1

CONSUMER BEHAVIOR TOWARD

INSURANCE INDUSTRY:
BASIS FOR BUSINESS SUSTAINABILITY
In Mauban, Quezon

An Undergraduate Thesis
Presented to the Faculty of the
College of Arts and Sciences
Calayan Educational Foundation, Inc.
Lucena City

In partial fulfillment of the requirement for the degree on

Bachelor of Arts in Economics
Expanded Tertiary Education Equivalency and
Accreditation Program
 2

Evangeline A. Almarinez
Gloria S. Putong

INTRODUCTION

The insurance industry truly is at the heart of the growth and progress of

every modern economy (Kevelighan, 2018). Traditionally, the industry has been

known for its high-cost distribution system and lack of price competition, but

insurers are increasingly faced with more intensive competition from non-

traditional sources such as banks, mutual funds, and investment advisory firms. The

Business of Insurance is related to the protection of the economic values of the

assets. Insurance is one form of savings where in people try to assure themselves

against risks or uncertainties of future People can save their earnings either in the

form gold, fixed assets like property or in banking and insurances. All the savings

of people of a country account for gross domestic savings (Kart, 2011). Every

human being has the capability to save to protect him from risks or events of future.

The World Bank estimates that each year 150 million consumers of

financial services will be added to the global economy. The majority are in
 3

emerging markets where consumer protection and financial literacy are still in their

infancy (Cuperus, 2012).

Swiss Re Institute (2018) stated the emerging Asia will be the region that

will drive the insurance industry amid solid but slowing global economic growth

over the next two years. It forecasts that global non-life and life premiums will both

grow by around 3% annually over 2019/20, with gains driven by the emerging

markets, many of which are in Asia. The global economic power shift from west to

east continuing unabated, China and emerging Asia in particular, will be the main

source of insurance demand in the coming years (Olano, 2018)

The first life insurance policies were taken out in the early18th century and

the first company to offer life insurance was Amicable Society for Perpetual

Assistance Office founded by William Talbon and Sir Thomas Allen at London in

1706.

In the Philippines during the Spanish Era, The Lloyd’s of London or simply

known as Llyod’s introduced insurance concept by appointing Strachman, Murray

& Co., Inc. as its representative in the country. During the Spanish Colonization

the laws on insurance were found in Title VII of Book II and Section III of Title III

of Book III of the Spanish Code of Commerce, and in Chapters II & IV of Title XII
 4

of Book IV of the Spanish Civil Code. In 1989, the life insurance was introduced

with the entry of Sun Life Assurance of Canada in the local insurance Market. In

1906, the first domestic non-life insurance company Yek Tong Lin Insurance

Company was organized. In 1910, Insular Life Assurance Co, Ltd. Was established

and the first domestic life insurance company in the country. Due to the fast-paced

growth of the insurance industry in the Philippines, the Philippine Legislature, on

December 11, 1914, enacted Act 2427, also known as the Insurance Act. This Act

took effect on July 1, 1915 and repealed the provisions of the Spanish Code of

Commerce on Insurance. The viability of the insurance market in the Philippines

encouraged more foreign insurance companies to open shop in the country. In 1939,

the Union Insurance Society of Canton appointed Russel & Surgis as its agent in

Manila, transacting business limited to non-life insurance.

According to S&P’s Global Financial Literacy Survey, financial literacy

defined as the ability to understand essential financial concepts in making informed

decisions about saving, investing and borrowing. Many Filipinos suffer from

financial loss due to being financial illiteracy.

As per the data from the Philippine Statistics Authority, Financial

Intermediation expanded by 6.0 percent in the fourth quarter of 2018. This was
 5

higher than the 5.2 percent growth recorded in the same quarter of 2017. Among

subsectors, Banking Institutions contributed the most to growth and had the fastest

increase of 8.1 percent, followed by Non-Banking Financial Institutions at 5.7

percent. Activities Auxiliary to Financial Intermediation and Insurance likewise

grew but at slower pace of 3.7 percent and 2.3 percent, respectively.

Filipinos learned to have a financial tool to guide them one of this tool is

having an insurance product. Having insurance is like taking a risk on choosing the

right company and right product. There are many companies offering same policy

but not all companies can help you. But most of the Filipinos still use the traditional

way of saving which is through banks for the reason that it is much safer and have

a lower risk than any other financial tool.

