Does insurance demand react to economic policy uncertainty and geopolitical risk? Evidence from Saudi Arabia

• Published in: Geneva papers on risk and insurance. Issues and practice Vol. 47; no. 2; pp. 460 - 492
• Main Author: Hemrit, Wael
• Format: Journal Article
• Language: English
• Published: London Palgrave Macmillan UK 01.04.2022; Palgrave Macmillan
• Subjects: Corporate governance; Economic policy; Economics and Finance; Finance; Geopolitics; Insurance; Insurance policies; Risk Management; Saudi Arabia; Geopolitical risk; World uncertainty index; Corporate governance; Insurance; Panel-ARDL model
• ISSN: 1018-5895; 1468-0440
• DOI: 10.1057/s41288-021-00229-3

This study investigates the potential effect of economic policy uncertainty, geopolitical risk, non-oil output, inflation and corporate governance features on insurance companies in Saudi Arabia using quarterly data over the period 2013–2019. More specifically, we apply estimation method panel autoregressive distributed lag (ARDL) to model the long- and short-term relationships. Our empirical results reveal negative short-term effects of geopolitical risk and uncertainty about government economic policy on insurance demand. However, the effect of the latter is not permanent. Our results support the assumed ‘demand following theory’ in the long-term, which, in turn, is an indication of the fact that the demand for insurance policies is dependent on economic growth and more susceptible to inflation. Our evidence shows that corporate governance has a significant effect on insurance demand in the long term, whereas a Shariah board has no significant impact.