Effect Of Consumer Buying Behaviour On The Purchase Of Insurance Products

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Effect Of Consumer Buying Behaviour On The Purchase Of Insurance Products


Effect of consumer buying behaviour on the purchase of insurance products. In this study, one Logit regression model was estimated to help investigate the determinants. The Logit regression coefficients, the z-values and the p-values were used for the evaluation and statistical significance of variables in the model estimated. The Statistical Package for Social Sciences (SPSS) 16.0 was used to evaluate the descriptive statistics- bar charts and pie charts, while STATA 5.0 version was used for the analysis of the Logit regression model specified. The Logit model was evaluated or analyzed with both pvalues and the coefficients for the purpose of statistical significant of the explanatory variables in the model. Results of the study showed that 61.33% of the respondents mostly subscribe to Endowment policy followed by Term insurance policy (26.33 %) and then Whole life policy (12.33%). Consistent with previous results the Logit regression indicates a significant positive relationship between income level and the demand for life insurance products. The study found negative insignificant association between both the market rate of interest and level of savings and the demand for life insurance products. Price of insurance (level of premium) appeared to have no robust influence on life insurance consumption as showed by insignificant negative coefficient. Inflation on the other hand had an indirect association with life insurance consumption with statistically significant values. Education, employment status and the age of consumers had significant positive influence on life insurance consumption. But family size had statistically insignificant positive effect on demand. Overall, life insurance demand is better explained when the economic and socio-demographic factors are considered jointly.

Chapter One


1.1 Background of the Study

Every day consumers buy things. Consumers exchange their money for goods and services, for their own use and for the use of their families: Consumers choose things they think will meet their needs on a day-to-day basis, and they occasionally make buying decisions which will affect their lives for years to come. At the same time, consumers make decisions about disposing of worn-out or used-up possessions. All these decisions and exchanges have implications for ourselves, our families, our friends, the environment, and the businesses we buy from, the employees of those businesses, and so on. And that is why Blackwell et al. (2001) asserts that consumer behaviour is the activities people undertake when obtaining, consuming and disposing of products and services.

While lamenting the critical state of insurance marketing in Nigeria, Osoka (1992) highlights the prevalence of confusion among insurance marketers between selling and marketing. According to the author, while selling is concerned with creating demand for the products that have already been decided, marketing is directed towards identifying the needs and wants of consumers and planning to satisfy those needs. Hence, in this context, the necessity of understanding consumer behavior and how it shaped needs and wants of consumers in purchasing insurance products could be liken to the bone, the tendon, and the ligament of businesses without which no articulation can take place (Gbadamosi, 2000). Accordingly, insurance marketers need to understand the attitudes of customers and prospects to their offerings in order to be able to take informed marketing-related decisions.

According to Bennett (1995) consumer behavior is essentially a dynamic interaction of affect and cognition, behaviour, and environmental events by which human beings conduct the exchange aspects of their lives. Now, this position has the advantage that it regards consumer behaviour as dynamic, and emphasises the interaction of many different elements in determining consumer behaviour. This is the main reason why strategy for improving consumer purchase of insurance products needs constant review: a strategy that worked well in the past may not work nearly as well as in the present and future, because the forces that shape behaviour may have changed out of all recognition.

One of the present fundamental presumptions for the consumer behavior is the fact, that people often buy products not because of their main function but for their main subjectively perceived value. It does not mean that product’s basic functions is not important, but that’s the today’s role of products exceeds its service limits (Salomon 2004). Notwithstanding the fact that, individuals and groups determines the pattern of consumption, in trying to satisfy customers it involves in itself marketing, some creativity, offering and exchanging products or value that will appeal to the individuals and groups. Trommsdorff (2002) however opine that, there are no activities more important for the consumer behavior other than connected with consumption, Consumer behavior, attitudes enables better understanding and forecasting, not only of the subject of purchasing an insurance product but also of purchasing motives and purchasing frequency (Schiffman and Kanuk 2004).

Purely monetary decision making means that insurance consumers expect to obtain some financial return which is a stronger stimulus than the overall goal of protection. Con­sumers (tend to) expect a “dividend stream” from insurance (Krantz, Kunreuther, 2007). From these consumers’ point of view, they waste insurance premiums if they do not collect coverage on their policies for a certain period. Such behaviour indicates that consumers feel the need for justifying their actions to both themselves and others (Kunreuther, Pauly, 2005). Moreover, this suggests that they do not realise that “the best return on an insurance policy is no return at all” (Krantz, Kunreuther, 2007). Therefore, the undertaking of this research study will beam a search light on the Effect of Consumer Buying Behaviour on the Purchase of Insurance Products.

1.2 Statement of the Problem:

Research shows that many potential consumers of insurance products in Nigeria perceive insurance as an unnecessary expense, on the contrary, it is a form of investment in the protection of assets, whereas being uninsured is in the long-term the most costly option for an individual, the economy, and society.

Now, the wasted time in decision making by individuals and groups and their willingness to part with their money resources is a big setback on sales and performance of insurance companies. The major decision a buyer makes in a group and how his or her choice influences others is a problem in consumer behavior. To undertake and investigate a study of how purchase decisions are taken in individuals and group structure or settings and how this affects volume of sales and profits of the insurance company is still a major problem to researchers. And at the same time, lack of information devices by the insurer in reaching the individuals and groups at the right time and place, to fasten purchase of insurance products is an issue in ascertaining the behaviour of consumers.

