Depth, Not Size: Rethinking the Insurance–Income Nexus in Mature OECD Markets

Abstract

Abstract

This study examines the relationship between insurance market development and economic performance measured by GDP per capita levels in mature OECD economies, focusing on whether insurance depth, market size, and life insurance structure have distinct long-run implications. Although the insurance–income nexus is documented in developed and emerging markets, the literature rarely separates the qualitative depth of insurance use from the mechanical size of the sector relative to GDP, and seldom examines life insurance structural features such as retention and foreign participation within a non-stationary panel framework; this study addresses that gap. Using a balanced panel of 33 OECD countries from 2011 to 2021, the analysis applies panel time-series methods that account for non-stationarity, cointegration, cross-sectional dependence, and heterogeneous country dynamics. The results show that total insurance density is positively associated with GDP per capita, and life insurance density remains positive and significant across the long-run estimators, suggesting that more intensive insurance use remains economically relevant even in advanced financial systems. By contrast, life insurance penetration is negatively associated with GDP per capita, even after accounting for its mechanical link to GDP. Life insurance retention also enters negatively, while foreign insurer participation shows no statistically significant association in the panel. The findings support a depth-not-size interpretation of the long-run association between insurance market structure and income levels in mature OECD markets, and suggest that policy attention should shift from expanding insurance-sector scale toward improving efficiency, risk allocation, and market sophistication. These results reflect long-run associations within the OECD panel and should not be interpreted as evidence of direct causal effects.