“ DETERMINANTS OF INSURANCE BUYING DECISIONS IN

SRI LANKA ”

A DISSERTATION
Submitted to the
DEPARTMENT OF FINANCE
FACULTY OF COMMERCE AND MANAGEMENT STUDIES

In partial fulfillment of requirements of the

BACHELOR OF BUSINESS MANAGEMENT (FINANCE) SPECIAL DEGREE

PROGRAMME

R.A.D.W.S.Rupasinghe
BM/2011/280
Department of Finance
University of Kelaniya
Sri Lanka
 Research Title

Course code and Title : BFIN 32323- Resarch Methodology

Academic Year : 2011/2012

Semester : 2

Year : 3

Lecturer / s : Dr.S.S.Weligamage

Topic : “Determinants of Insurance Buying Decisions in Sri Lanka”

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 Certificate of Declaration

I, R.A.D.W.S.Rupasinghe, declare that this dissertation title “ Determinants of Insurance Buying

Decisions in Sri Lanka” is entirely my own work and has not previously been submitted for a

degree in any university. To the best of my knowledge and belief, the dissertation contains no

material previously published or written by another person except where due reference is made

in the dissertation itself.

Shanika

Name : -R.A.D.W.S.Rupasinghe

Student Number : - BM/2011/280

Date : - 2015/11/29

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 Abstract

Life insurance plays important role in financial lives of an individual. When people more think
about the risk that they have to meet they are more likely to go with life insurance. But in Sri
Lankan context there are factors need to be identifying in case of life insurance. When
considering about the general insurance since the legislation rules people adhere on it very much.
But it is not regards with the life insurance. This dissertation has examined the social and
demographic factors affect on the insurance purchase decisions of the people in Sri Lanka.
Theoretical works as well as empirical evidences have shown how the insurance is deviate in
different countries, regions in accordance with the changes in various factors like economic,
institutional, social and demographic. Descriptive statistic is used to identify and compare the
changes of the different categories of variables. The Chi-Square testing was used to identify the
significant of each variable for life insurance. Through the results found out with the study it can
be concluded that there is a significant influence by social, demographic,economic variables to
the insurance buying decision in Sri Lanka.But the gender is insignificantly affected on buying
decision. With those findings all the alternative hypothesis could be accepted other than the
gender

Key words: life insurance demand, social determinants, demographic determinants

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5
 Acknowledgement

I honerly express my deep gratitude and thanks towards everyone those who guide and help

made the effort success.

Foremost I would like to express my deepest appreciation to Dr.S.S.Weligamage Lecturer,

Department of Finance, University of Kelaniya.Her valuable advice and patient guidance and

encouragement helped me a lot in this task. Without her supervision and constant help this

research would not have been possible for me.

And I must thankful to the all the other lecturers in Department of Finance for guiding me

through out the last three years and also giving a opportunity to enhance our knowledge with this

dissertation.

As well as I am grateful to my parents, friends and all the others who helped me and encouraged

me to make my effort success So at last my thanks goes to the everyone who helped me in

different ways.

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 Table of Contents

01. Background of the study........................................................................................................................8

02. The resarch problem............................................................................................................................10
03. The objective of the study...................................................................................................................11
03.1. Hypothesis....................................................................................................................................11
04. Conceptual Framework.......................................................................................................................13
05. Time frame of the research.................................................................................................................14
07. Limitation of the study........................................................................................................................14
08. Literature review.................................................................................................................................15
09. References...........................................................................................................................................17

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 1. Background of the study

Life insurance plays major and important role in lives of persons and families because it is

enclose against the loss of income caused by the death of the family earner. In fact Sri Lanka is

among growing economies in the South Asia. After the end of the civil war conflicts in 2009

there was a economic growth in most economic activities. According to the Insurance Board of

Sri Lanka (IBSL) the insurance industry also has developed with insurance penetration rising to

1.2% in 2012. As IBSL explained after the end of the conflicts situation in the country different

aspects such as increase in disposable income, increasing awareness of the people, increase in

exports and growing investments in construction and infrastructure are anticipated to maintain

the growth of the insurance industry.

In accordance with the Insurance Board Sri Lanka “most people seek life insurance when they

get married, or buy a home, or have kids, or when other life changing events take place. Once

people decided to buy life insurance they concern on the type of policy and assured amount.

Theses are immeasurable parts prefer from policy types and conditions.”

Insurance business started in Sri Lanka with the coffee and tea industry during the British

governing period. The first insurance company of Sri Lanka which was named as the "Ceylon

Insurance company Ltd" was established after passing the Companies Act of 1938. The Sri

Lanka Insurance Corporation was started as the single authorized Insurer to manage Life

insurance business originally and in 1964 onwards both Life & General Insurance schemes are

given by the corporation. After that there are lots of insurance institutes, regulation authorities

and acts and regulations on the industry were established. The effort of the Government to

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regulate the insurance industry within Sri Lanka is mainly with the Insurance Act No.25 of 1962

which has been retracted by Regulation of Insurance Industry Act No.43 of 2000.

