The relationship between the development of insurance industry and economic growth: A quantitative study in Malaysia

As the size of the global insurance industry continues to grow, so does the interest and number of researchers study the development of insurance industry from different aspects. At the same time, a substantial number of past research have shown theoretically and empirically that the development of insurance industry is significantly correlated to economic growth, however, few of them have taken Malaysia as the main research object. This research focuses on examining the relationship between the development of the insurance industry and economic growth in Malaysia. This research used life and general insurance penetration rates, insurance densities and insurance growth rates as the proxies for the development of the insurance industry, and GDP per capita and GDP growth rate as the measures of economic growth during the research period (1999-2020). This research applied multiple linear regression method to estimate the relationship between the variables, and at the same time, ensure that the linear regression models formed meet the necessary assumptions. The GDP per capita is detrended by model fitting to ensure autocorrelation issue does not exist. This research found that the life insurance penetration rate is significantly negatively correlated with GDP per capita, while the general insurance penetration rate does not significantly correlate with GDP per capita; both life and general insurance densities significantly positively correlated with GDP per capita; both life and general insurance growth rates have no significant correlation with GDP growth rate. Although these final research results refute the expectations and general findings of previous studies due to limitations and external factors, they still support the conclusion that the insurance industry has a significant impact on Malaysia’s economic growth.