examines whether insurance
premiums’ tax deductibility can affect life insurance
penetration using regression analysis of a cross-country
dataset. To complement the analysis, selected individual
countries - Niger, Russia, Paraguay, and Lithuania were
reviewed, looking at trends in life insurance penetration
and gross domestic product (GDP) per capita in United States
dollar (USD) before and after a policy change. The analysis
did not conclusively demonstrate that life insurance premium
fiscal relief was meaningfully correlated to life insurance
penetration. On the other hand, GDP per capita is strongly
correlated with life insurance penetration, which is
consistent with findings of other studies. The country
examples where a tax policy change was introduced in life
insurance premium deductibility show mixed results. In
Russia and Lithuania, premium deductions appear to have had
some effect on life insurance penetration. In Niger and
Paraguay, it was harder to see a meaningful impact. The
impact of a premium deduction on consumers’ buying behavior
appears to be more complex and depends on the country
context such as institutional quality and overall financial
market capacity. Even if the tax deduction of insurance
premiums has some positive effect, it appears that it is not
a panacea but just one of a number of factors motivating
consumers. If a country is considering introducing a policy
which allows the tax deduction of insurance premiums, it is
recommended to combine it with other interventions. |
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