A COMPARATIVE ANALYSIS OF BUYING BEHAVIOR OF URBAN AND RURAL INVESTORS FOR INSURANCE

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1 A COMPARATIVE ANALYSIS OF BUYING BEHAVIOR OF URBAN AND RURAL INVESTORS FOR INSURANCE Dhimen Jani 1 and Dr. Rajeev Jain 2 1 Research Scholar, Mewar University, Chittorgarh, Rajasthan, India jani.dhimen@gmail.com 2 Dean and Head, Dept. of Mgt., University of Kota, Rajasthan, India rajeevjain@uok.ac.in ABSTRACT This paper aims to examine the buying behavioral pattern of urban and rural investors for the insurance. 900 investors (450 urban and 450 rural*) were taken as a sample from Gujarat state. The study assesses the impact of various demographic factors like age, gender, education, income and category etc. on the buying behavioral pattern of both Investors. The survey was conducted during September/October/Nov The study revealed that Age Gender, Occupation, Educational Qualification, Income etc. have significance impact on the buying behavioral pattern on rural and urban investors for buying insurance and financial advisor plays crucial role in determining decision for investors. Keywords: Buying Behavior; Urban & Rural; Investors; Insurance INTRODUCTION The Investor behavior is the process by which Investor tends to satisfy his/her needs by showing their choices. Behavioral economics and the related field, behavioral finance, study the effects of social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation. The fields are primarily concerned with the bounds of rationality of economic agents. The insurance sectors has undergone basic changes as a part of financial reforms in the country. Up to 2000, the insurance market was not open for everyone, LIC had monopoly. With enactment of IRDA Insurance Development Regulatory Act, private entity were allowed to enter into Indian Insurance market, and Monopoly of LIC was abolished. In life segment of insurance, Life Insurance Corporation of India (LIC) had a dominant role, while in non-life business segment, New India, United India, National and Oriental General Insurance Corporations were having monopoly. Since the inception of reforms in financial sector, almost all financial sectors witnessed great vicissitudes, which had ultimately increased competitive spirit and generated efficiency in the same sector. The investor buying behavior affected by many factor i.e. social, demographical etc. i.e. investor tend to invest in insurance according to his age, gender, educational qualification and most important income. As many researches have been conducted to identify the buying 26

2 behavior of investor for the insurance, this paper would focus on the factors determining selection, investment amount, premium paying pattern etc. of rural and urban investor. REVIEW OF LITERATURE The consumer selects the product that is judged to have the largest number of positive attributes. This is a relatively simple rule used most often when motivation or ability is limited (Alba and Marmorstein 1987). An initial empirical study is conducted by Hsee and Kunreuther (2000), who investigate the influence of effect on decisions regarding the purchase of insurance and regarding the motivation of going through a claim in case of a damage. They show that the more affection people feel towards an object, the more they are willing to purchase the insurance or file a claim. Krishnamoorthi.C (2006) bank deposits and followed insurance products which were known to 81 percent of the sample investors. Huber and Schlager (2011) developed casual model to identify the antecedent of consumer buying behavior of long-term savings specifically ULIPS. The model was emphasizing on two aspects risk as analysis and risk as feelings. They identified pivotal role risk avoidance and uncertainty avoidance. Wakker, Thaler, and Tversky 1997; Zimmer, Schade, and Gründl (2009) suggested that even very small probability of insolvency, broadly affects that consumers choice and reduces the customer willingness to pay. ĆURAK, DŽAJA and PEPUR (2013) made analysis of 95 respondents and found that the Age, Education and Employment does have significant impact on the selection of insurance, while gender, marital status and no. of family member do not have statistically significant association in Croatia. Truett & Truett (1990) found that there is positive relationship between age and life insurance demand. Gandolfi & Miners (1996) there is no influence of age on life insurance demand by wives, while husbands age negatively affects life insurance consumption. It was believed that men live shorter than women and that is why they ask for insurance more than women. Insurance is mainly taken to cover financial loss if any unfavorable incident occurs generally called risk. With the increasing level of risk, the demand of insurance also increases. Educated individual seems to be much risk aware and managing Outreville (1996). RESEARCH OBJECTIVES Primary Objectives- Primary objective of the research to identify whether any demographical factors does have impact on the decision making of urban and rural investors while selecting-product of LIC and Private life insurance besides that, the paper also attempt to identify is there any significant relationship between buying behavioral pattern of both urban and rural investor Secondary Objective- Secondary objective of the research is to find out the relative importance of advice of insurance advisor while making selection of product of insurance. 27

