The Income Elasticity of Nonlife Insurance: A Reassessment


  • Giovanni Millo

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    • Giovanni Millo is at the Generali Research & Development at Generali S.p.A., via Machiavelli 3, 34132 Trieste, Italy. Millo can be contacted via e-mail: The article has benefited greatly from discussions with Gaetano Carmeci; nevertheless, all the errors are the author's responsibility. The views expressed are solely his own and do not necessarily reflect those of his employer. The author is grateful to Swiss Re Research and Consulting for providing missing data from back issues of sigma. All the computations in the article are done inside the R open-source environment for statistical computing (R Development Core Team, 2012), generally using the plm add-on package for panel data econometrics (Croissant and Millo, 2008). This article has been prepared as a dynamic document with the Sweave utility (Leisch, 2002) according to the principles of literate statistical practice.


In aggregate insurance regressions at the country level, the question whether insurance is a normal or superior good translates into whether income elasticity is significantly greater than one or not. Twenty-five years after a seminal article, I reassess the income elasticity of nonlife insurance by means of homogeneous and heterogeneous versions of the common correlated effects estimator, controlling for common factors and individual trends and characterizing the average behavior of insurance markets while allowing for individual heterogeneity. The evidence supports the existence of a cointegrating behavior between insurance consumption and GDP and the view of nonlife insurance as a normal good.