Demand for Life Insurance in Malaysia: An Ethnic Comparison Using Household Expenditure Survey Data

Andrew K. G. Tan; Steven T. Yen; Abdul Rahman Hasan; Kamarudin Muhamed

doi:10.1515/apjri-2013-0007

Article

Demand for Life Insurance in Malaysia: An Ethnic Comparison Using Household Expenditure Survey Data

Andrew K. G. Tan , Steven T. Yen , Abdul Rahman Hasan and Kamarudin Muhamed

Published/Copyright: March 11, 2014

Published by

Become an author with De Gruyter Brill

Submit Manuscript Author Information Explore this Subject

From the journal Asia-Pacific Journal of Risk and Insurance Volume 8 Issue 2

Abstract

This study examines the socio-demographic determinants of household expenditures on life insurance in Malaysia. Cragg’s two-part regression model is applied to data of 20,313 sample households from the 2009–2010 Malaysian Household Expenditure Survey to examine the determinants of purchase decisions and expenditure level for life insurance. Results of marginal effects, segmented by ethnicity, suggest that while socio-demographic factors are important determinants of life insurance demand, the effects vary across ethnic groups in Malaysia. For instance, wealth and education levels are associated with purchase likelihoods and amount of life insurance premiums purchased across ethnic groups. However, household size, regional location, urbanicity, and occupation type are associated with life insurance demand within certain ethnic groups only. Based on these results, several observations are noted vis-à-vis the life insurance market in Malaysia.

Keywords: ethnicity; expenditures; Malaysia; life insurance; two-part model

Acknowledgement

Research support from the Universiti Sains Malaysia Research University (RU) grant (Grant No. 1001/PSOSIAL/816238) is acknowledged.

References

Ahmad, W. M. A. W., M. A. A.Nawi, and N. A.Aleng. 2013. “Relative Efficiency Analysis Industry of Life and General Insurance in Malaysia.” Applied Mathematical Sciences7(23):1107–18.10.12988/ams.2013.13100Search in Google Scholar

Arun, T., M.Bendig, and S.Arun. 2012. “Bequest Motives and Determinants of Micro Life Insurance in Sri Lanka.” World Development40(8):1700–11.10.1016/j.worlddev.2012.04.010Search in Google Scholar

Baek, E., and S. A.DeVaney. 2005. “Human Capital, Bequest Motives, Risk and the Purchase of Life Insurance.” Journal of Personal Finance4(2):62–84.Search in Google Scholar

Bank Negara Malaysia. 2013. “Bank Negara Malaysia Insurance Annual Reports.” Bank Negara Malaysia, Kuala Lumpur, Malaysia. [WWW document]. Accessed February 18, 2014. http://www.bnm.gov.my/index.php?ch=statistic&pg=stats_insurance&ac=93&yr=2010& eId=box2Search in Google Scholar

Beck, T., and I.Webb. 2003. “Economic, Demographic and Institutional Determinants of Life Insurance Consumption across Countries.” World Bank Economic Review17(1):51–88.10.1093/wber/lhg011Search in Google Scholar

Bernheim, B. D. 1991. “How Strong Are Bequest Motives? Evidence Based on Estimate of the Demand for Life Insurance and Annuities.” Journal of Political Economy99(5):899–927.10.1086/261783Search in Google Scholar

Browne, M. J., and K.Kim. 1993. “An International Analysis of Life Insurance Demand.” Journal of Risk and Insurance60(4):616–34.10.2307/253382Search in Google Scholar

Burnett, J. J., and B. A.Palmer. 1984. “Examining Life Insurance Ownership through Demographic and Psychographic Characteristics.” Journal of Risk and Insurance51(3):453–67.10.2307/252479Search in Google Scholar

Chen, R., K. A.Wong, and H. C.Lee. 2001. “Age, Period, and Cohort Effects on Life Insurance Purchases in the U.S.” Journal of Risk and Insurance68(2):303–28.10.2307/2678104Search in Google Scholar

