Effect of Consumer Buying Behaviour on the Purchase of Insurance Products
Chapter One
RESEARCH OBJECTIVES
The main objective of this study is to ascertain the determinants of the demand for life insurance products in Nigeria. Specifically, the study seeks:
- To identify the type of life insurance product that consumers normally buy.
- To find out the level of association between economic factors and the demand for life insurance products.
- To establish whether socio-demographic factors influence the demand for life insurance products.
- To find out the challenges consumers of life insurance products face in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter throws light on the relevant examinations on the subject of determinants of consumption of life insurance products in Nigeria. It provides a general discussion of the concept of life insurance, its types and related concepts. Theoretical predictions of life insurance demand along with insights from empirical studies on the factors that drive life insurance consumption are covered in this chapter.
THE CONCEPT OF LIFE INSURANCE
The most common motive for the demand for Life Insurance product is safeguarding the economic interest of the insured when he/she dies. The accumulated cash value is used to cover funeral and other expenses. It is also invested to offer returns in replacement of the lost earnings (Hakanssan, 2009). Additional purposes for taking out a life policy include real estate planning [mortgage protection] and planning for retirement, since the death of the insured can be monetary advantage to the buyer of the product; the policyholder must legally be interested in the insured’s life. The “insurable interest” simply means the legitimate reason for insuring the other person’s life (Frederick, 1999).
Life Insurance is an agreement in which the insured transfers, and the insurance company assumes, the risk of death for a specified period of time (Zietz, 2003). Just like other insurance businesses, policyholders shift the risk to the insurance company, and in return obtain policy document upon payment of the initial sum agreed upon.
Apart from the insured and the insurer, there is usually a beneficiary who has been named to collect the policy income should the insured event (death) occurs within the policy period (Hakanssan, 2009). One could also purchase a life insurance policy on the life of someone else. For instance, if a husband buys a life policy on behalf of his wife, he is the owner of the policy but she is the insured. It should be noted that the beneficiary of a life policy is not a co-signer to the contract. He is only chosen as such by policyholder. The owner could even change the beneficiary if he wishes, except for policies that have irrevocable beneficiary clauses. In an irrevocable insurance contract, the recipient is obliged to consent to any alterations in provisions of the receiver’s contract terms such as the assignment clause or borrowing of cash value before such changes can be effected.
A life insurance contract is an official agreement which specifies the provisions and circumstances of the risk assumed (George, 2003). Exceptional clauses such as suicide clause that renders the policy null and void in case the policyholder commits suicide during the period of operation of the contract are enshrined in the agreement. Any falsification by the buyer on the application is also a ground for nullification. The face value of the policy is usually the amount paid when the policy matures, even though contracts may offer bigger or smaller sums.There is no obligation on Life insurance companies in the underwriting process or providing life insurance coverage for anyone. The term premium loading is used to refer to a situation in which life insurance companies raise the premiums in order to be able to provide coverage for additional risks for an insured (Lena Giesbert, 2011). Payment of accumulated cash value of life policies is made as a lump sum or on monthly installment basis and when the company is able to confirm death of the insured, claims are then paid (Nurul and Sarah, 2013).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter describes in detail the methods used, specific steps taken, the tools employed in the collection and analyses of data needed to address the research problems. Methodology includes the theoretical and philosophical assumptions upon which research is based and the implications of these for the method or methods adopted. The methods specifically refer to the techniques and procedures used to obtain and analyze data.
RESEARCH DESIGN
A number of approaches through which data (primary and secondary) is gathered exist for scientific research. According to Saunders et al, (2007) the most common methods includes questionnaire, interviews (semi-structured, in-depth and group) and observation. In this work, survey and interview were used. Data collection instruments were questionnaire and semi-structured interviews.
The pivot around which research exercise revolves is the design adopted that serves as the blue print of the whole project and at the same time the glue that holds firmly all the supporting parts of the work together. Among the most notable designs popularly found in literature is exploratory, descriptive and explanatory research. Others include case study, survey, qualitative and quantitative methods. This study is basically a survey research that aimed at describing and explaining the drivers of life insurance consumption in Lagos state. As indicated already, questionnaire was the main instrument of data collection along with face-to-face interview.
Qualitative and quantitative research approaches were also employed. Key among the qualitative analysis used was summary of the demographic characteristics of the variables used and bar graphs as well as pie charts. To be able to investigate the factors of life insurance demand in Nigeria, one Logit regression model was estimated. This ensured determination of the level of statistical significance of the variables in the model using the regression coefficients the z-values and the p-values and the interrelationship that existed among them.
THE TARGET POPULATION
Population, according to Saunders et al 2007, refers to the overall sum of cases from which a sample is chosen. The population of this study comprised the consumers of life insurance products in Lagos state who are basically the clients of the life insurance companies. The total number of clients of the selected companies is approximately 1300 out of which the sample was drawn.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter is devoted to the presentation, analysis and discussion of data collected for the study. It shows the findings of the study; provides answers to the research questions in line with the objectives of the research. Analysis of the main issues of the study which include, analysis of the type of life insurance policy normally purchased by consumers, demographic characteristics of respondents, analysis of economic and socio-demographic determinants of life insurance demand. A cursory look is also made at the challenges that consumers of life insurance products face in Nigeria.
CHAPTER FIVE
SUMMARY OF FINDINGS AND POLICY RECOMMENDATION
INTRODUCTION
This chapter sums up the outcome of this research and highlights the findings emanated from the statistical analysis of the data. Recommendations and policy applications resulting from the study and proposals for further research work on the subject investigated are presented here.
