NEW GLOBAL

VISION COLLAGE
MASTERS OF BUSINESS ADMINSTRATION (MBA)

INVESTIGATING FACTORS INFLUENCING ATTITUDE OF LIFE

INSURANCE CUSTOMERS: The CASE OF NYALA INSURANCE S.C

RESEARCH PROPOSAL

Name:Gulilat Tesfaye

Id number: 091/2012

Submitted to: Dr.Dejene

December 2020

NGVC

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 Chapter one
1. Introduction
1.1 Back ground of the study
Ever since the human race came to this planet, its livelihood has been surrounded by diverse risks ranging
from those that are controllable to those that are uncontrollable. The term “risk” is generally associated
with unforeseen incidents that leads to undesirable outcome .It denotes something unpleasant and harmful.
The fact is that risk becomes part of our– to – day life. Each of us is faced with the possibility of sustaining
an undesirable incident on any given day .The undesirable incident could lead to a loss –financial or non-
financial. To protect individuals against possible economic loss, the Concept of Insurance came into the
picture (Hailu Zeleke, 2007).
Risk is unavoidable and present in every human situation. It is present in daily lives, public and private
sector organizations. The risks, which our ancestors faced, living in their relatively simple societies, were
basic in nature and required commensurately simple method of management. By comparison, today’s
societies having been transformed by enormous changes, are full of more complex risks and hazards that
call for more sophisticated and scientific systems of risk management. Most widely used method of dealing
with risk is through insurance. The main business of insurance companies is risk mobilization of
individuals and companies based on the system of pooling and diversification. It also strengthens the
linkages with other sectors of the economy promoting growth and stability, and creating a sizeable impact
on the national income of the country (Simpson ,S.N.Y and Damoah, O.B.O, 2008).
Insurance activity is characterized by the reversal of the production cycle because premiums are collected
when the contract is signed and claims and costs arise only if specific event occurs (Simpson ,S.N.Y and
Damoah, O.B.O, 2008).Insurance market activity, both as a financial intermediary and as a provider of risk
transfer and indemnification, promotes economic growth by allowing different risks to be managed more
efficiently. This activity would encourage the accumulation of new capital and mobilize domestic savings
into productive investments. Arena (2008), found that a robust causal relationship exists between insurance
market activities and economic growth. Insurance activity may contribute to economic growth by
improving the financial system functions, both as a provider of risk transfer and indemnification and as an
institutional investor, in the following ways: (i).Promoting financial stability, (ii).Facilitating trade and
commerce (the most ancient insurance activity), (iii).Allowing different risks to be managed more
efficiently by encouraging the accumulation of new capital, (iv).Mobilizing domestic savings, (v).
Fostering a more efficient allocation of domestic capital, and (vi). Helping to reduce or mitigate losses
(Skipper, 1997).
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The emergence of insurance business in Ethiopia was closely linked to expatriates & foreign insurance
companies operating in Ethiopia participated actively in the establishment of the first domestic insurance
company, i.e. Imperial insurance company established in 1951. The emergence of modern insurance in
Ethiopia is traced back to the bank of Abyssinia which was established in 1905 as the first Ethiopian bank.
The bank had been acting as an agent for a foreign insurance company to underwrite marine and fire
insurance policies. Insurance companies provide two types of cover mainly: general insurance (Non-life)
and long term insurance (life) covers.
In Ethiopia currently 17 insurance companies are operational including the stated privately owned Nyala
insurance company S.C after acquiring license from the national bank of Ethiopia to offer insurance service
as per the insurance Business proclamation No.86/1994.Nyala insurance s.c have a vital role in offering
insurance products which meet the requirements of the people at an affordable price. Some of the
challenges faced by the insurance sector pertain to the low demand conditions, increased competition in the
sector, consolidation, solvency risk, low product innovations and use of technology, and poor delivery of
service (Hailu, 2007).
1.2 statement of the problem
Till the beginning of the 1950s, there was no locally incorporated insurance company in Ethiopia The
first insurance company known as the imperial insurance company ,was formed in
1951.Between 1951 and1970 there had been a number of agencies representing foreign companies and
some local companies were also registered and started competing with the foreign company which was
writing life as well as non-life business. Among the Twenty Agencies representing foreign
companies, ten of them had been writing life Insurance as well. (Hailu Zeleke, 2007)
Due to social, demographic and economic changes, the world life insurance sector has witnessed
substantial growth in recent years. The share of life insurance premiums has increased lately. While life
insurance premiums for European countries are 300 billion euro in 1995, it is almost 650 billion euro in
2006. Life insurance and non-life insurance premiums are about equal in 1995. Until 2006, it is observed
that life insurance premiums grow much more than non-life insurance premiums (SibelÇelik, Mustafa
MesutKayali, 2009).
Insurance sector have very important role for economic development not only at a macro level but also in
terms of the activities of individuals and businesses. So assessing the various factors affecting the attitude
of individuals towards of life insurance of Nyala insurance S.C helps to identify the factors and to see what
the company should do to overcome the factors