3 SOURCE OF DATA Primary data is collected with help of structured questionnaire. And secondary is collected from IRDA web site and various research paper. SIGNIFICANCE OF THE STUDY The investment is a process by which an investor invests some amount in monetary instruments for growth, but it is not always the case. Many times it happens that investor incur loss. Improper financial planning, high rate of inflation and other factors influence the buying decision of an individual. Almost all investors believe that they have invested money at good rate of return financial assets, but in actual manner they are not earning, but they are losing present value of money. The inflation is absorbing all the benefits of investment, thus, there is strong need of study investors buying behavior and suggest them appropriate path. By analysis of behavior of investor we can suggest appropriate investment options to invest and investment company will also get some sort of idea how investor react in different situation. In simple sense we can say that Right Plan at Right Time. The focus of this study would be on, to suggest financial assets to investors for investment with due consideration of risk, return and other demographical factors. HYPOTHESIS FOR THE STUDY The broader Hypothesis for the research will be as under:- There is no significant difference between Urban and Rural investors buying behavior for insurance. There is no significant impact of demographical factors of investors for their purchase and selling decision. Research Type Descriptive Research Descriptive research refers to research that provides an accurate portrayal of characteristics of a particular individual, descriptive research situation, or group. (en.wikipedia.org/wiki/ Descriptive_research ) Sampling Plan Sampling method: Quota sampling method under Non probability sampling will be used to elicit information. Quota sampling is a method for selecting survey participants. In quota sampling, a population is first segmented into mutually exclusive sub-groups, just as in stratified sampling. Then judgment is used to select the subjects or units from each segment based on a specified proportion. (en.wikipedia.org) Determination of Urban or Rural region For the Census of India 2011, the definition of urban area is as follows: 1. All places with a municipality, corporation, cantonment board or notified town area committee, etc. 2. All other places which satisfied the following criteria: 28

4 3. A minimum population of 5,000; 4. At least 75% of the male main working population engaged in non-agricultural pursuits; and 5. A density of population of at least 400 persons per sq. km. Source: A PDF file named '1. Data Highlight' accessed on 11 April 2012 from Census of India, 2011 Sampling unit: Gujarat Table 1 Rural Quota % Urban Quota % Vapi 10 Veraval 10 Visavadar 10 Valsad 10 Una 10 Vadodara 10 Talaja 10 Surat 10 Sidhpur 10 Anand 10 Sarigam 10 Ahmedabad 10 Sanand 10 Rajkot 10 Pardi 10 Navsari 10 Mandvi 10 Jamnagar 10 Himatnagar 10 Dwarka 10 Sample size: sample size is was estimate to 1000 (500 urban+500 rural) but around 100 (50 urban + 50 rural) investors responses were not found up to the mark or was not properly responded. DATA COLLECTION Primary data collection:-primary data will be collected using structured questionnaire. Secondary data collection:- Secondary data will be collected from Book, Magazines, Research Papers, Articles, Newspapers, Internet etc. Survey Method Employed: The survey shall be performed in brokerage houses, Insurance Offices and One Stop financial services shops. Research Instrument: Structured Questionnaire will be prepared with close ended questions. Data Analysis: Gathered data will be analyzed with the help of SPSS/Excel/Minitab/SAS to get some meaningful result. The data collected will be analyzed through a series of tools and procedures. The data will be interpreted with the help of various statistical tools like Frequency analysis, Cross Tabulation for nominal scale data, Chi-Square test. Statistical Tool Applied: For analytical purpose chi-square test would be applied. A chisquared test, also referred to as chi-square test or X 2 test, is any statistical hypothesis test in which the sampling distribution of the test statistic is a chi-squared distribution when the null hypothesis is true. Also considered a chi-squared test is a test in which this is asymptotically true, meaning that the sampling distribution (if the null hypothesis is true) can be made to approximate a chi-squared distribution as closely as desired by making the sample size large enough. 29