Ching, K. S., M.Kogid, and F.Furuoka. 2010. “Causal Relation between Life Insurance Funds and Economic Growth: Evidence from Malaysia.” ASEAN Economic Bulletin27(2):185–99.10.1355/ae27-2cSearch in Google Scholar

Cohen, M. C., and J.Sebstad. 2006. “The Demand for Microinsurance.” In Protecting the Poor: A Microinsurance Compendium – Volume 1, edited by C.Churchill. Geneva, Switzerland: International Labor Organization.10.5848/ILO.978-9-221192-54-1_4Search in Google Scholar

Coolen-Maturi, T. 2013. “Islamic Insurance (Takaful): Demand and Supply in the UK.” International Journal of Islamic and Middle Eastern Finance and Management6(2):87–104.10.1108/17538391311329806Search in Google Scholar

Cragg, J. G. 1971. “Some Statistical Models for Limited Dependent Variables with Applications to the Demand for Durable Goods.” Econometrica39(5):829–44.10.2307/1909582Search in Google Scholar

Department of Statistics Malaysia. 2008. “Social Statistics Bulletin Malaysia.” Department of Statistics Malaysia, Putrajaya, Malaysia.Search in Google Scholar

Department of Statistics Malaysia. 2011. “Report on the Household Expenditure Survey 2009/10.” Department of Statistics Malaysia, Putrajaya, Malaysia.Search in Google Scholar

Dhesi, D. 2011. “Boost for Insurance Sector: Growth to Come from Government Initiatives and Low Interest Rate Environment.” The Star Newspaper, 15 March 2011.Search in Google Scholar

Ferber, R., and L. C.Lee. 1980. “Acquisition and Accumulation of Life Insurance in Early Married Life.” Journal of Risk and Insurance47(4):713–34.10.2307/252292Search in Google Scholar

Frees, E. W., and Y.Sun. 2010. “Household Life Insurance Demand: A Multivariate Two-Part Model.” North American Actuarial Journal14(3):338–54.10.1080/10920277.2010.10597595Search in Google Scholar

Gandolfi, A., and L.Miners. 1996. “Gender-Based Differences in Life Insurance Ownership.” Journal of Risk and Insurance63(4):683–93.10.2307/253478Search in Google Scholar

Goldsmith, A. 1983. “Household Life Cycle Protection: Human Capital versus Life Insurance.” Journal of Risk and Insurance50(3):473–86.10.2307/252438Search in Google Scholar

Gutter, M. S., and C. B.Hatcher. 2008. “Racial Differences in the Demand for Life Insurance.” Journal of Risk and Insurance75(3):677–89.10.1111/j.1539-6975.2008.00279.xSearch in Google Scholar

Haiss, P., and K.Sümegi. 2008. “The Relationship between Insurance and Economic Growth in Europe: A Theoretical and Empirical Analysis.” Empirica35(4):405–31.10.1007/s10663-008-9075-2Search in Google Scholar

Heckman, J. J. 1979. “Sample Selection Bias as a Specification Error.” Econometrica47(1):153–61.10.2307/1912352Search in Google Scholar

Hwang, T., and S.Gao. 2003. “The Determinants of the Demand for Life Insurance in an Emerging Economy – The Case of China.” Managerial Finance29(5/6):82–96.10.1108/03074350310768779Search in Google Scholar

Hwang, T., and B.Greenford. 2005. “A Cross-Section Analysis of the Determinants of Life Insurance Consumption in Mainland China, Hong Kong, and Taiwan.” Risk Management and Insurance Review8(1):103–25.10.1111/j.1540-6296.2005.00051.xSearch in Google Scholar

Insurance Regulatory and Development Authority. 2013. “International Comparison of Insurance Density: Annex 4.” [WWW document]. Accessed February 18, 2014. http://www.irda.gov.in/ADMINCMS/cms/Uploadedfiles/Table_D.pdfSearch in Google Scholar

