Benchmark Ratio of Insurance Penetration (BRIP) as a New Relative Measure of Insurance Development and Benchmarks in Insurance

Abstract

In various fields of science, certain patterns are used to describe and compare the studied features and phenomena, reference points (benchmarks), e.g.: reference rates (benchmark rates), reference ratios (benchmark ratio), or comparative analyses (the benchmarking) (EY, 2021). In insurance, certain measures (insurance ratios) are used to examine the description of market development, including: insurance premium (total gross premiums), density and penetration. To compare insurers or insurance markets, the average of the entire market is used as a standard (reference point), e.g. average premium, average density or average penetration rate (in a country, a geographic region or the world, e.g. the EU, OECD countries). However, the measures of insurance market development used are limited – premium and density as absolute measures which do not take into account economic development –  or have been ‘devalued’ (penetration rate = direct gross premium/GDP, is a relative measure, often with different growth rates of premium and GDP). For this reason, a new, more robust paradigm for international comparisons of insurance markets is being sought, i.e. a new insurance growth pattern. The aim of the study was to analyse the benchmark ratio of insurance penetration (BRIP) proposed by (Zheng, Liu, Deng, 2008 and 2009) as a new, relative international measure of insurance development in the 21st century and examined its advantages and disadvantages in order to assess its suitability for comparisons of insurance markets. An additional aim was to examine the development pattern (benchmark) for comparing various insurance markets as an average of the entire market to establish whether it is a good reference point, i.e. appropriate statistics.