EMPIRICAL INVESTIGATION OF INSTITUTIONAL FACTORS THAT INHIBIT MEMBERS OF THE PUBLIC ATTITUDES TOWARDS LIFE INSURANCE CONSUMPTION
1.1 Background of the study
Since the end of Second World War, The insurance industry the world over has experienced remarkable growth. Concurrent with this growth has been significant changes within the industry. The Nigerian insurance industry is not unaffected by this general growth malady. The growth of multiple line transition, introduction of package policies, the universal banking system, grassroots insurance, the variable annuity, growth life insurance, universal life policy, changes in regulatory framework, continued expansion of the social security system and the involvement of government as a provider of private insurance are all part of the challenges with which the insurance industry must contend with (Ibok, 2006, Soon, 1996).
Although the future of insurance industry in Nigeria appears bright, a number of unresolved problemsstill exist; of particular interest is the attitude of the public towards life insurance system, which has affected the consumption of insurance products. In Nigeria, this problem seems to be even more pronounced because of the level of literacy of the Nigeria populace.
Insurance has remained one of the least purchased itemswithin the financial market. Records reveal that about only 10 percent of the Nigerian population have insurance of any sort (Mordi, 1990; Wilson, 2004; and Oworen, 1991). In general, this negative marketability of insurance products has become a problem not only to the insurance industry, but has also affected economic development.
The problem has existed for a long time and has increased somewhat with the sophistication of the Nigerian society which has grown knowledgeable in recent years (Ibok, 2006).
However, the increased importance of insurance as a provider of financial services and of investment funds in the capital market is especially pronounced in developed economies whereas insurance consumption in many developing countries is still very low (Ebitu E. T., Ibok N. I. &Mbum P. A. (2012). Little does one wonder what will be the future of this all important industry if these problems continue unabated?
The focus of this proposal is to examine and evaluate attitudes of the public towards life insurance consumption in Nigeria, using Lagos state as a case study.
1.2 Statement of the Problem
The large variation in consumer’s attitudes towards life insurance consumption across different economies of the world raises some important questions about what are the causes of this variation and thus, what factors have affected life insurance consumption? By assessing its role as a major financial intermediary, life insurance has become a key source off long term capital, encouraging the growth of capital markets (Catalan et al, 2000; Impavido and Musalem, 2000).
Indeed, several studies have found sufficient evidences to suggest that, the development of insurance industry is related to economic growth (Ward and Zurbruegg, 2000; and Soon 1996).
Life insurance has taken on an increasing importance as a means for individuals and groups to manage their income risks (Osaka, 1992 and Njogu, 1991).
Moreso, empirical studies on changing life insurance marketing on the on hand, and consumption of life insurance products on the other hand in Nigeria appears to be inadequate.
As Mordi (1990) has rightly pointed out, figures are yet to be available in many activity areas of insurance. There are even questions of adequacy of such empirical data. Lack of available data and information invariably means lack of awareness and interest on the part of the consuming public. Therefore, despite its apparent role in risk management and transfer, relatively few people in Nigeria appear to be appreciating this role. Some who buy insurance (especially motor vehicle insurance) do so because it is made compulsory by law. So far, studies on life insurance marketing and consumption in Nigeria have focused on the entire country. Little effort is made to disaggregate performance across the different states or geopolitical zones of the country to determine if there are location specific problems, differences or regional factors that could influence public’s attitude to life insurance consumption. This explains why the present study is concerned with identification of the key marketing and consumption attitude inhibitors in Nigeria with particular reference to Lagos State. It is within this context that this study attempts an empirical investigation of those institutional factors that inhibit members of the public attitudes towards life insurance consumption in Lagos State.
1.3 Aim and Objectives of the Study
The general purpose of this study will be to identify and examine those factors within insurance institutional framework that affect the attitudes of the public towards life insurance consumption in Lagos State. Thus, the specific objectives will include:
· To determine the socio-economic characteristics of life insurance consumers in Lagos State.
· To analyse the effect or relationship between the identified factors and life insurance consumption.To explore avenues upon which a vibrant life insurance market could be developed in the state.
1.4 Relevant Research Questions
The following would serve as research questions for the purpose of justifying this work:
· What are the socio-economic characteristics of life insurance consumers in Lagos State?
· Is there any relationship between the identified factors and life insurance consumption?
· What are the avenues upon which a vibrant life insurance market can be developed in the state?
1.5 Relevant Research Hypotheses
The following hypothesis would be used in justifying the research study:
Research Hypothesis One
H0: The attitude of the public towards life insurance consumption in Nigeria is positive.
H1: The attitude of the public towards life insurance consumption in Nigeria is negative.
Research Hypotheses Two
H0: There are no significant avenues upon which a vibrant life insurance market can be developed in Lagos State.
H2: There are significant avenues upon which a vibrant life insurance market can be developed in Lagos State.
1.6 Significant of the Study
The study of the attitudes of the public towards life insurance consumption in Nigeria shall be of significant pros /advantages to:
i. Life Insurance Firms in the Country: The pros of this study to them includes:
It will reveal to them how they can strategically market life insurance policies to members of the public in Lagos State, revealing to them benefits they can get from undertaking different variants of the policy.
ii.Academic Researchers/ Students: The pros of this study to them includes:
It may provide support to the academic researchers to understand the public’s behaviour towards life insurance policies in the insurance industry by filling the gap in the literature and by investigating the relationship between public’s attitude and their patronage of life insurance schemes.
It will also serve as a good reference material to students and academicians that are carried out research studies in a similar or closely related area.
iii.Members of the Public in Lagos State: The pros of this study to them shall include:
It will explain in detail to the public on the need for them to undertake life insurance policy covers, judging by the nature of uncertainties that characterizes the business environment and social life they leave, so that when such probable or possible events occurs, they wouldn’t have to experience much traumatic setbacks.
1.7 Scope of the Study
The study is scoped to cover the attitudes of the public towards life insurance consumption in Nigeria. The study is also delineated to cover the life insurance activities, policies, products and services of the insurance companies located in the mainland area of Lagos State. This measure will enable the research study to be conducted within the manageable limits of the scope defines by the variables in the topic of the study.
1.8 Definition of Terms
Agent: Independent insurance salesperson who represents a particular insurer in sourcing for insurance business.
Broker: Professional insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
Capital: Equity of shareholders in the stock of an insurance company. The company’s capital and surplus are measured by the difference between its assets and liabilities. This protects the interests of the company’s policyholders in the event of financial crises.
Claim: A demand made by t6he insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.
Life Insurance: It is a risk-pooling plan, an economic device through which risk of premature death is transferred from an individual to a group through the insuring company.
Mortality Table: It is a statistical table showing the percentage of death at any given age.
Premium: The price of insurance protection for a specific risk.
Underwriting: It is risk assessment, selection and decision making. It is the process of evaluating a proposal and deciding the basis of accepting or otherwise the risk proposed. Thus making each to contribute according to the loss probabilities transferred to the common fund.
Underwriter: The individuals trained in evaluating risk and determining rates.
Valuation: A calculation of the policy reserve in life insurance. It is a mathematical analysis of the financial condition of a life portfolio.