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Therefore, this study will assess the demographic, organizational and also socio- cultural effects towards of
life insurance in Nyala insurance S.C.
1.3 Research questions
This study will provide answers to the following questions:-
 What are the demographic factors on the attitude of customers towards life insurance in Nyala
Insurance?
 What are the organizational factors on the attitude of customers towards life insurance in
Nyala Insurance?
 What are the socio-cultural factors on the attitude of customers towards life insurance in
Nyala Insurance?
 What is the overall attitude of customers towards life insurance in Nyala insurance?

1.4 objective of the study

General Objective
The aim of this paper will to investigate the various factors affecting the attitude of individuals to
wards of life insurance policy of Nyala insurance S.C.

Specific Objectives
 To analyze demographic factors affecting life insurance in Nyala Insurance s.c
 To analyze organizational factors affecting life insurance in Nyala Insurance s.c
 To analyze socio-cultural factors affecting life insurance in Nyala insurance s,.c
 To analyze over all altitude towards life insurance in Nyala insurance s,.c

1.5 significance of the study

Moreover, after finalization of the paper, many parties will have benefit from the results of the study.
Among them are the following:
Management: managers, mainly will check its customer’s attitude in relation to demographic,
organizational and socio cultural effects on the life insurance sectors and also the overall
attitude towards life insurance in order to see possible alternatives that require the right decision
at the right time by the right person that enable them to frame business strategies.
Researchers: other researchers who have an interest in the area may use this paper to fill the
gap that they may observe. That means they could use this paper to investigate further issues in
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 the subject area or to investigate facts to establish, or further revise a theory. Researchers may
again adopt this research outcome to build a plan of action based on the facts discovered. In
general, the research contributes that it can potentially serve as a stepping-stone for further
research in the area.
Government: this paper will benefit in identifying the demographic, organizational and socio
cultural effect in the life insurance sectors. Because of this, the outcome of the research is also
expected to serve the government in the licensing and supervision of insurance industries in life
insurance sector.
1.6 scope of the study
The scope of this study will limit geographically in Addis Ababa, the largest life insurance sales outlet
in the country, because is believed to represent the different scenario prevailing in Ethiopia, also the
residence for diverse ethnic groups with different cultural values and different religions. It is also the
home for people with different living standard ranging from the destitute to the highly affluent, and it
will select only one insurance company, and also limited only on the life insurance sector as well the
researcher uses life & health insurance branch of Nyala Insurance to access the factors.

1.7 organization of the paper

This study will consist five chapters organized as follow:

Chapter 1: Introduction, it is the first chapter which will illustrated the background to the research,
statement of the problem, general and specific objectives of the study, research questions, significances
of the study finally scope of the study and limitation .

Chapter 2: Literature Review, which will provide information on the literatures which related to the
research title.

Chapter 3: Research Methodology, which will provide the details of research methodology design, and
clear idea about data collection of the study and sampling process.

Chapter 4: Data analysis, Result and Discussion, which will shows the result of the analysis of the data
collected through the surveys, and also the analysis of the data and interpretation of the findings to test
the hypotheses.

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Chapter 5: Finding, Conclusion and Recommendation will provide. The conclusions for the findings of
this research, based on the research questions and hypotheses and lastly, the recommendations for
further research will provide.