Jamil, A. 2013. “Strong Growth Predicted for Malaysia’s Takaful Sector.” [WWW document]. Accessed February 18, 2014. http://www.freemalaysiatoday.com/category/business/2013/01/07/strong-growth-predicted-for-malaysia%E2%80%99s-takaful-sector/Search in Google Scholar

Lee, S. J., S. I.Kwon, and S. Y.Chung. 2010. “Determinants of Household Demand for Insurance: The Case of Korea.” The Geneva Papers35:S82–S91.10.1057/gpp.2010.29Search in Google Scholar

Levin, C., M.Ruel, and C.Ahiadeke. 1999. “Working Women in an Urban Setting: Traders, Vendors, and Food Security.” World Development27(11):1977–91.10.1016/S0305-750X(99)00096-0Search in Google Scholar

Li, M. 2008. “Factors Influencing Households’ Demand for Life Insurance.” Master’s Thesis, Universiti of Missouri-Columbia, USA.Search in Google Scholar

Li, R. M., L.Duberstein-Lindberg, and H. S.Lin. 1996. “An Exploration of Life Insurance among the Elderly in Taiwan.” Journal of Cross-Cultural Gerontology11(1):81–108.10.1007/BF00116266Search in Google Scholar

Li, D., F.Moshirian, P.Nguyen, and T.Wee. 2007. “The Demand for Life Insurance in OECD Countries.” Journal of Risk and Insurance74(3):637–52.10.1111/j.1539-6975.2007.00228.xSearch in Google Scholar

Liebenberg, A. P., J. M.Carson, and R. E.Dumm. 2012. “A Dynamic Analysis of the Demand for Life Insurance.” Journal of Risk and Insurance79(3):619–44.10.1111/j.1539-6975.2011.01454.xSearch in Google Scholar

Lim, C. C., and S.Haberman. 2003. “Macroeconomic Variables and the Demand for Life Insurance in Malaysia.” CASS Business School Working Paper, City University London. [WWW document]. Accessed February 18, 2014. http://www.cass.city.ac.uk/__data/assets/pdf_file/0010/65278/LimHaberman29August.pdfSearch in Google Scholar

Lin, T. F., and P.Schmidt. 1984. “A Test of the Tobit Specification against an Alternative Suggested by Cragg.” Review of Economics and Statistics66(1):174–77.10.2307/1924712Search in Google Scholar

Liu, T. C., and C. S.Chen. 2002. “An Analysis of Private Health Insurance Purchasing Decisions with National Health Insurance in Taiwan.” Social Science & Medicine55(5):755–74.10.1016/S0277-9536(01)00201-5Search in Google Scholar

Newhouse, J., C. E.Phelps, and M. S.Marquis. 1980. “On Having Your Cake and Eating It Too: Econometric Problems in Estimating the Demand for Health Services.” Journal of Econometrics13(3):365–90.10.1016/0304-4076(80)90085-8Search in Google Scholar

Outreville, J. F. 1996. “Life Insurance Markets in Developing Countries.” The Journal of Risk and Insurance63(2):263–78.10.2307/253745Search in Google Scholar

PEMANDU (Performance Management & Delivery Unit). 2013. “ETP Handbook: Chapter 7–Financial Services.” Economic Transformation Programme. [WWW document]. Accessed February 18, 2014. http://etp.pemandu.gov.my/Download_Centre-@-Download_Centre.aspxSearch in Google Scholar

Saad, N. M., and N. E. H.Idris. 2011. “Efficiency of Life Insurance Companies in Malaysia and Brunei: A Comparative Analysis.” International Journal of Humanities and Social Science1(3):111–22.Search in Google Scholar

Schlag, C. H. 2003. “Determinants of Demand for Life Insurance Products – Theoretical Concepts and Empirical Evidence.” Working Paper, Swiss Re Economic Research & Consulting, Geneva, Switzerland.Search in Google Scholar

Sherif, M., and N. A.Shaairi. 2013. “Determinants of Demand on Family Takaful in Malaysia.” Journal of Islamic Accounting and Business Research4(1):26–50.10.1108/17590811311314276Search in Google Scholar