Despite the growing population and economy, Nigeria is still lagging seriously behind in the African insurance market consumption ranking. The performance of Nigerian insurance industry has been one of sub-optimal. Recently NAICOM data shows that more than three millions Nigerians have some form of insurance, from less than 1million in 2007. However, the coverage rate varies into higher level for property and auto mobile insurance and low take up personal policies such as life or health. With greater acceptance of insurance products premiums and assets have soared over the 8 years. Gross premiums rose to from less than N100 billion ($502m) in 2007 to N320 billion naira ($1.51b) at the end of 2014 , while assets values more over same period, from N347.1 billion ($1.74b) to N711.4b ($3.57b).

A further look at the insurance penetration ratios in Africa as shown by Oyetunji (2015) for the first half of 2015 reveals that, South Africa leads the continent with a 15.4% penetration ratio, Namibia is having 7.7%, Kenya is 3.4%, Morocco is 3% while Nigeria being the most populous and richest in the continent is sitting at the bottom with just 0.6% at the same level with Egypt a country presently undergoing socio-economic cum political uprising. This indicates that the insurance industry in Nigeria remains largely underdeveloped. Given the existence of untapped potential in the Nigerian insurance market, this consumption level is worrying. The consumption level has been attributed to a number of factors among them are consumers perceptions, attitudes and financial illiteracy (Omar, 2005). It is against this backdrop that this research is being carried out to examine the Effect of Consumer Buying Behaviour on the Purchase of Insurance Products with a special reference to Alimosho Local Government Area (LGA) in Lagos State.

1.3 Objectives of the Study:

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 that consumers of life insurance products face in Nigeria.

1.4 Research Questions:

This research aims at finding answers to the following questions.

  1. What type of life insurance products do consumers normally buy in Nigeria?
  2. What is the level of association between economic factors and the demand for life insurance products?
  3. To what extent do socio- demographic factors influence the demand for life insurance products?
  4. What challenges confront the buyers of life insurance products in Nigeria?

1.5 Significance of the Study

The significant role played by the life insurance sector in economic development of Nigeria cannot be overemphasized. Life insurance serves as a vehicle for saving mobilization, a product for risk protection, a medium for long-term investments and contributes to the gross domestic product (GDP) of the country. The insurance industry has become highly competitive with the influx of private life insurance products to the consuming public.

It is one of the vibrant areas of the fast growing financial service sector in Nigeria. It has experienced reforms over the past decade in an attempt to meet customers at their point of need. This study focuses on the factors that influence the consumption of life insurance products. The study seeks to add to knowledge and fill research gap in the subject of life insurance by focusing on Nigeria where the subject is virtually unexplored. Thus, the available literature on life insurance will be built on and improved upon with this research as well as serving as the basis for further research work. It will therefore enable practitioners and competitors in the industry gain an understanding and appreciation of these factors and customer characteristics that affect them.

The results of the study is expected to assist policy makers identify the economic and socio-demographic influences on the demand for life insurance products in Nigeria. Outcome of the study, it is hoped, may prescribe new plans for building promising.

Life Insurance markets so as to increase the reach of life insurance products to a larger market. It is envisaged that the study will provide the framework and the guiding principles for new entrants in the life insurance industry for designing their products so as to capture a fair share of the market. It is hoped that the findings of this study will enable life insurance companies revise their distribution strategies and develop new ones that best meet the needs of the sophisticated customer.

The study seeks to add to knowledge and fill research gap in the subject of life insurance. Thus, the available literature on life insurance will be built on and improved upon with this research as well as serving as the basis for further investigations and research work. It will also be used by researchers and practitioners as a reference material.

1.6 Scope of the Study

This research work investigates the major factors (economic and socio- demographic) that determine the consumption of life insurance products in Nigeria. Coverage of the study will also include the review of relevant topical themes such as types of life insurance and the theoretical predictions of life insurance consumption. Empirical studies conducted by earlier researchers on the topic will be taken care of.

1.7 Limitations of the Study

The main limitations of this research are time and financial resource constraints. The limited time span to complete this study as well as financial challenges, the study is confined to Alimosho L.G.A, Lagos state, Nigeria. More life insurance companies should have been studied to make the results of the study more representative. The study is also limited by the lack of time series data that will enable the researcher study the trend of the critical factors that impact strongly on the demand for life insurance products in Nigeria or to study the degree of association between the various factors and life insurance consumption over the years. The study is therefore restricted to the use of interviews and questionnaires as the only sources of data. There are bound to be challenges with this form of data collection with regards to responses of human subjects.

1.8 Organization of the Study

This research is arranged into five main chapters as follows:

Chapter one deals with the introduction of the study which involves a discussion of the background of the study, the problem statement, research objectives and research questions. Other topics covered by this chapter are the significance of the study, the scope of the study and limitations as well as the organization of the study. In Chapter two, related literature relevant to the study is thoroughly reviewed. Relevant sub themes are selected from books and journals. The full description of the methodology used to collect data is captured in chapter three. The sources of date, target population, sample size and sampling procedure are dealt with in this chapter.

Chapter four covers presentation and analysis of data, the discussion of the information and responses from respondents. Chapter five presents the findings, conclusions and recommendations for policy implementations. It also addresses the challenges encountered during the collection and analysis of data and the opportunity for future research on the topic.

Chapter Five

Summary of Findings and Policy Recommendation

5.0 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.

5.1 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.

5.2 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.

5.3 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.

5.4 Suggestion for Further Research

The study suggests that additional investigations must be carried out on how 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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