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 Chapter two

2. Literature review

2.1 Introduction
This chapter contains different empirical and theoretical literatures on consumers’ attitudes towards
patronage of life insurance policy. The review focuses on factors that affect consumers’ attitudes
towards companies' products; next these factors have been discussed in detail, then it proceeded to
discuss the factors contributing to the abysmal consumption of life insurance in the world including
Ethiopia.
2.2. Definition and Nature of Insurance
The concept of insurance is complicated by its many possible meanings and definitions, However,
scholars and writers have given various definitions of insurance from different perspectives such as
economic, social, legal, etc. insurance is considered a system under which the insurer (insurance
company), for a consideration (premium) usually agreed upon in advance, promises to reimburse the
insured (client) or to render services to the insured (client) in the event that certain accidental
occurrences result in losses during a given period (Encyclopedia, 2004,). It provides indemnification
against loss or liability from specified events and circumstances that may occur or be discovered during
a specified period.
Pfeffer (1956) as cited in Hailu Zelke (2007) provides the following definition of insurance:
“Insurance is a device for the reduction of the uncertainty of one party called the insured, through the
transfer of particular risk to another party, called the insurer, who offers a restoration, at least in part ,
of economic losses suffered by the insured ”. Pritchett, et al (1996) defined insurance as a social
device, in which a group of individuals called “insured’s” transfer risk to another party called the “
insurers “ in order to combine loss experiences , which permits statistical prediction of losses and
provides for payments of losses from fund contributed ( premiums ) by all members who transferred
risks.

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These definition presents fundamental nature of insurance that there are at least two parties in an
insurance contract; the insured (beneficiary) and insurer; there is transfer of risk from one party
(insured) to another party (insurer); the payment of price (premium) is mandatory by the insured for the
transfer of risk; and the insurer, on its part pays a sum of money to the insured in the event of
occurrence of risk and creates a loss to the insured. Thus, while payment by the insurer is conditional,
the insured is reducing its uncertainty concerning the financial consequences of the risk transferred
through scarification of a small certain loss (the premium). Therefore, from the viewpoint of the
insured, insurance can be visualized as a mechanism of substituting “uncertainty” with “certainty”.

Insurance is a financial arrangement that redistributes the costs of unexpected losses. Insurance involves
the transfer of potential losses to an insurance pool. The pool combines all the potential losses and then
transfers the cost of the predicted losses back to those exposed. Thus, insurance involves the transfer of
loss exposures to an insurance pool and the redistribution of losses among the members of the pool.
Certainty of financial payments from a pool with adequate resources and accurate predictability of losses
are the hall-marks of insurance transaction (Mark S. Dorfman 2005).
2.3 Importance of insurance

Insurance, like most institution presents society with various benefits. Peace of mind, indemnification,
keeps families and business together, provides a basis for credit, and provides investment capital are
the most important general benefits of insurance. (Dickson W. M. G, 1999)

Peace of mind: Almost everyone has a basic desire for some security or peace of mind. To the extent
that insurance provides certainty or predictability, it helps an individual or business improving
efficiency of actions by reducing anxiety.

Indemnification: The direct advantage of insurance is indemnification for unexpected loss, which
means, putting one to the same position he/she was before the unfortunate events occurred.

Provides abases for credit: One may find it impossible to visualize the credit economy of today
without insurance. For instance, fire insurance is invariably used by mortgages who loan money with
real or personal property as collateral. Banks wouldn’t dare to grant any loans without making sure
there is some institution or someone that will pay them their money if the unfortunate happens to the
collateral they hold against the credit granted.

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Provides investment capital: Insurance premiums are paid in advance of losses which are held by
insurers until the time of claim payment, which allows insurers to investit.

For Economic Growth: As Ansari (2011) referred Skipper (1997) Insurance activity may contribute to
economic growth by improving the financial system functions, both as a provider of risk transfer and
indemnification and as institutional investor, in the following ways:
 Promoting financial stability,

 Minimize the risk of trading and investment

 Facilitating trade and commerce,

 Mobilize domestic savings,

 Allowing different risks to be managed more efficiently by encouraging the accumulation of

new capital,

 Fostering more efficient allocation of domestic capital, and

 Helping to reduce or mitigate losses.