5 Table 2. Data Analysis and Interpretation Age Group: In the urban area, 24.44% investor were in the age group of below 30 years, 28.89% investor were in the age group of 30 years to 50 years while 46.67%investor were in the age group of above 50 years. In rural Area, 21.78% investor were in the age group of below 30 years, 35.56% investor were in the age group of 30 years to 50 years while 42.67%investor were in the age group of above 50 years. Gender: In the urban area, 62.22% of the investor were male while 37.78% of the investor were female. In the rural area, 66% of the investor were male while 34% of the investor were female. Education Group: In the urban area, 26.67% of the investor were in the category of U.G., 40% of the investors were in the category of Graduate and remaining 33.33% were having education of PG & above. In the rural area 21.33% of the investor were in the category of U.G., 34% of the investors were in the category of Graduate and remaining 44.67% were having education of PG & above. Income Group: In the urban area, 26.67% of the investor were in the category of below 3 lakh PA, 35.56% of the investor were in the income category of 3 lakh 5 lakh, while 37.78% of the investor were in the category of above 5 lakh. 30

6 In the rural area, 16.89% of the investor were in the category of below 3 lakh PA, 36.67% of the investor were in the income category of 3 lakh 5 lakh, while 46.44% of the investor were in the category of above 5 lakh. Category Group: In the urban area, 46.67% of the investor were in the category of serviceman, 30% of the investor were in the category of business person, 6.89% of the investors were in the category of retired person while 16.44% of the investor were in the category of others consisting of household lady and other service professionals In the rural area, 36.22% of the investor were in the category of serviceman, 31.11% of the investor were in the category of business person, 11.33% of the investors were in the category of retired person while 21.33% of the investor were in the category of others consisting of household lady and other service professionals As 900 (450 urban rural) investors were analyzed, the 253 out of 450 in urban and 272 out of 450 in rural, were investing in equity market. Table 3. Explorative Analysis - A comparison between factors affecting investment decision of investors in insurance sector From the above table it can be seen that, in urban region 19.37% of the respondents contacted are investing through broker advice, 54.94% of the investors are investing through advice of financial advisor, and 18.97% investors are investing with word of mouth, while 6.72% in1vestors are investing according to market sentiment. While in the rural region, 38.24% of the respondents contacted are investing through broker advice, 34.56% of the investors are investing through advice of financial advisor, and 16.18% investors are investing with word of mouth, while 11.02% investors are investing according to market sentiment. Table 4. Chi-Square Analysis Chi-Square df Assy. Signi. H Reject The above calculation suggest that, there is no significant difference between urban and rural investors for factors affecting investment decision in insurance sector. Table 5. Explorative Analysis A comparison between amounts of investment invested by investors in insurance sector Table no. 5 figure out that, in the urban region, 11.86% of the respondents contacted are investing below Rs PA, 22.53%% of the investors are investing in the range of Rs PA while 65.61% investors are investing above Rs PA 31

7 While, in the case of rural area, 22.79% of the respondents contacted are investing below Rs PA, 41.18% of the investors are investing in the range of Rs PA while 36.03% investors are investing above Rs PA. Table 6 Chi-Square df Assy. Signi. H Reject The above calculation suggests that, there is significant difference between urban and rural investors for investment amount (Premium) to be invested in insurance sector. Table 7. Explorative Analysis A comparison between investment patterns of investors of insurance sector. The above table shows that, in the urban region 40.71% of the respondents contacted are investing monthly, 11.46% of the investors are investing quarterly while 12.65% investors are investing half yearly and 35.18% of the investors are investing yearly. While in the case of rural region, 49.26% of the respondents contacted are investing monthly, 11.76% of the investors are investing quarterly while 11.03% investors are investing half yearly and 27.95% of the investors are investing yearly. Table 8 Chi-Square Df Assy. Signi. H Accept The above calculation suggest that, there is no significant difference between urban and rural investors for premium paying pattern in insurance sector. Table 9. Explorative Analysis A comparative analysis of intension behind Table 9 shows that in the urban region, 33.20% of the respondents contacted are investing retirement purpose, 38.74% are investing for the purpose of future/present financial stability (in case of physical disability or death etc.), 18.58% of the investors are investing for the purpose of saving tax only while 9.48% investors used to invest in insurance for the all of the above purpose. In the case of rural region, 38.24% of the respondents contacted are investing retirement purpose, 34.56% are investing for the purpose of future/present financial stability (in case of physical disability or death etc.), 16.18% of the investors are investing for the purpose of 32

