Year: 2025
Type: article
Abstract: Modeling Unobservable Variables in Life Insurance Demand in IranIntroduction: Life insurance serves as a pivotal instrument for providing households with psychological and financial security against aging-related challenges and loss of breadwinners, while also functioning as a significant financial institution for large-scale economic investments.Effective planning and policymaking in life insurance require precise identification and analysis of demand determinants.These factors can be categorized into: a) Observable economic variables, and b) Unobservable factors such as risk aversion, preferences, culture and lifestyle, emotions, financial and insurance literacy. Methods:To estimate the impact of unobservable variables, we employed the "underlying trend" concept within a Structural Time Series framework for modeling life insurance demand.Results: Unobservable variables (underlying trends) exhibit statistically significant effects on life insurance demand in Iran; For the final year of the study, the significant trend level value is 13.23, and its constant slope is 0.085.Beyond premium prices and income, other significant variables include stock prices, free-market exchange rates, gold prices, and housing prices -all consolidated as a common factor termed Financial Conditions Index.The price and income elasticities are -0.83 and 0.68, respectively.Therefore, the demand for life insurance is inelastic with respect to both price and income.Conclusion: Life insurance demand is influenced by unobservable factors.Sustainable market growth necessitates targeted policies aligned with socio-cultural characteristics.Ultimately, demand growth cannot be achieved solely through pricing mechanisms; it also necessitates the consideration of latent behavioral layers of consumers.
Institution: Alzahra University
Language: Persian
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W7166323959