2.4. Definition and Concepts of Life Insurance

Life insurance undertakes to protect the insured’s family, creditors, or others against financial loss
growing out of the death of the insured. The contract embodies an agreement in which the insurer
undertakes to pay a stipulated sum upon the death of the insured, or at some designated beneficiary.
Legal status was given long ago to the definition which indicates the life insurance agreement to be: “a
contract by which the insurer, for a certain sum of money or premium proportioned to the age, health,
profession, and other circumstances of the person whose life is insured engages that, if such person
shall die within the period limited in the policy, the insurer will pay the sum specified in the policy,
according to the terms thereof, to the person in whose favor such policy is granted” (John H.Magee
and David L.Bickelhaupt, 1964).
The above definition entails that like the general insurance, life insurance policy, has a contractual
nature, in addition the policy provides methods for payment of the proceeds in installments or in some
manner other than a lump sum; the choice is made by the insured, or by the beneficiary, if the insured
has not made a choice. As a social and economic device life insurance is a method by which a group of
people may cooperate to ameliorate the loss resulting from the premature death of members of the

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group. The insuring organization collects contributions from each member, invests these contributions,
guarantees both their safety and a minimum interest return, and distributes benefits to the estates of the
members who die (Teklegiorgis Assefa , 2004).
From the above definition, for many people, the risk management tool that is most appropriate for
dealing with the exposure of premature death is life insurance .There are many different types of life
insurance, but the standard arrangement is contract specifying that upon the death of the person whose
life is insured, a stated sum of money (the policy’s face amount) is paid to the person designated in the
policy as the beneficiary.
2.5. Types of life insurance
From a traditional or historical perspective, life insurance can be classified in to three categories:
Term life insurance, Whole life, and Endowment life insurance policy. However, today numerous
variations and combinations of these basic types of life insurance are available.
A. Term life insurance
According to Mark S. Dorfman (2005) when a life insurer sells a term life insurance policy, it
promises to pay the beneficiary if the insured dies within a specified period. If the insured outlives the
period, the insurer makes no payment. Thus, Term life insurance has several basic characteristics. First,
it provides protection for a temporary period, such as one, five, and ten or twenty years unless the
policy is renewed, the protection expires at the end of the period.
Most term insurance policies are renewable, which means the policy can be renewed for additional
periods without evidence of insurability. The premium is increased at each renewal and is based on the
insured’s attained age .The purpose of the renewal provision is to protect the insurability of the insured.
However, this results in adverse selection against the insurer. Since premiums increase with age,
insured’s with a good health tend to drop their insurance, while those with in poor health will continue
to renew, regardless of the premium increase.
Therefore, to minimize the adverse selection, many insurers have an age limitation beyond which
renewal is not allowed such as age 70 or 80 most of the time and others still to an age of Term life
insurance is similar to property insurance because if there is no loss to a home or automobile while the
policy is in force, the insurer makes no payment. Moreover, like property insurance policies, term
insurance does not build savings or cash value, as do other types of life insurance. Thus, term insurance
is often spoken of as providing” pure death protection”.

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Term life insurance is a relatively simple type of insurance, and in part for this reason, it has been
among the first insurance products successfully sold on the internet market. However insurers sell
several types of term life insurance policies including decreasing term, increasing term, level term,
renewable term or convertible term. Term life insurance can prove useful in solving many financial
problems. Usually it can be used when the need for life insurance is temporary. It is also useful when
people need the maximum coverage and have limited financial resources as well as the price of term
insurance is attractive to many people. In the event of premature death, the education fund need can be
met by a level term policy. On the other hand, people often use term life insurance to repay debts as the
need for term life insurance is temporary and most debts are temporary. In same manner some or all the
need for the income to support dependents can be met by term insurance. The need for funds to support
dependent children is temporary until once the children become financially independent, the need for
funds to support those ends. However, if a child or a spouse is likely to be a permanent dependent,
perhaps because of a physical problem, then term life insurance is unlikely to be the best choice to fund
problems caused by a premature death (Mark S.Dorfman 2005).
At any age, term insurance premiums are lower than whole life insurance premiums. Therefore, term
insurance should be used when the need is for maximum life insurance protection especially if a
buyer’s life insurance income is limited. Term life insurance can be a valuable part of an individual’s
life insurance plans because these policies are flexible and initially have lower premiums than other
forms of life insurance. Term insurance cannot solve all life insurance problems; however, generally it
should not be used when the need for life insurance is permanent rather than temporary, as would be
the case with a burial fund. Nor can term insurance by itself provide a regular forced saving plan,
therefore, insuring permanent needs while accumulating savings requires a whole life insurance plan.
B. Whole life insurance
As distinguished from term insurance, which provides short term protection, whole life insurance is a
policy that provides life time protection. Whole life insurance policies promise to pay the beneficiary
whenever death occurs and that is why mostly “till death do us part” is the insurer’s promise (Mark
S.Dorfman 2005).
Moreover, Whole life policies also promise payment if the insured reaches age 100. When insurers
make a claim payment, they say the policy has matured. The insurer knows for a certainty it must
eventually pay a claim on every whole life insurance policy remaining in force (Ibid).
Therefore, whole life insurance in its saving value with its high premium is the basis of several
important contractual rights for the insured. That is for instance, policy owners (insured’s) can
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withdraw all their cash value at once if they want to end the policy or they can use the cash value to
purchase an annuity at older ages when they need retirement income. More over still owners of whole
life insurance can borrow some or all of the cash from the insurer at any time as whole life insurance
combines both savings and life insurance protection.
C. Endowment life insurance
Another kind of life insurance policy is an Endowment policy, which pays the face amount of
insurance if the insured dies within a specified period; if the insured survives to the end of the
endowment period, the face amount is paid to the policy owner at that time (Teklegiorgis
Assefa2004).

