Examining comovement and causality between producer price index for P&C insurance premium and uncertainty indices: wavelet and non-parametric quantile causality approach

Abstract

This study examines the impact of the news-based climate policy uncertainty index (CPU) on PPI-P&C. To understand the impact of different types of uncertainty on P&C insurance premiums, the study also examines the relation of economic policy uncertainty (EPU), and geopolitical risk uncertainty (GPU) with PPI-P&C index. The time-frequency relation between the indices is examined using wavelet coherence analysis (WCA), whereas the casual dependency is examined using the non-parametric causality in quantiles (CIQ) approach and linear and non-linear Granger causality tests. WCA shows significant co-movement phases between CPU and PPI-P&C across time-frequency domain with CPU leading the PPI-P&C over a specific time interval. Results from CIQ give evidence of uncertainty indices having an asymmetric significant dependency relation with the PPI-P&C index. The results have implications for examining the impact of rising uncertainties on rising insurance costs for P&C insurance providers.