In case of insurance industry in Sri Lanka it is comprised as follows according to the IBSL.

Market Structure

Source: Annual report IBSL

(Figure 1.1) Analysis of insurance market in Sri Lanka

Insurance Companies

Source: Annual report IBSL

(Figure 1.2) Deviation of Sri Lankan insurance market between long term and general insurance

According to the IBSL there are 22 listed insurance companies in Sri Lanka which providing

General and life (Long term) insurance facilities. With that 15 are life insurance companies. The

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insurance company list is as follows.

2. The research problem

The identification of research problem is necessary to have proper identification of information

needed. As suggested by the theoretical and empirical literatures life insurance demand is

influenced by various economic, institutional, social and demographic factors.

Firstly the framework to identify the factors affect on insurance was built by Yarrri (1965) and

Hakanson (1969). But it only discusses only on the interest rate wealth, expected income over a

person’s life time and interest rate. But it does not pay much attention for social and

demographic variables and regarding the social and demographic factors effects on the individual

insurance behavior was firstly observed by Hammond, J. D., Houston, D. B. & Melander, E. R.

(1967). Household Life Insurance Premium Expenditures: An Empirical Approach, Journal of

Risk and Insurance.

And after that there are various researches have done on this area. But there are different times

findings regard to different selected variables. Because there are many conflicting findings from

the previous researches factors on life insurance buying decisions. In the view of Sri Lanka

there is lack of research. Therefore with this study it is aimed to examine the Factor

determinants of life insurance consumption in Sri Lanka.

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 3. The objective of the study

The aim of the study is to examine and identify the factors influence on life insurance purchased

of households. The main focus is on district of randomly. Different variable categories have

used to identify the people behavior such as variables are age, education, employment status,

health status, number of children, marital status and income. The effects of these factors on

either life insurance

3.1. Hypothesis Testing

The objective of this study is to find out the insurance patterns of the people in Sri Lanka by

finding out the significant association of life insurance and social,economic determinants. Based

on the objective, the study seeks to test the following hypothesis.

Hypothesis 1: Age and Life insurance buying decision

H01: There is no significant difference between age and life insurance consumption.

H11: There is a significant difference between age and life insurance consumption.

Hypothesis 2: Gender and Life insurance buying decision

H02: There is no significant difference in life insurance demand across different gender

categories of the respondents.

H12: There is significant difference in life insurance demand and gender.

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Hypothesis 3: Income and Life insurance buying decision

H03: There is no significant difference between income and life insurance consumption.

H13: Income significantly influences life insurance demand.

Hypothesis 4: Education and Life insurance buying decision

H04: There is no significant difference between education and life insurance buying decision

H14: There is significant relationship in life insurance consumption across different group of

respondents' education.

Hypothesis 5: Occupation and Life insurance buying decision

H05: There is no significant difference between occupation and life insurance buying decision

H15: Occupation significantly influences life insurance demand.

Hypothesis 6: Marital Status and Life insurance buying decision

H06: There is no significant difference between marital status and life insurance buying

decision

H06: There is significant difference in life insurance consumption between married and single

individuals.

Hypothesis 7: Family Size and Life insurance buying decision

H07: There is no significant difference between family size and life insurance buying decision

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 H07: There is a significant difference in life insurance demand across different categories of

the respondents based on family size.

4. Conceptual Framework

Age

Gender

V Income Level
a
r
I
Life insurance Marital Status
a
demand b
l
e Education
s

Occupation

Family Size

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 5. Time frame of the research

Month 1st Month 2nd Month 3rd Month 4th Month

Week 1 2 3 4 5 6 7 8 9 10 1 12 13 14 15
1
Study previous
Researches regarding the
topic
Get instruction from
resource person
Collect data
Data analysis
Prepare research
report and handover

06. Limitations of the Study

The main limitation of this study is lack of observation of the sample. There are only 100

observations in sample. But it’s not enough to examine the good result. So the researcher comes

to conclusion only one those survey results.

And other than this the research is no any limited in district. Now it is better if it can apply for

the overall Sri Lanka for better understanding. But it is very difficult cover the overall area.

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 7. Literature Review

Literature review section identifies the prior researches related to the area. In this thesis the

factors affect on life insurance purchase decisions or the empirical studies relating to demand of

life insurance purchase decisions have discussed. The demographical, economical and social

factors are bring into being the most effective factors when evaluating the life insurance demand

of family or individual. Among all those different variables the factors effect on life insurance

have focused in the research. The key findings of different researches related to the specify area

have analyzed throughout this. As well as here it has discussed the reasons to select each

variable for the researches.