From the above definition it is possible to see that Endowment contracts provide death benefits for a
specified period of time, just as a term insurance does. However, unlike term insurance, endowment
insurance has a cash value, and the policy owner is paid the contract’s face amount at the end of the
protection period if the insured is still alive. Thus, Endowment insurance may be a useful way for
some persons to accumulate a specified sum over a stated period of time whether they live or die but
most importantly the objective is to pay expenses during retirement, or to retire a debt. In general
according to the purpose and need of the writer, life insurance, can have different meanings, names of
classifications which may not be included in the above list but whatever the name and classification
they are given they all serve common goal that is protection of financial loss at the time of the
insured’s premature death or illness. For instance, the “annuity “type of life insurance is a newly type
which furnishes income protection during a period of old age when productive powers have a
diminished or disappeared.

2.6. Unique principles of Life Insurance Policy

The essential difference between life insurance and other forms of insurance designed solely to
assume the burden of an uncertain peril is that life insurance has, in addition to the function of
protecting against uncertainty , the function of accumulation. That is a considerable part of the
premiums paid for life insurance represents a contribution on the part of the insured to a fund
for investment to be administered by the insurer (John H.Magee and David L.Bickelhaupt,
1964

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A. Not a Contract of Indemnity
While the idea of indemnity is emphasized in writing life insurance, strictly speaking on cannot say
that the contract is one of indemnity (ibid). In buying life insurance an insured undertakes to
compensate his estate, dependents, or others to whom he is obliged for the loss occasioned in the
event of his untimely death. The life insurance contract, therefore, provides for the payment of a
definite sum regardless of whether the death of the insured is the occasion of a pecuniary loss to the
beneficiary. In fact, quite the contrary may be the case without providing reasons for denying
liability on the policy or settling a claim for an amount less than the policy face.

Thus, in its essence the contract of life insurance is an undertaking to pay a certain sum of money on
the death of the insured person, without regard to monetary loss. That is why life insurance has been
held as “in no way resembling as a contract of indemnity”.

B. Unique risk
The life insurance policy is a contract of insurance in part only because in other insurance contracts
the insurer, for an agreed consideration or premium, undertakes to indemnify the insured against loss
or damaged caused by the perils indicated in the policy. In all forms of insurance except life
insurance, the happening of unfavorable contingency which gives rise to the loss is uncertain. In life
insurance the contingency insured against is death which is universal and certain. Here the
uncertainty is the time of its coming because the happening of contingency insured against is certain.
Thus, life insurance policies unless written only for a term, provide for certain payment and the
uncertain element is the time when such payment must be made.

C. Additional benefits
According to John H.Magee and David L.Bickelhaupt (1960) although the basic use of life insurance
is the protection of life values, life insurance contracts are so carefully drawn that they have found
additional uses. Particularly they are used holding and accumulating assets and they may also be used
as a means for transferring ownership. Therefore, life insurance has primary function and secondary
use; however, in many instances the secondary uses supplement and merge with the primary use and
there is no conflict between the secondary uses and the primary function.

