How Do the Interest Rate and the Inflation Rate Affect the Non-life Insurance Premiums?

This paper proposes an original framework based on nonlinear panel data models to study the empirical influence of the interest rate and the inflation rate on the non-life insurance premiums for fourteen developed countries over the period 1965-2008. More specifically, we apply the panel smooth transition error correction model which takes into account both the short and long-run effects of changes in economic variables on the growth rate of non-life insurance premiums and which allows the regression coefficients to vary across countries and over time. Our empirical results show that the interest rate and the inflation rate have a differentiated impact on the non-life insurance premiums depending on the value of the inflation rate. These empirical findings provide evidence of changes in insurance pricing rules.