Document Type : Original Research Paper
Authors
1 PhD Student, Department of Management, Hamedan Branch, Islamic Azad University, Hamedan, Iran
2 Assistant Professor, Department of Economic Sciences, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran
3 Associate Professor, Department of Economic Sciences, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran
4 PhD Student, Department of Economic Sciences, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran
Abstract
BACKGROUND AND OBJECTIVES: The insurance industry constitutes a fundamental pillar in the economic infrastructure of any nation, fulfilling a critical function in the systematic management of diverse risks encountered by individuals, households, and businesses. By providing comprehensive insurance coverage, this sector safeguards stakeholders against potential financial losses arising from unforeseen events, thereby actively contributing to economic stabilization and long-term sustainability. In economies characterized by elevated uncertainty and volatile conditions – such as those experiencing frequent macroeconomic shocks or political instability – the propensity for individuals and firms to utilize insurance services demonstrably increases. This heightened demand stems from insurance's efficacy in mitigating both financial exposure (potential asset devaluation or income loss) and operational risks (business continuity threats). Consequently, insurance transcends its role as a mere financial instrument and emerges as a pivotal mechanism for national economic stabilization and a vital buffer against sudden adverse shocks.
Within this context, rigorous analysis of the influence exerted by key economic determinants – particularly macroeconomic uncertainty – on the insurance penetration rate (measured as the ratio of total insurance premiums to Gross Domestic Product, GDP) assumes paramount importance. A nuanced understanding of this relationship is indispensable for adopting effective economic policies and industry strategies. The primary objective of this research is therefore to conduct a rigorous empirical investigation into the specific impact of shocks originating from macroeconomic uncertainty on the insurance penetration rate within the distinctive and challenging economic landscape of Iran. Iran's economy, marked by international sanctions, significant political risks, volatile oil revenues, and recurrent macroeconomic disturbances, presents a compelling case study for examining how profound uncertainty shapes risk mitigation behaviors through formal insurance channels.
METHODS: This research employs a comprehensive and recent macroeconomic uncertainty index as the primary measurement of uncertainty. This index is constructed based on seven major economic variables: interest rates, inflation, exchange rates, oil prices, stock market indices, unemployment rates, and gross domestic product (GDP). The data spans the period from 1990 (Persian year 1369) to 2021 (Persian year 1400), covering both the uncertainty index and insurance penetration rates. To analyze the relationship between these variables, a Structural Vector Autoregression (SVAR) model is used. The SVAR model is capable of identifying and analyzing the impact of stochastic shocks to each variable and evaluating both short-term and long-term effects on insurance penetration. This methodological approach allows for a nuanced understanding of how macroeconomic uncertainty influences insurance demand over time. Precise identification assumptions, based on economic logic and the specific context of Iran (e.g., the exogeneity of oil price shocks), are incorporated within the SVAR model. These assumptions are vital for distinguishing between endogenous responses (how variables react to each other within the system) and genuine exogenous shocks, thereby ensuring the credibility and interpretability of the causal inferences drawn regarding the impact of uncertainty. This robust methodological approach provides a solid foundation for understanding the transmission mechanisms—how macroeconomic shocks propagate through the Iranian economy—and ultimately influence the demand decisions for insurance coverage by households and firms.
FINDINGS: The results demonstrate a positive and significant relationship between macroeconomic uncertainty and insurance penetration. Specifically, an increase in economic uncertainty correlates with heightened demand for insurance products. This indicates that as uncertainty and volatility in the economy rise, individuals and firms are more inclined to purchase insurance as a risk mitigation instrument. The long-term analysis reveals that shocks to the uncertainty index lead to a sustained increase in insurance penetration. Moreover, variance decomposition results reveal that, in the tenth period (2011-2021), approximately 73.30% of the fluctuations in insurance penetration are explained by macroeconomic uncertainty shocks. The findings also highlight that economic sanctions and political risks negatively and significantly impact insurance penetration, reducing its levels. Conversely, factors such as Foreign Direct Investment (FDI), oil price uncertainty, and human capital development show a positive and significant influence on increasing insurance demand.
CONCLUSION: Based on the study’s findings, it can be concluded that in conditions of high economic uncertainty, individuals and economic practitioners tend to rely more on insurance products. As a critical tool in risk management, insurance helps protect assets during unforeseen events, economic crises, and price fluctuations. Therefore, the policymakers should recognize these dynamics and develop strategic policies aimed at supporting and expanding the insurance sector. Effective policy measures can mitigate the adverse effects of economic uncertainty, reinforce economic stability, and promote broader insurance market development. Understanding these relationships enables policymakers to create targeted interventions that enhance financial resilience and foster sustainable economic growth, especially in uncertain environments such as Iran.
Keywords
Main Subjects
)
Letters to Editor
Send comment about this article