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2.7. Theoretical Framework.
Marketing is the management process responsible for identifying, anticipating and satisfying
customer requirements profitably ( Chartered Institute of Marketing,2000).Marketing can also be
defined as the process of planning and executing the conception, pricing, promotion, and distribution
of ideas, goods, and services to create exchanges that satisfy individual and organizations’
objectives. In our Context, Insurance services/products are categorized as unsought service/products;
unsought products are consumer goods that the consumer either does not know about or knows about
but does not normally think of buying. Most major new innovations are unsought until the consumer
becomes aware of them through advertising. By their very nature, unsought goods require a lot of
advertising, personal selling and other marketing efforts (Kotler and Armstrong 2008).

Different literatures on insurance marketing dictate that there are several evidences of the inter-
connectedness between insurance and culture. If the business of insurance is to protect people
against the financial consequences of unforeseen risks, the marketing aspect of that business depends
on dramatizing the risk in the minds of potential customers. Culture can be defined as those customary
beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation
to generation. (Luigi Guiso, 2006)

(Andy Chui, 2008) probed into the ways in which cultural traits of a nation affects consumption
patterns of life insurance across countries. Life insurance is a service that is abstract, complex, and
focused on unsure future benefits. Because of the uncertainty and ambiguity inherent in the life
insurance product, consumers are more likely to respond according to their cultural prescriptions. Their
findings show that individualism indeed has a significant, positive effect on life insurance
consumption, whereas power distance and masculinity/femininity have significant negative effects.
2.8. Socio-culture School

(Max Weber, 1924) theorized that people’s attitude towards insurance is the outcome of social
action. The social action theory explains that human actions are meaningful and that certain reasons
push people into various kinds of actions. To Weber, there are three kinds of action: traditional
(based on customs and habits); affective (based on the emotional state of the individual at a
particular time); and rational (based on a clear awareness of a goal) (Mike Haralambos 2004 as cited
in Fatai Adesina Badru, 2013).This also implies that certain factors tend to influence one’s behavior
towards insurance. People’s preference for insurance might be due to intuitive or cultural reasons.

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On the other hand, people can rationally behave to have insurance policies for clearly economic
reasons.

These days it is high time to look at ones whole business (people, processes and products) and tailor
a solution to align systems, services and customer touch points, so that consumers’ experience of our
product and service is seamless and consistent across all channels. It is as much about developing
streamlined system processes as it is about integrated marketing communication channels strategy
and delivery. Therefore it necessitates adopting a strategy called Holistic Marketing. The description
of the main characteristics of five key elements of holistic marketing in the insurance industry being
relationship marketing, integrated marketing, internal marketing, social responsibility marketing and
international marketing (Eva-Cristina Petrescu 2009 as cited in Fatai Adesina Badru,2013).

The globalization of the insurance market is a fact that cannot be contested, and an international
approach to the marketing activity becomes more and more pressing. There are two approaches to
the international marketing activity in the insurance sector: multicultural marketing and global
marketing (Warren Keegan, 2008).The multicultural marketing accounts for differences in
consumers’ perception, attitudes and behavior in different cultural areas. This is because of the
increasingly sensitive consumer behavior which in turn has called for the advent of the so called
emotions marketing. Nowadays consumers are trying to build an identity through various
consumption activities, and consequently a consumer will choose the product / service / company
brand that has an image in accordance with the ideas the person holds about himself/herself. The
choice being indicative of the type of image the consumer desires. Multicultural marketing recognizes
that the cultural heritage is a decisive factor for the success or failure on international markets, and
insurance companies should try to adapt their activity specific consumer behavior
(StefanMueller,2004).

2.9. SOCIO–CULTURAL FACTORS.

Marketing can also be defined as a societal process by which individuals and groups obtain what
they need and want through creating, offering, and freely exchanging products and services of value
with others. Gaski and Etzel(1986) classified marketing activities as marketing mix tools of four
broad kinds which he called four Ps of marketing: viz.,product, price, place and promotion usually
applied to marketing of tangible goods. However to capture the distinctive nature of service
performances three more elements associated with service delivery are considered physical

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 environment, process, and people (Chopin and Darrat 2000). Thus, for effective marketing strategies
of services all the seven P’s (product, price, place, promotion, physical environment, process and
people) play an important role.

The following section discusses the existing related literature. Hussels S. (2005) identified the
determinants that encourage insurance demand as (i) economic, (ii) political/legal, and (iii) social
factors; he concluded that these factors affect the demand for insurance, life as well as property and
casualty.

