We analyze the consumption of non-life insurance across 103 Italian
provinces in 1998–2002 in order to assess its determinants, in the light of the
empirical literature. Using sub-regional data, we overcome an important limitation
of cross-country analyses, i.e. the systemic heterogeneity due to country-specific
characteristics. Individual heterogeneity is accounted for through panel data techniques.
However, considering spatial units within a single market raises issues of
cross-sectional or spatial dependence, either due to common nationwide and/or
regional factors or to spatial proximity. We carefully assess spatial dependence,
employing recent diagnostic tests, finding out that the regressors included in our
specification successfully account for spatial dependence. Insurance turns out to
depend on income, wealth and some demographics, as already established, but also
on trust, judicial efficiency and borrowing conditions. These findings help in
explaining the gap between Central-Northern Italy and the south of the country.