On the survey conducted by the Sun Life Financial Philippines (SLFP) in

late 2017, only sixteen percent (16%) of the middle- to upper-income Filipinos have

insurance product. The lack of awareness on insurance product was at about 85

percent (85%) for the lower-middle class, eight percent (8%) for the upper-middle

class and only seven percent (7%) for the upper class.

From the studies enumerated above, it prompts the researchers to know what

are the behaviors of the consumers who availed an insurance policy and what
 6

benefits they received. This will be an eye opener for those consumers without

insurance policy to include insurance in their financial tool and the importance and

benefits on having an insurance policy.

BACKGROUND OF THE STUDY

As the years passed by, consumers learned the positive opportunity cost of

saving for the future instead of buying non-important goods/services and to get rid

the chance of financial loss. Consumers learned to take a risk to try different ways

where they can start saving in more efficient way that in the long run will yield

positive growth. One of the examples of the risk taken by the consumers was having

an insurance policy where they expect that their money will be taken care.

Many insurance companies offer same type of policy and this prompt the

researchers to do this study to properly identify Consumer’s Behavior towards

Insurance Industries Business Sustainability. They will use this preference to come

up with different strategies for managers to operate their company’s Mission,

Vision and Goals more effectively since one of the researchers is a Financial

Manager herself. It will help her have a better understanding on what other ways to

attract clients in availing her products and the other researchers also agree as she
 7

also wants to gain knowledge in financial security field and to also know what

consumer’s behaviors that may affect in the insurance industries business

sustainability.

OBJECTIVES

This study focuses on the factors of consumer’s buying/purchasing behavior

towards availing of insurance policy in sustaining an insurance business industry.

It aims to collect data on the following:

1. Demographic profile of the respondent as to:

1.1. Age

1.2. Sex

1.3. Income Level

1.4. Occupation

1.5. Years of being a policy holder

2. Determine the consumer behavior of the respondents towards availing

insurance products in terms of:

2.1. Company’s Reputation

2.1.1. Identity
 8

2.1.2. Credibility

2.1.3. Delivery of Service

2.1.4. Benefits provided

2.2. Budget

2.3. Length of Payment

2.4. Existing Insurance Company

2.5. Type of Benefits of Policy Plan

2.2.1. Life Insurance

2.2.2. Health Insurance

2.2.3. Insurance with Investment

3. Measure the sustainability of the insurance company in terms of:

3.1. Assets

3.2. Net Assets

3.3. Earnings per share

3.4. Premium

Related Literature

This chapter helped the researchers understands more ideas and concepts

related to the study from different literatures and studies. The first life insurance
 9

policies were taken out in the early18th century and the first company to offer life

insurance was Amicable Society for Perpetual Assistance Office founded by

William Talbon and Sir Thomas Allen at London in 1706.

In the Philippines during the Spanish Era, The Lloyd’s of London or simply

known as Llyod’s introduced insurance concept by appointing Strachman, Murray

& Co., Inc. as its representative in the country. During the Spanish Colonization

the laws on insurance were found in Title VII of Book II and Section III of Title III

of Book III of the Spanish Code of Commerce, and in Chapters II & IV of Title XII

of Book IV of the Spanish Civil Code. In 1989, the life insurance was introduced

with the entry of Sun Life Assurance of Canada in the local insurance Market. In

1906, the first domestic non-life insurance company Yek Tong Lin Insurance

Company was organized. In 1910, Insular Life Assurance Co, Ltd. Was established

and the first domestic life insurance company in the country. Due to the fast-paced

growth of the insurance industry in the Philippines, the Philippine Legislature, on

December 11, 1914, enacted Act 2427, also known as the Insurance Act. This Act

took effect on July 1, 1915 and repealed the provisions of the Spanish Code of

Commerce on Insurance. The viability of the insurance market in the Philippines

encouraged more foreign insurance companies to open shop in the country. In 1939,
 10

the Union Insurance Society of Canton appointed Russel & Surgis as its agent in

Manila, transacting business limited to non-life insurance.

