South and East Asian Insurance Market Growth and Development

Recent economic research, notably by King and Levine (1993a, 1993b), Levine and Zervos (1998), Levine (1999), Levine, et al. (2000), and Beck, et al. (2000), indicates that financial services and its various components, including insurance and banking, have substantial potential for spreading positive externalities throughout the commercial sector of an economy. Such benefits can stem from improved access to capital by firms, better allocation of capital to investment projects, greater risk management, and enhanced portfolio diversification and liquidity for individual investors. While existing economic research shows the development of financial services is generally important for economic growth, a number of previous studies by Outreville (1990) and Ward and Zurbruegg (2000) provide empirical evidence that insurance market development in its own right can promote economic development. The importance of the insurance industry to the wider economy is seen to stem from the relative size of the insurance industry to GDP in many developed economies, the transfer of risks, and the scale of insurance companies’ financial intermediary functions.