SUMMARY OF FINDINGS
This research indicated that out of the three types of life insurance policies, endowment insurance policy was the most subscribed to by customers according to the survey conducted. This constituted about 61% of respondents’ choice in the study and was followed by the Term insurance with 26%.Whole life insurance was the least subscribed policy according to the survey conducted. This constituted about 12.33% of the total respondents. It can be inferred from the demographic data that majority of respondents (62%) are male whose average age is 45 years (38%) and who have tertiary level of education (55.3%) – which indicate the level of awareness and understanding of the need for life insurance as a vehicle for financial and retirement planning. With endowment policies as savings for retirement purchased for varying periods such as ten, twenty and thirty years, 45- year olds are more likely to subscribe to it since it can help them provide or support monthly retirement income when they retire in the next fifteen years. An equally important conclusion that can be drawn is that the majority of the respondents (68%) are in full time employment- an indication of their degree of affordability of endowment policy for the future education of their children all else constant. Employment status may also show how future oriented people are and the extent of their financial sophistication.
On economic determinants, the study revealed that there is a positive relationship between the demand for life insurance product and inflation, income and transaction cost. The expected signs of income and inflation were met. This result is consistent with previous studies of Redzuan, Abdul Rahman and S. F. Aidid (2009) which states that when income increases life insurance becomes more affordable and the demand increases. This finding is however contrary to that of Browne and Kim (1993), who concluded that inflation and demand for LIP are inversely related. The study also found an inverse relationship between price of insurance (the level of premium), the level of savings and the market rate of interest on other financial assets and the consumption of life insurance products. The anticipated signs of these variables were met and the results followed what had been done in the literature.
Among the socio-demographic factors age, education and the nature of employment have a significant positive influence on the demand for life insurance product. The expected signs of these factors were met and in conformity with literature. These findings confirm the results of Savvides (2006) as well as Truet et al (1990). The results further showed a negative relationship between the number of children/ family size and the demand for life insurance products. This disagrees with what others have found in the literature.
The key challenges that consumers of life insurance products face in Lagos state include poor customer care- about 69% were of the view that there is gross disrespect for customer ethics in the selected companies; forming long queues for insurance services also came up as a major challenge to customers, 79% of the sampled population agreed that queuing for longer times is a challenge to customers of the companies; poor internet services constituted about 77% of the response. Customers agreed that the online services are a major challenge due to poor connectivity and insufficient customer information online on insurance products. Others are unnecessary delays in claims payments and this was made up of 72% of responses received from customers; lack of transparency and bureaucratic bottlenecks which were made up of 66% and 80% of responses respectively; poor information dissemination or insufficient information to customers creates adverse selection condition and the problem of moral hazards in the insurance service provision. Here, about 81% were of the view that information dissemination to customers is poor.
CONCLUSION
The study set out to explore the effect of consumer buying behaviour on the purchase of insurance products. Insurance companies in Alimisho L.G.A, Lagos state in Nigeria were used as case study. The study adopted descriptive and parametric methodology for the research. The study can wrap up that poor customer service, delays in claims processing, and poor information dissemination are serious challenges facing customers of life insurance firms. The public will demand more life insurance product/ services if education and income levels improve generally in the economy. Consumers will demand more insurance product when they can enjoy flexible terms of premium payments and have easy access to claims at maturity period. However, insurance premium/prices and individual family size are not major determinants of demand for the insurance product, according to the study conducted.
POLICY RECOMMENDATION
Based on the objectives and outcomes of the study, management of life insurance companies must introduce practical procedures and action plans that will increase the demand for their products so as to expand their market shares and premium income. In view of this, the following recommendations are put forward for management consideration.
The study recommends that customer services be improved through improvement in communication and information flow to customers, addressing customer queries appropriately and on time, hiring customer service and marketing professionals, continuous training of sales agents by companies offering insurance service for higher customer satisfaction and loyalty. The notion that serving the customer is a “favor” to the customer must be discarded. Customer service must be seen as a special feature of the company’s image which can help increase market share and volumes of transaction for higher profits on the insurance market.
The endowment policy and terms insurance are the most preferred choices by customers for now. It is therefore recommended that other insurance products like whole life insurance and others must be redesigned with more attractive features to attract customers or improve customer satisfaction; this in the long run increase customer base and improve profit level, as the current subscription is mostly on the endowment which alone attracts about 61% of customers.
Income and the level of education were identified as significant factors influencing the demand for life insurance product on the insurance market, it is therefore recommended that in an attempt to market the product to the prospective customer, a marketing strategy should be designed to be able to identify the regular income earners and those with formal and higher education. This will help increase subscribers and market share. However, the size of family and the price of insurance have no significance influence on the demand for the insurance product; customers will subscribe when there is value for money.
Unnecessary delays in claims payment customer unfriendly premium payment terms came up as a major disincentive to customer. The study therefore recommends that mechanisms be put in place to reduce days/time of claims processing and make terms of premium payment more attractive and flexible to customers. This will help improve customer satisfaction and also have the potential to attract more customers to the insurance market.
SUGGESTION FOR FURTHER RESEARCH
The study suggests that additional investigations must be carried out onhow portfolio diversification and information asymmetry affects profit levels on the insurance market. Other areas of life insurance that should be investigated include: Market forces, hindrances and challenges confronting the growth of life insurance business in Nigeria. It is also worthwhile to investigate the condition of national policy and regulation on life insurance activities in Nigeria? Factors that affect life insurance quality, consumer satisfaction and behavioral intentions may also be investigated. Another area worthy of research is life insurance business and economic growth in Nigeria.
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