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| The Effect of Social Interaction on Household Commercial Insurance Purchases: Evidence from the China Household Finance Survey |
| LI Ding, DING Junsong, MA Shuang
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Institute of Development Studies, Southwestern University of Finance and Economics;
School of Social Development and Public Policy, Fudan University;
School of Economics and Statistics, Guangzhou University |
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Abstract As one of the three pillars of the modern financial industry, insurance plays an important role in economic compensation, capital financing, and social management, and it is known as the “patron saint” of socioeconomic development. Although China's commercial insurance market has developed rapidly over the past 40 years into the world's second largest insurance market, the insurance industry is still in the primary stage of development from the perspective of insurance depth and density. The literature generally points to limited participation among residents as an important reason that China's commercial insurance industry is not strong despite its large size. The key to solving the problem of limited participation is to identify factors that affect residents' purchasing of commercial insurance. At present, there are relatively few studies on the influence of social interaction on family commercial insurance purchases, and no consistent conclusions have been reached so far.
To address this research gap, the present paper studies the influence of social interaction on family commercial insurance purchases and its channels using data from the China Household Finance Survey (CHFS) 2013. First, by selecting eight variables related to social interaction and using the iterative principal factor method, this paper constructs a comprehensive social interaction index. Second, Probit and Tobit models are used to conduct empirical analysis, and two channels are verified through the variables of financial knowledge and degree of trust in commercial insurance. Third, potential endogeneity problems related to social interaction are overcome by constructing instrumental variables, and heterogeneity analysis and robustness tests are conducted. Finally, based on tracking data from the 2013-2015 CHFS, logical problems related to the time inconsistency between social interaction and household commercial insurance purchases are overcome. The results show that social interaction promotes household purchases in the commercial insurance market, and the effect is still significant after solving the endogeneity problem. In addition, this paper confirms two channels of social interaction that affect commercial insurance purchases. According to heterogeneity analysis, social interaction plays a more important role in promoting insurance purchases among families in the eastern and central regions, those with medium levels of education, those with high income levels, and those in low-purchases-rate communities.
The main innovations of this paper are fourfold. First, the use of CHFS data to examine the relationship between social interaction and household commercial insurance purchases allows our findings to be strongly representative, as the data span 29 provinces and more than 28,000 households. In this way, we avoid the drawbacks of previous studies that fail to provide a comprehensive picture of residents' insurance purchases in China. Second, by using the iterative principal factor method to construct a comprehensive social interaction index, we avoid the concern that a single variable cannot accurately describe social interaction. Third, by verifying two channels of social interaction's impact on household commercial insurance purchases, our paper allows for a more thorough understanding of the effect of social interaction. Finally, potential bias in regression results caused by endogeneity problems and time inconsistency is solved by constructing instrumental variables.
This paper is the first to explore the development of China's commercial insurance market from the perspective of social characteristics. Efforts to promote insurance market development should go beyond economic factors and also recognize the importance of residents' social characteristics. Therefore, relevant agencies should pay attention to the role of social interaction in the development of insurance. It is also necessary to further standardize China's insurance market and strengthen the trust of commercial insurance conditions to improve the depth and breadth of insurance purchases and promote the industry's development.
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Published: 23 July 2019
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