According to the survey conducted on the Adult who are Financially

Literate out of 142 countries around the globe the following countries are the Top

10 Most Financially Literate Countries (%); (1) Denmark – 71%, (2) Norway –

71% (3) Sweden - 71% (4) Canada – 68% (5) Israel – 68% (6) United Kingdom –

67% (7) Germany 66% (8) Netherlands – 66% (9) Australia – 64% (10) Finland –

63%. The Philippines ranked 113 as per the conducted survey

According to the survey conducted by the Bangko Central ng Pilipinas

(BSP) on Filipino adults, “only two percent (2%) correctly answered seven (7)

financial literacy questions; eighty eight percent (88%) correctly answered only

three (3) out of the seven (7); and ten percent (10%) had zero correct answers. These

questions covered basic numeracy, compounding interest computation, comparing

prices, and simplified concepts of inflation and investment diversification”. Being

financially literate can help individuals know the importance and benefits of having

a savings.

According to Namasivayam (2016) identified the socioeconomic factors

that are responsible for having of life insurance policies and the preference of the
 11

policyholders towards various types of policies of life insurance company. From

the analysis, the study concluded that factors such as age, educational level and set

of the policyholders are insignificant, but income level, occupation and family size

are significant factors (Gautam, 2013)

Lawrence A. Gosby and Nancy Stephens (1987) updated those complex,

highly intangible services such as life insurance consists largely of credence

properties. Insurance providers engage in relationship-building activities that

emphasize buyer-seller interaction and communication. Economists contend

consumers are prone to make quality generalization based on the strength of these

relationships, perhaps to the detriment of price competition. The authors report

contrary result suggesting that, though relationship marketing adds value to the

service package, up-to-date core services.

Ananth (1998) in his study on life Insurance Corporation of India

highlighted the spectrum of corporate finance during 1975-90. He pointed out

different problems faced by the organization in handling the corporate finance such

as the time of procurement and investment of funds. He suggested that the

organization must relate itself with the needs of changing environment by taking

good decisions through professionally trained people.

 12

Dileep (2001) underlined that the competition will increase in the field of

life insurance with the entry of more private players. Foreign players will bring in

their management, financial and technical strength in the market, which would

ensure better products and services. And, thus to be more competitive the Indian

players, both public and private should go for mental revolution to design the

competitive plans, and strategies for effective execution.

Gupta (2001) expressed that the transition of insurance industry from a

public monopoly to a competitive environment presents interesting challenges to

competitors and consumers. The new players shall have an opportunity to test their

various hypothesis and experiences from overseas markets. As a result of that the

consumers shall have greater choices for the fulfillment of their needs

Each consumer has their own buying preference and as Thangasamy and

Pakitar (2014) indicates that for marketers to understand how buying decisions

are made by the consumer, they should first identify the person who makes the

buying decision. In the research made by Bargh (2002) he supported the fact that

consumer research should strike a balance between how to influence consumers

and how consumers could defend themselves and control such influences.
 13

According to Simonson et al (2001), one of the most essential and

influential areas within consumer buying behavior is the consumer decision making

process. In recent decades, during the initial stages of the conception of the

consumer buying behavior paradigm, various consumer decision making models

were proposed. However, the theories proposed by the researchers were not specific

and considered an overall view of the consumer decision making process.

Erasmusm et al (2001) indicated the importance and need for a specific,

situation and product – oriented model in the study of the purchasing behavior of

the consumer. Moreover, according to Wells (1993) the consumer investigating

decisions needed in the purchase of products such as car, house etc. would directly

make an effective contribution to the consumer buying behavior knowledge.

