Overall Governance Index for Developed and Emerging European Life Insurance Markets

The present study evaluates the relationship between governance and the development of the life insurance market in 31 European countries. For this, we considered the six Worldwide Governance Indicators. An overall governance index, which we called WGI, was computed based on them, using the principal component analysis. Afterwards, we employed the dynamic panel methodology in the system-GMM form to analyze the influence of WGI upon the life insurance market, having as proxy life insurance density. Additionally, we employed several socio-economic control variables. To serve our purpose, we have also divided the sample into developed and emerging economies by creating a dummy variable introduced in the analysis. All models were estimated in the robust form. Governance proved to have significant influence upon the life insurance market in the analyzed period: 2002 – 2012. The long-run coefficient is positive and significant. When the dummy is introduced in the analysis, the significance of the governance indicator decreases for the short term coefficient, while it disappears for the long-term one.