Measuring the Impact of Acquisition Costs on Insurance Premiums

Abstract

Research Question: This paper examines the existence of statistically significant relationship between acquisition costs and insurance premiums in the Serbian insurance industry. Motivation: Marketing investments are of strategic importance for the firm performance increase (Morgan, Clark, & Gooner, 2002; Stewart, 2009; Edeling & Fischer 2016; Gligorijevic, 2013; Solomon, Marshall, & Stuart, 2017; Silveira Netto & Slongo, 2019; Haryanto & Retnaningrum, 2020; Shah, Goswami & Vidani, 2024). Empirical findings consistently confirm the positive financial effects of marketing activities across various industries (Narayanan, Desiraju, & Chintagunta, 2004; Pauwels, Silva-Rosso, Srinivasan, & Hanssens, 2004; Fukutomi, Yamashita, Uehara, & Fukuchi, 2021). The evidence of the relationship between marketing and financial performance remains limited within the insurance sector. Therefore, this paper addresses that gap by examining whether investments in customer acquisition generate measurable financial outcomes for insurance companies in the case of Republic of Serbia. Idea: The main idea is to investigate the necessity of applying quantitative methods such as simple regression analysis to obtain reliable conclusions about relationships between key factors that affect the financial position of an insurance company. Data: Data for empirical study were obtained from publicly available financial reports of 16 insurance companies operating in the Republic of Serbia for the year 2023. Methods: A simple linear regression model as a technique for investigating a statistical relationship was employed. The key model assumptions such as normality, homoscedasticity, and independence of residuals were tested and validated. Findings: The results indicate a statistically significant impact of acquisition costs on premiums.  This is a highly relevant practical finding, providing insurance management with crucial insight into the justification of marketing investments. Contribution: The primary contribution of this paper is the original application of a linear regression model to examine the effects of marketing investments on the financial performance and therefore proposing the direction for future decision making in the insurance companies.