Therefore, it is evident that an exploratory research approach with the objective to

study the consumer buying behavior would provide opportunities to understand the

complexity of specific decision-making processes of the consumers

Consumer behavior research is a systematic study of the procedure that

consumers adopt to select, acquire, use and dispose of products and services which
 14

helps in satisfying their needs and wants. Information on consumer behavior has a

direct impact on marketing strategy (Anderson et al, 2005)

Sustainability is defined as the ability of utilization of resources by

organizations or business to meet their present time requirements and without

sacrificing the future requirements (WCED, 1987). Business sustainability is the

triple bottom line concept which explains a process through which organization

fulfils or obtains its obligations, opportunities and risks from environmental, social

and economic areas. The triple bottom line explains the management of planet,

people and money consist of: (i) environment (planet), (ii) people (i.e. social) and

(iii) profit (i.e. economical or financial). There are also other explanations for

sustainability which include other dimensions such as time factor in business

sustainability. Business sustainability is also affected by the time dimension

because it impacts the business both in long and short term. Similarly, each act in

business such as transaction cost has its past and impact in future. Theory relating

to economy takes transaction cost as static while neglecting the idea that time

dimension has inter-organizational links because of past and future of transaction

(Heide 1997). Similarly, the transactions conducted today will impact future; this

cycle will not stop only at the time of execution of transaction.

 15

In 1987, World council for economic development (WCED, 1987) defines

sustainability as" the meeting of current needs without compromising the ability of

future generations to meet their needs”. Therefore, to meet the industrial

developmental sustainability, the three areas (social, economic and environmental)

should be watched carefully. The concept of sustainability was defined by United

Nation in 1980’s in Brundtland and many other authors also defined sustainability

as “meeting the needs of firm’s direct and indirect stakeholders, employees, clients,

pressure groups, communities without compromising its ability to meet the need of

future stakeholders as well” (Dyllick & Hokerts 2002).

Filipinos needed to be financially literate as Mandell (2009) defines

financial literacy as “the ability to use knowledge and skills to manage one’s

financial resources effectively for lifetime financial security.” Also, according to

Huston (2010) him “explains that financial literacy is made up of two elements:

understanding and use. Understanding financial literacy implies that a person is

knowledgeable about personal finance, and applies such knowledge in dealing with

one’s finances.” Meanwhile, Hastings, et al (2013) refers to financial literacy as:

“1.Knowledge of financial products (e.g., what is a stock vs. a bond; the difference

between a fixed vs. an adjustable rate mortgage); 2. Knowledge of financial

 16

concepts (inflation, compounding, diversification, credit scores); 3. Having the

mathematical skills or numeracy necessary for effective financial decision making;

and 4. Being engaged in certain activities such as financial planning.”

CONCEPTUAL FRAMEWORK

Figure 1 shows the Five Stages of Consumer’s Buying Process.

Problem
recognition
( a need to save)
Information Search
(more practical way of Saving)

Evaluation of Alernatives
(alternative option that will yield positive outcomes)

Product Purchase
(choose the best)

Post Purchase Evaluation

(satisfaction level)

Figure 1. Stages of Consumer’s Buying Process

The first stage of consumer’s buying process is the problem recognition, in

this study it emphasizes the need to save for future consumption. The second stage

is the information search were the consumers look for ways where they start saving
 17

in a safe way. The third stage is the evaluation of alternatives in which throughout

the information search the consumers will gather other possible alternatives that

will help them to determine which the best choice. The fourth stage is product

purchase, after determining the best product based on the gathered information the

consumer now started to purchase the good/services that they assume can give them

more benefits than the others. And the last stage is post purchase evaluation, in

which they will now assess their experience after purchasing goods/services and to

know if it achieved their expectations.

CONCEPTUAL PARADIGM

INPUT PROCESS OUTPUT

1. What are the demographic
profiles of the respondents in
terms of the following?
2. What are the factors
influencing the sustainable
consumer’s behavior?
3. What are the benefits the
respondents experienced after
availing an insurance policy?
4. What is the consumer’s
satisfaction level they
experienced after availing the
goods and services?
Evaluate respondents that
already availed an insurance
policy & obtain their
buying/purchasing preference
and to know the level of
satisfaction after purchasing
the goods and services
The result of the conducted
evaluation on the
respondents will help the
researchers improved the
current of existing strategies
to properly address each
current or existing strategies
to properly address each
current and future
consumers expectation to
the fullest.
 18

The model above was presented through the Input Process and Output

Model or the IPO model. Inputs were the factors influencing the respondents buying

preference, the benefits experienced and the level of their satisfaction after availing

insurance. Process was the way to obtain information for inputs from different

consumer. Output was the conclusion or aftermath of using the process to proposed

improvements on their current or existing strategies to properly address each

current and future consumer’s expectation to the fullest.

