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DEMOGRAPHIC FACTORS AND MARKETING OF LIFE INSURANCE POLICIES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

The role played by insurance institutions in a post-modern economy cannot be over emphasized. The insurance firms as financial intermediaries play a significant role within a nation’s financial system by mobilizing funds from the surplus economic unit and channeling it to the deficit investment unit of the economy. An aspect of the insurance business is the life insurance (Sulaiman, Migiro and Yeshihareg, 2015). Life insurance plays an important role in an individual’s personal financial plan, as suggested by most personal finance and financial planning books. Life insurance helps individuals save money while protecting against personal risks in life. However, research work on life insurance show that life insurance density and penetration is one of the lowest in Africa despite our demography. This phenomenon is evident in a report by the Swiss Re Sigma for the year 2013 which reveals that Nigeria being the most populous and richest in the continent is having just 0.69% insurance penetration ratios – implying that the majority of the population are still vulnerable to life’s risks that may permanently strip away their future earnings (Asinobi and Ojo, 2014). Life insurance is a policy that replaces a lost stream of income that results from the death of an individual (Todd, 2004). Life insurance is undertaken to provide protection to the insured's family, creditors, or others against the loss of earning capability of the insured in the event of his death or serious injury. According to Oke et al (2010) life insurance is a protection of an economic value of an asset.

Laying affirmation to the inevitability of the occurrence of death someday Liquat (2006) submits that, there is a general agreement as to the fact that risk is present in all human endeavours as there is uncertainty as to what will be the likely outcome about a person’s action, and there is no certainty however about the exact time, date, year or place when such event like death will occur to anyone. Hence, for the human life, there is uncertainty about when death will occur, but there is the certainty that death must occur.  The need therefore to provide for the needs of one’s dependants after life necessitate the need for life assurance. In addition, life assurance the endowment type may be taken out to provide for specific expenditure in the future and the categories for which life assurance will provide for include the risks of premature death, death, longevity, disability and sickness (Oyetayo, 2006; Vaughan and Vaughan, 2002).

Despite the potential benefits of life insurance policies as aforementioned above, marketing of these policies in Nigeria are being threatened by consumers’ demographic factors (Omar, 2005). Researchers such as Delafrooz and Paim (2011), Mahdzan and Victoria (2013) have indicated that demographic factors such as age distribution, culture, religion, employment status, life expectancy, level of dependency in the family, marital status as well as the number of educated people in that country are fundamental determinants of the success of marketing life insurance. Hence, understanding the consumer’s demographic factors and attitude towards insurance and creating a demand for life insurance is essential in facilitating the success of life insurance services (Sharma, Vijay, Pateria and Sharma, 2012; Annamalah, 2013). In view of the above issues, this study examines the extent demographic factors influence the demand of life insurance.

1.2   STATEMENT OF THE PROBLEM

Marketing and demand for any product may be affected by a number of factors depending on the nature of the product and the considered utility derivable from it. And for a product like life assurance, the purchase decision arises from the satisfaction that a consumer gains from the increase in financial security achieved by transferring the risk of loss to an assurer. However, such factors as the country’s demographic spatial distribution; covering age distribution, culture, religion, employment status, life expectancy, level of dependency of the old on their children, marital status as well as the number of educated people in that country will be important influences on the demand for life insurance product.

Researches linking consumers’ demographic factors with demand for life insurance products in developing countries with Nigeria inclusive have shown that insurance services seem not to have been so accepted enthusiastically. The abysmal level of consumers’ perception and ultimate demand for life insurance products in developing economies has attracted relative worries among researchers and practitioners alike. Moreover, Omar’s (2005) assessment of consumers’ perception towards life insurance patronage in Nigeria revealed that there is lack of trust and confidence in the insurance companies, there is also lack of education about life insurance product, owing to lack of marketing communication strategy that is based on re-orientating and informing the consumers of the benefits inherent in life insurance so as to reinforce the purchasing decision. Some of the problems associated with this vicious cycle of perceptual error have been one of improper building of marketing strategy around consumers’ demographic factors.

The role of culture in Nigeria is all pervasive that demand for life insurance is grossly affected to the extent that it defines consumers risk aversion. Now, religion is another drawback since it provides an insight into the individual’s behaviour; and understanding religion is an important component of understanding a nation’s unique culture. Religion historically has provided a strong source of cultural opposition to life insurance as many religious people believe that a reliance on life insurance results from a distrust of God’s protecting care. Until the nineteenth century, European nations condemned and banned life insurance on religious grounds. Even until now religious antagonism to life insurance still remains in several Islamic countries.

Indeed, several studies from the advanced economies have found sufficient evidences to suggest that demographic factors are related to marketing of life insurance policies (Baek and DeVaney, 2005; Delafrooz and Paim, 2011; Annamalah, 2013; Mahdzan and Victoria, 2013). But empirical studies on demographic factors on the one hand, and marketing of life insurance policies on the other hand in Nigeria appears to be scanty and inadequate. Hence, this study anticipates filling in the gap by exploring demographic factors and marketing of life insurance policies in Nigeria through an empirical examination of selected insurance companies.

1.3   OBJECTIVES OF THE STUDY

The main objective of this study is to examine demographic factors and marketing of life insurance policies in Nigeria. The specific objectives are:

§  To examine the effect of life expectancy on marketing of life insurance policies in Nigeria.

§  To investigate the effect of dependency ratio on purchase of life insurance products.

1.4    RESEARCH QUESTIONS

The undertaking of this research project will beam a searchlight on the following research questions;

1. Do life expectancy have any effect on marketing of life insurance policies in Nigeria?

2. What is the relationship between dependency ratio and demand for life insurance products?

1.5   RESEARCH HYPOTHESES

Hypothesis One:

Ho: There is no significant relationship between life expectancy and marketing of life insurance policies in Nigeria.

Hi: There is a significant relationship between demographic factors and marketing of life     insurance policies in Nigeria.

Hypothesis Two:

Ho: Dependency ratio is not positively related to demand for life insurance products.

Hi: Dependency ratio is positively related to demand for life insurance products.

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