Examining the relationship between selected macroeconomic variables on life insurance demand proxies in Malaysia: An ARDL analysis

Abstract

This study examines the dynamic influence of key macroeconomic variables on the demand for life insurance in Malaysia using the Autoregressive Distributed Lag (ARDL) framework. Specifically, it evaluates the effects of the saving rate, stock index, inflation, unemployment, and gross domestic product (GDP) on life insurance premiums. Annual time series data from 1982 to 2023 are employed, with gross saving (GS), claim ratio (CR), and life insurance density (LD) used as proxies for life insurance premiums (LIP). The ARDL technique is selected due to its suitability for datasets containing a mixture of stationary and non-stationary variables and its ability to capture both short-run and long-run dynamics.  The empirical results indicate the presence of a long-run relationship between the selected macroeconomic variables and life insurance premiums. In the short run, the estimated negative coefficient (-0.089771) suggests that a one-unit increase in the macroeconomic variables corresponds to a 0.089771-unit decline in life insurance premiums. The saving rate demonstrates a positive effect on life insurance demand, whereas inflation exerts a negative influence. Similar patterns are observed across all proxy measures in the short-run analysis. These findings provide important insights for policymakers and industry practitioners, highlighting the need for targeted strategies to enhance life insurance penetration and support Malaysia’s broader economic development goals.