SIGNIFICANCE OF THE STUDY

Upon determination of consumer behavior of each respondent’s availed

insurance policy, this study hopes to benefit the following:

This research was conducted by the researcher because they want each of

the respondents to know that their thought about the products availed are being

considered by the company and to know what other ways, they can improve their

current strategies for their consumer’s satisfaction.

The researchers aim in conducting this research was to help the company to

have a better understanding of each factor to consider that may affect the

consumer’s buying preference and to improve their current strategies for their

company’s sustainability
 19

The researchers aim to help the company to reach out with their clients and

to know what other ways to help the company to maintain their consumers trust and

confident in their products.

The researcher wants to contribute information and knowledge about the

consumer behavior of some clients of an Insurance company and for them to know

the importance of having a financial security for their future.

The researcher wants to inform the public the importance and benefits they

will be received and the level of the financial security once they availed an

insurance policy at a right company at a right time.

SCOPE AND DELIMITATION

This research aims to investigate these questions of consumer behavior from

the viewpoint of customers in Sunlife Insurance Company. The goal of this research

is to shed some light into how this consumer behavior affects their buying

preference It also strives to find out the benefits the customer’s having after availing

insurance. Another dimension to be investigated is can these consumer behavior

group consumers in order to assist managerial decision-making regarding channel

strategies and channel segmentation. This study will be conducted within a year
 20

through the selected fifty (50) Sunlife policyholders as respondents which are

purposively selected by the researchers.

This study will be limited as per it will conducted to Sunlife insurance

policyholder only.

DEFINITION OF TERMS

Opportunity cost - is the benefit that is missed or given up when an investor,

individual or business chooses one alternative over another.

Consumer satisfaction - is defined as "the number of customers, or percentage of

total customers, whose reported experience with a firm, its products, or

its services (ratings) exceeds specified satisfaction goals."

Consumer behavior - is the behavior that consumer display in scanning for

purchasing, using, evaluating and disposing of products and services that

they expect will satisfy their needs

Input-Output (IPO) Model - is a functional graph that identifies the inputs,

outputs, and required processing tasks required to transform inputs into

outputs
 21

Sustainability - focuses on meeting the needs of the present without compromising

the ability of future generations to meet their needs

Eye-opener – is something that surprises you and teaches you new facts about life,

people, etc.

BIBLIOGRAPHY

A. BOOKS
 Singh, Daleep, “Managerial challenges and strategies in
insurance sector”, National Conference papers, IMSAR,
Maharishi Dayanand University, Rohtak, November 5, 2001, p-
307-310
 Gayan, Ananth, “Review of the working of the LIC of India: in
the context of corporation finance during 1975-90”, (Ph.D.
thesis), University of Burdwar, (1998)
 Effects of relationship marketing on satisfaction, retention and
prices in the life insurance industry, by Lawrence A. Gosby
and Nancy Stephens. Journal of marketing research vol.xxiv (Nov
1987), p 404-411

B. PERIODICALS

C. ELECTRONIC RESOURCES
 https://en.m.wikipedia.org/wiki/Consumer_behaviour
 http://caraga.neda.gov.ph/financial-literacy-for-filipinos-
understanding-for-better-living/
 22

 https://business.inquirer.net/251498/many-filipinos-seen-still-
financially-illiterate
 http://www.ijetsr.com/images/short_pdf/1503858014_1095-
1103-mccia968_ijetsr.pdf
 https://www.ukessays.com/essays/business/review-of-the-
literature-consumer-buying-behavior-business-essay.php
 https://en.wikipedia.org/wiki/Customer_satisfaction
 https://business.inquirer.net/251823/insurance-penetration-ph-
remains-low
 https://www.sixsigmadaily.com/input-output-model/
 https://www.investopedia.com/terms/s/sustainability.asp
 http://shodhganga.inflibnet.ac.in/bitstream/10603/4464/11/11_ch
apter%202.pdf
 https://www.scribd.com/document/260215765/Literature-Review
 https://www.iii.org/white-paper/how-insurance-drives-economic-growth

 https://www.slideshare.net/hemanthcrpatna/a-project-report-on-customer-perception-
towards-insurance)