2.10. ECONOMIC FACTORS

Relation between income and life insurance consumption has been confirmed by the cross country
studies of Beenstock et al. (1986), Truett and Truett (1990), Browne and Kim (1993), and
Outreville(1996). Beenstock et al. (1988), indicate that a positive relationship exists between
national income in industrialized countries and spending on property–liability insurance.

2.11. LEGAL AND POLITICAL FACTORS

La Porta et al. (1997, 2000) and Levine (1998, 1999) show that legal environments which provide
good investor protection tend to encourage a higher degree of financial intermediation as well as
economic growth. Levine et al. (2000) highlights that countries with better creditors’ rights, more
rigorous law enforcement and better accounting information tend to have more highly developed
financial intermediaries. This is particularly relevant to the insurance industry where consumers can
be at the risk of opportunistic behavior by insurance companies. For example, this could include
companies refusing to pay claims. Ward and Zurbruegg (2002) examined the impact of legal and
political determinants on life insurance consumption within Asia and OECD countries. They
highlighted that in Asia an improvement in the legal system has a significant and positive impact on
life insurance demand, with a 10% improvement in the functioning of the legal system generating
a5.5% increase in life insurance demand. An improvement in the legal system here would relate
to better enforcement and legal representation for individuals.

2.12. SOCIAL FACTORS

Insurance can also be seen as a product that is valued subjectively by its customer. In fact, Hofstede
(1995) points out that the level of insurance within an economy depends on the national culture and
the willingness of individuals to use insurance as a means of dealing with risk. Douglas and
Wildavsky(1982) show that the demand for life insurance in a country may be affected by the unique
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culture of the country to the extent that culture affects the degree of risk aversion. Using education
and the uncertainty avoidance index to approximate levels of risk aversion, Esho et al. (2004)
confirms that risk aversion has a significant impact on demand for property–casualty insurance.

Another social aspect analyzed by Zelizer (1979) is religion. He noted that historically religion has
provided a strong source of cultural opposition to life insurance with some religious groups believing
that a reliance on insurance represents a distrust of God’s protective care. In some Muslim
dominated countries, the religious beliefs inhibit those forms of insurance that facilitate speculation
of future events, thereby discouraging growth of the insurance sector. Wasaw and Hill (1986),
Browne and Kim (1993), Ward and Zurbruegg (2002) test whether countries with strong Islamic
background have reduced demand for life insurance consumption. Their result generally do confirm
that consumers in Islamic nations purchase less life insurance policies, which is reflected in the
below global average life insurance penetration in Muslim dominated countries, such as the United
Arab Emirates, Qatar, Kuwait and Saudi Arabia

The foregoing study highlighted the importance of the existence of a dynamic and well-functioning
insurance industry for the growth of an economy. The existing literature shows that the demand for
various types of insurance is affected by number of factors such as income and life insurance
consumption. There is a relation between national income and spending on property–liability
insurance, between legal environment and demand for insurance, national culture and the willingness
of individuals to use insurance. Besides, risk aversion has significant impact on the demand for
property and casualty insurance. Education promotes an understanding of risk and hence aids
insurance demand.

2.13. DEMOGRAPHIC FACTORS

The selling of insurance on a whim is rendering EIC not to be able to satisfy its customers
adequately; in fact the right Market segmenting strategy has not been practiced thus far in terms of
Demographic elements .Demographic segmentation consists of dividing the market into groups
based on variables such as age, gender, sexual orientation, family size, family life cycle, income,
occupation, education, religion, ethnic community and nationality (Kotler and Armstrong, 2005).
Demographic factors are the most popular bases for segmenting customer groups. One reason is that
consumer needs, wants and usage rates often vary closely with demographic variables. Analysis and
understanding of prospective buyers of life insurance according to their demographic characteristics in

17
specific geographical regions thus becomes important. This will enable the insurers to better prepare
their marketing strategies as per the requirements of the people in the region.

Burnett and Palmer (1984) in the study examined various demographic and psychographic
characteristics in terms of how well they relate to differing levels of life insurance ownership.
Owners of large amounts of life insurance are better educated, have larger families, have higher
incomes, are not opinion leader, are geographically stable, are greater risk takers, are not price
conscious, are not information seekers, are low in self-esteem, are not brand loyal and believe in
community involvement but they do not rely heavily on the government. They conducted extensive
research using Multiple Classification Analysis. Their study proved that demographic variables are
important predictor variables.