Showers, V. E., and J. A.Shotick. 1994. “The Effects of Household Characteristics on Demand for Insurance: A Tobit Analysis.” Journal of Risk and Insurance61(3):492–502.10.2307/253572Search in Google Scholar

Spanos, A. 1999. Probability Theory and Statistical Inference: Econometric Modeling with Observational Data. Cambridge: Cambridge University Press.Search in Google Scholar

Suu, M. L. 2007. “A Study on Factors That Influence Consumers’ Purchasing Pattern and Decision Making on Life Insurance Product in Malaysia.” Master’s Thesis, Multimedia University, Malaysia.Search in Google Scholar

Swiss Re. 2010. “Sigma No. 2/2010: World Insurance in 2009.” Swiss Reinsurance Company Ltd., Economic Research & Consulting, Zurich, Switzerland. [WWW document]. Accessed February 18, 2014. http://media.swissre.com/documents/sigma2_2010_en.pdfSearch in Google Scholar

Tan, H. B., M. F.Wong, and S. H.Law. 2009. “The Effect of Consumer Factors and Firm Efficiency on Malaysian Life Insurance Expenditure.” International Journal of Business and Society10(1):59–73.Search in Google Scholar

Tobin, J. 1958. “Estimation of Relationships for Limited Dependent Variables.” Econometrica26(1):24–36.10.2307/1907382Search in Google Scholar

Vitaliano, D. F. 2010. “Engel Curves and the Unitary Theory of the Household.” International Journal of Consumer Studies34(1):69–72.10.1111/j.1470-6431.2009.00796.xSearch in Google Scholar

Ward, D., and R.Zurbruegg. 2002. “Law, Politics and Life Insurance Consumption in Asia.” The Geneva Papers on Risk and Insurance – Issues and Practice27(3):395–412.10.1111/1468-0440.00181Search in Google Scholar

Zelizer, V. R. 1979. Morals and Markets: The Development of Life Insurance in the United States. New York: Columbia University Press.10.7312/zeli92046Search in Google Scholar

Zhang, J., S.Gao, and S. Y.Gao. 2003. “Financing Long-Term Care: A Challenge to China’s Social Welfare Reform.” In Sustaining China’s Economic Development into the 21st Century, edited by X.Liu and S.Yao. New York: Routledge Curzon Press.Search in Google Scholar

1
Specifically, the EIS is expected to spur growth in the insurance sector by providing basic low-premium term life insurance with optional critical illness and hospitalization benefit coverages. This also serves as a safety net for the lower income group, whilst transforming Malaysia into a more adequately insured nation. The 1MMPP is a micro-insurance scheme with low monthly premiums to offer basic protection against death and disability and provide hospital income. The FWHIS serves as a compulsory medical/health insurance plan for the 3.1 million foreign work force involved in the building up of the nation’s infrastructure (PEMANDU 2013). Other measures aimed at boosting the Malaysian insurance industry include structural reforms to liberalize and develop the industry, improved efficiencies in the insurance eco-system and strengthened frameworks for consumer protection (Dhesi 2011).
2
US$1.00 = RM3.04 (approximately as of 13 April 2013).
3
Cragg (1971) also suggested a truncated normal distribution for vi, which was rejected by our data. Our attempt to estimate the model with such alternative error distribution was unsuccessful.
4
There are also 6% Malaysians of other ethnic backgrounds (e.g. Kadazan, Iban, Murut, Dayak) but the current study focuses only on the three major ethnic groups in Malaysia.
5
Separate probit estimation with the whole sample and OLS estimation with the truncated sample, as noted above, produced identical results.

Published Online: 2014-3-11

Published in Print: 2014-7-1

You are currently not able to access this content.

Articles in the same Issue

https://doi.org/10.1515/apjri-2013-0007

Keywords for this article

ethnicity; expenditures; Malaysia; life insurance; two-part model