8 saving tax only while 11.02% investors used to invest in insurance for the all of the above purpose. Table 10. Chi-Square Df Assy. Signi. H Accept In the chi-square calculation, it was found that both in urban and in rural, there was no significant difference in the case of intension behind investment in insurance sector. Table 11. Explorative Analysis A comparison between selections of service providing company for investment Table 11 provides insights that in the urban region, 40.01% of the respondents contacted are investing through public limited firm i.e. LIC, While 20.95% investors used to take service of private life insurance and 30.04% of the investors were found in both i.e. private as well as public life insurance. While in the case of rural region, 45.59% of the respondents contacted are investing through public limited firm i.e. LIC, While 25.74% investors used to take service of private life insurance and 28.67% of the investors were found in both i.e. private as well as public life insurance. Table 12 Chi-Square df Assy. Signi. H Accept The chi-square analysis suggest that, there is no significant difference between selections of service providing company. Table 13. Explorative Analysis A comparative analysis between believes of both investors regarding following belief The above table suggest that in the urban region, 49.80% of the respondents contacted do believe that ULIPs are better than traditional plan, while 50.20% of the investors believed that ULIPs are no better than traditional Plan. While in the rural region, 49.26% of the respondents contacted do believe that ULIPs are better than traditional plan, while 50.74% of the investors believed that ULIPs are no better than traditional Plan. 33

9 Table 14. Chi-Square Df Assy. Signi. H Accept In the chi-square calculation, it was found that, there is no significant difference in belief of urban and rural investor for insurance sector. CONCLUSION In the insurance sector, it was found that all the demographical factors were having significant impact on the factor that determine investment in insurance. From the study, it was revealed that urban investor gives more priority to financial advisor while rural investors used to invest with brokers advice. There was significant association between behavioral pattern of both urban and rural investor when it comes to investment in insurance. Buying behavioral pattern is not similar for urban and rural investors. In the investment amount, urban investor used to invest Rs. 30,000 PA while rural investor used to invest between Rs PA. Mostly. There is significant difference in investment amount to be invested in insurance sector, there is dissimilarities in behavioral pattern for investment amount. In the premium paying pattern, it was observed that, all the demographical factor have similar type of influence for the premium payment. There is insignificant difference between premium paying pattern of urban and rural investors i.e. monthly When investors were asked about, intension behind investing in insurance, majority of the urban investors (38.74%) replied that they intend to invest in insurance for financial stability and rural replied that they intend to invest in insurance for retirement planning, however, in calculation of chi-square it was not found significant at 5%. Thus intension was more or less similar for investment in insurance sector. Selection between govt. and private sector is always been controversial issue. But in this study both investor rural and urban clearly entrusted on govt. sector (LIC). Although, both sectors have been regulated by IRDA, still due to imaginary differences investors can t trust private sector companies. With introduction of ULIPS plans, insurance sector has witnessed ultimate growth, both urban and rural investor used to believe that ULIPS are better than traditional plan as far as return is concern in long term. REFERENCES 1. Alba, J., Hutchinson, J. (1987): Dimensions of Consumer Expertise, Journal of Consumer Research, 13: C.Krishnamoorthi (2006), SMART journal of business management studies-a Study on Investment Pattern and Awareness of the Salaried Class Investors In Nilgiris District, Vol 3, No 2,December 2007, pp Gandolfi, A. S. & Miners, L. (1996). Gender-Based Differences in Life Insurance Ownership, The Journal of Risk and Insurance, 63, 4, Huber, C., Gatzert, N., Schmeiser, H. (2011): How Do Price Presentation Effects Influence Consumer Choice? The Case of Life Insurance Products, Working Paper. 5. MARIJANI ĆURAK, IVANA DŽAJA and SANDRA PEPUR (2013), The Effect of Social and Demographic Factors on Life Insurance Demand in Croatia, International Journal of Business and Social Science Vol. 4 No. 9; August

10 6. Outreville, J. F., (1996). Life Insurance Markets in Developing Countries, Journal of Risk and Insurance, 63, 2, Truett, D. B. &Truett, L. J. (1990). The Demand for Life Insurance in Mexico and the United States: A Comparative Study, Journal of Risk and Insurance, 57, 2, Wakker, P., Thaler, R., Tversky, A. (1997): Probabilistic Insurance, Journal of Risk and Uncertainty, 15: Zimmer, A., Schade, C., Gründl, H. (2009): Is Default Risk Acceptable when Purchasing Insurance? Experimental Evidence for Different Probability Representations, Reasons for Default, and Framings, Journal of Economic Psychology, 30: Hsee, C., Kunreuther, H., (2000): The Affection Effect in Insurance Decisions, Journal of Risk and Uncertainty, 20: en.wikipedia.org/wiki/descriptive_research 35