Demand of Life Insurance Harvard Case Solution & Analysis

Demand of Life Insurance Case Solution

1         Introduction

It is expected that world’s insurance industry depends upon the wealthy and developed countries and income is considered as main factor of insurance penetration.  Insurance is all about building trust among the consumers and it was difficult after the financial crisis and economic downturn to rebuild trust among the African customers, as credit dried up in the midst of the banking crash, which resulted in the deterioration of consumers spending and decrease in the sales of cars and electronic equipment. Therefore, this also resulted in the fewer amount of insurance subscribers.

Nevertheless, insurance is considered as the best tool to mitigate the risk and to secure the future.

 In recent years, significant development occured in the African countries and economic conditions are becoming favorable, as there is a significant increase in the GDP and per capita GDP of African countries. In past, the overall GDP of some African countries was less than the total worth of the richest man in world, Bill Gates. However, now economic conditions are consistently improving.

 There are certain reasons behind the improvement of economic condition in African countries as there is rapid industrial growth in Africa and it is expected that no modern economy can survive without the active support insurance industry.

            Hence, Africa is seeing an increase in industrial growth due to favorable local conditions and presence of natural resources at greater level. This creates significant room for insurance companies and sets a potential ground by creating the profit potential and customer base in African countries, which results in the insurance penetration for countries in Southern Africa.

The World Insurance Market Report of 2007 is the evident of the fact that among the top 15 countries of the World that contributing in the insurance industry, South Africa is at number five and the reason behind this fact is that the GDP of Africa and per capita GDP of African Countries is increasing. It is expected that liberalization of world trade, development of information technology, increasing efficiency, and cultural development is also the reason behind this fact. In addition to this, hosting the Fifa World Cup 2010 in Africa is also the main driver of African economy, which also created growth opportunities for insurance companies in Africa and cause of the insurance penetration in South Africa.

Moreover, most of the African countries such as South Africa, Seychelles, and Libya are considered as most developed and have a high standard of living in the African Continent. The ratio of development in these countries is also high; therefore, these developments have created new opportunities in the insurance business in Africa because the African market is now open for global trade, competition, and exploration and it resulted in the insurance penetration in African Countries.

2           Literature Review

            In this section, the analyst has discussed the variables by two approaches; the first approach is the theoretical framework, while the second one is the empirical review. In the first section, the analyst discussed the theories pertaining to the life insurance and their general impact on the economy. Furthermore, the analyst also discussed the impact of life insurance on GDP of the South African Economy.

            However, the reason behind choosing the theoretical review is that it will give a fair idea about the theory of life insurance and its impact on the economy and afterwards, the second approach will become more feasible to understand the literature that how the insurance industry contributed to the economy of South Africa in the past.

2.1        Theoretical Review

            The basic theory of life insurance suggests that it is a contract between two parties where one party commits the other party to pay forthe loss in case the other party loses his life. However, if the insure loses his life, then his family will be nominated to take the insurance money...................

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