Researches on buying decisions of insurance could be identified in the different publications in

different countries with different models. When analyzed the previous studies different factors

have been selected by the researches shows significant variance in their findings because some

studies are based on microeconomic factors whereas some on macroeconomic factors and also

individual behavior measuring factors. And we narrow down the area into all variables as well.

But due to several reasons as demographic variance in different countries and regions the result

for the same evaluation factor also shows different outcomes from one another.

Insurance is protection against the risk of property or a person. It can classify into different

sectors. It has defined by different persons in different ways. Oxford defined the insurance as

“An arrangement by which a company or the state undertakes to provide a guarantee of

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compensation for specified loss, damage, illness, or death in return for payment of a specified

premium: many new borrowers take out insurance against unemployment or sickness” and

again there are several definitions which defined it as agreement between insurer and the

company to cover the damages or similar ways. With the research the main focusing area is life

insurance. It is identified as assurance which only related with human life than other objects

around. It has defined in several ways. For an example Google identified life insurance as

“insurance that pays out a sum of money either on the death of the insured person or after a set

period” or with similar ideas which related with insuring human life.

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 8. References

 Aarbu, K. O. (2010). Demand patterns for treatment insurance in Norway. 49.

 Anderson, D. R., & Nevin, J. R. (1975). Determinants of young marrieds’ life insurance
purchasing behavior: an empirical investigation. Journal of Risk and Insurance, 42, 375-387.

 Baek, E., & DeVaney, S.A. (2005). Human capital, bequest motives, risk, and the purchase
of life insurance. Journal of Personal Finance, 4(2), 62-84.

 Berekson, L.L. (1972). Birth order, anxiety, affiliation and the purchase of life insurance.
Journal of Risk and Insurance, 39, 93-108.

 Bernheim, B.D. (1991). How strong are bequest motives? Evidence based on estimates of the
demand for life insurance and annuities. Journal of Political Economy, 99, 899-927.

 Burnett, J.J., & Palmer, B.A. (1984). Examining life insurance ownership through
demographic and psychographic characteristics. Journal of Risk and Insurance, 51, 453-467.

 Chen, R., Wong, K.A., & Lee, H.C. (2001). Age, period and cohort effects on life insurance
purchases in the U.S. The Journal of Risk and Insurance, 68, 303-327.

 Curak, M., Dzaja, I., & Pepur, S. (2013). The effect of social and demographic factors on life
insurance demand in Croatia. Internatonal Journal of Business and Social Science , 4.

 DeVaney, S.A., & Keaton, E.F. (1994). Determing purchasers of whole life insurance: Using
a classification tree. Journal of the Society of Insurance Research, 7(2), 33-45.

 Dong, W., Zhang, W., & Dai, Y. (2011, December 12). Insurance probability: Comparison &
analysis of psychology and pricing strategy in U.S. and China.

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 Duker, J. M. (1969). Expenditures for life insurance among working-wife families, Journal
of Risk and Insurance, 36, 525-533.

 Ferber, R., & Lee, L.C. (1999). Acquisition and accumulation of life insurance in early
married life. Journal of Risk and Insurance, 47, 132-152.

 Fitzgerald, J. (1987). The effects of social security on life insurance demand by married
couples, Journal of Risk and Insurance, 54, 86-99.

 Gandolfi, A.S., & Miners, L. (1996). Gender-based differences in life insurance ownership,
Journal of Risk and Insurance, 63, 683-693.

 Hakim, M. (n.d.). Daily FT. Retrieved from http:// www.ft.lk/2012/11/13/recent-trends-and-

future-of-life-insurance-industry/

 Hammond, J. D., Houston, D. B. &Melander, E. R. (1967). Household Life Insurance

Premium Expenditures: An Empirical Approach, Journal of Risk and Insurance, 34, 3, 397-
408.

 Hakansson, Nils H. 1969. “Optimal Investment and Consumption Strategies under Risk, and
under Uncertain Lifetime and Insurance” International Economic Review 10:443-66

 Insurance Board of Sri Lanka. (n.d.). Retrieved from http://www.ibsl.gov.lk/

 Jain, V., & Saini, B. (2012). Indian consumer demand for life insurance. URFM , 2 (11).

 Kunreuther, H. C., & Pauly, M. (2005). Insurance Decision-Making and Market Behaviour.
Foundations and Trends® in Microeconomics, 1(2), 63-127.
http://dx.doi.org/10.1561/0700000002

 Lewis, F.D. (1989). Dependents and the demand for life insurance. American Economic
Review, 79, 452-467.

 Li, M. (2008, August). Factors influencing households demand for life insurance.

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 Mantis, G., & Farmer, R. (1968). Demand for life insurance. Journal of Risk and Insurance,
35, 247-256.

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