Real Financial Services

1

UN STATISTICS DIVISION Economic Statistics Branch

National Accounts Section

UNSD/ECA National accounts workshop November 2005

Financial institutions charge for some services explicitly and some implicitly.

Deposits and loans attract implicit charges and these instruments are included in the calculations of FISIM.

Other instruments may attract FISIM but will not be included unless a clear allocation to users is possible.

Thus, in practice, FISIM may be limited by convention to loans and deposits.

Identifying financial services

Calculating FISIMOld FISIM = the total property income receivable by financial

intermediaries minus total interest payable,

excluding own funds

New FISIM = (rL-rr)yL + (rr - rD)yD

Where : rr = reference rate

rL = Rate on loansyL = Stock of loansrD = Rate on depositsyD = Stock of deposits

including loans from own funds

Calculated as: FISIM = (rL-rr)yL

• For measuring the volume of output of financial services implicitly charged it is necessary to identify those services that form the set of output.

• No directly observable price or quantity representative of the output of financial services indirectly measured

Prices and volumes : FISIM

Ideally a direct deflator of the output at current prices

should be constructed as a PPI that reflects the margin

measure of FISIM.

However the nature of financial services cannot easily be

connected to price and quantity units.

Besides, the change in quality is an important issue in

financial services. The length of opening hours for bank

branches, the proximity of a local branch, the quality of

investment advice are some central quality features of

financial services.

Prices and volumes : FISIM

In the absence of direct deflators, one of the following

approaches is recommended: • The rate of change of the volume indicator can be derived using

the rate of change of stocks of loans and deposits deflated by a

general price index (e.g. the GDP deflator) on which the base

year margin can be applied. • Direct output indicator method. Break down the different

characteristics linked to financial services (e.g. numbers and

value of loans and deposits). For each of the characteristics an

appropriate volume indicator is to be derived. The volume

indicators are then weighted together.

Prices and volumes : FISIM

The measurement of the output of non-life

insurance services at current prices is obtained

using a formula based on the difference between

premiums (plus adjusted premium supplements)

and adjusted claims. Ideally a direct deflator of

the output at current price should be constructed

as a PPI. However, this margin measure of the

output of non life insurance does not lead to any

easy interpretation of the nature of the quantity

and price and, thus, this ideal index is generally

not available.

Prices and volumes : insurance services

Statistical offices do calculate price indices for non-life

insurance services included as a PPI or as a CPI.

These price indices, called here “premium price

indices”, measure the change in the price of insurance

policies with fixed characteristics. They are different

from the ideal index, and should not be used to deflate

the current price output unless there is evidence that

the deflator for claims moves with the premium price

indices.

Prices and volumes : insurance services

In the absence of this ideal deflator, it is

recommended to compile a direct volume

indicator using one of the methods proposed,

and obtain the price index as the ratio between

the current price series and the volume series:

Prices and volumes : insurance services

Prices and volumes : insurance servicesDirect volume measure

Obtain a direct volume measure of the output (and by extension, the consumption) of non-life insurance services by extrapolating the current price measure of the base year by the rate of change of a volume index, which is obtained deflating gross premiums earned by a premium price index (PPI or CPI, depending of the context). When the premium price index covers premium supplements, it is advisable to use the rate of change of a volume index compiled as gross premiums plus adjusted premium supplements deflated by this extended premium price index.

Prices and volumes : insurance services Deflated premium method

In the absence of adequate premium price indices, a volume indicator can be compiled using quantity indicators such as the number of policies, by line of product (house-owner insurance, motor vehicle insurance, third party liability, etc.) appropriately weighted preferably by net premiums or, when not possible, by gross premiums.

For some countries the data requirements for the above

methods cannot be met and so, it may be necessary to

resort to simplistic measures; for example, estimating

the rate of change of the volume of output as equal to

the rate of change of the volume of inputs to the

industry. The inputs should cover labour, intermediate

consumption, and capital services .

Prices and volumes :insurance services

Thank You