An Empirical Research on the Relationship between Property Insurance Premiums and Macroeconomic Variables Based on ARDL Model

Abstract

Given that most of property insurance policies are one-year contracts and have a high renewal, this paper establishes Auto-regressive Distributed Lag Model (ARDL) which considers adding lags of the dependent variable and/or lags of some independent variables. Based on the data of Insurance Premiums in China, Gross Domestic Product (GDP), Consumer Price Index (CPI) and Fixed-asset Investment during the period from 1980 to 2012, this paper analyzes the long-term and short-term relationships between them with method of the ARDL bounds testing approach. The results indicate that GDP is the major factor driving the growth of property insurance premiums in China; fixed-asset investment has significant impact on Chinese property insurance premiums, and they show the conspicuous negative correlation; Moreover, CPI has little effect on the premium income.