Truett and Truett (1990) showed that age, education, and level of income are factors that affect the
demand for life insurance, and that income elasticity of demand for life insurance is much higher in
Mexico than in the United States.

Shotick and Showers (1994) augment the empirical literature on insurance demand by examining the
impact of selected economic and social factors on the purchase of insurance. Although income and
number of earners are both positively related to the demand for insurance, the marginal effect from an
increase in income is greater for single earner households than for multi-earner households. Also, as
either family size or age increases, the marginal increase in insurance expenditure diminishes.
They examined that the size of the family and the number of earners in the household are positively

Relationship between demand for life insurance and age. There is an argument that customers from
different cultures may rely on different factors during the process of relationship development with
service providers (suh,et al.,2006).so given this ,cultural factors might have prompted Ethiopians into
exhibiting different reactions to insurance services. Atmand (2003) asserts that where people below
poverty line are high and per capita income is low, and then insurance penetration is bound to be
low .This suggests that there might be disparity between the common behavioral response to
insurance offerings and what prevails in the Ethiopian Business environment.ated with expenditures
on insurance premium. They also tested the curvilinear

18
2.14. ORGANIZATIONAL FACTORS
Service is an activity or series of activities of a more or less intangible nature than normal, but not
necessarily take place in the interaction between the customer and service employee and/or physical
resources or goods and/or system of service provider which are provided as a solution to customer's
problems Gronroos (2001).Now a day’s customer service has become a distinct component of both
product and service sectors and with the developments in information technology many businesses
find demanding and knowledgeable customers (Agar, 1980).Quality of services can make for the
difference between success and failure in both service and manufacturing organizations. Service
quality, customer satisfaction and customer value have become the main concern of both
manufacturing and service organizations in the increasingly stiff competition for customers in
today's customer-centered era (Wang et aI., 2004).Therefore, many organizations are paying
increasing attention to improve service quality. In some manufacturing industries "service quality" is
taken as a more important order winner than "product quality" (Ghobadianet al., 1994). Service
quality improvements will lead to customer satisfaction and cost management that result in improved
profits (Stevenson, 2002).Service sector firms these days are compelled by their nature to provide
excellent service in order to prosper in increasingly competitive domestic and global marketplaces
(Sultan and Simpson,2000). As service firms find themselves in an increasingly competitive and
complex business environment, they are bound to examine their service delivery processes
critically.Babbie (1992) in his study found out that Standards of service delivery among many
insurance companies are still low and the focus on the customer has not yet been embraced fully in the
industry as it has in the competing financial services. Customer satisfaction therefore has remained
low.

Another perception that emerged during a study by Blumler (1979) was that insurance agents are
thieves, liars, and conmen. All the insurance managers and agents interviewed acknowledged that they
had been confronted with such allegations. However, 47 percent of the general public respondents
held this opinion. Nonetheless, there was a marked relationship between this and the perception that
insurance sales agents sell policies before explaining adequately what the insured has paid for and
what to expect. That is to say, when an insurance agent does not understand the

products well, chances are that the prospect will either be sold a wrong product or may not be made
to understand what is expected of the policy.Severin and Tankard(1997) argues that some perceptions
are held because people are striving to maximize the rewards in their external
19
 Environments and minimize the penalties. The misconception is that once someone gets a cover, it
includes all risks and what one needs to do is walk into the insurers office with a claim and a cheque
will be issued right away. Those whohold this misconception, view insurance as a means of
maximizing benefits. Such people never expect any penalties to be associated with any cover and
may treat even premiums for personal accident cover as an investment and therefore make claims
even if the insured event fails to take place (Hessegrave,1991).

The right communication strategy would therefore be rendering product knowledge empowerment as
was recommended by the general public respondents in a study carried out by (Jefkins,1992). Nearly
all of them responded that insurance agents should provide full and fair disclosure of all the required
information regarding the policy before making the prospect to sign the proposal form.

2.15. Conceptual Framework

This section provides conceptual framework that was guide the study. According to Becker (1998), the
conceptual framework grounds the study in the relevant knowledge bases that lay the foundation for
the importance of the problem statement and research questions or hypothesis. In addition to that, a
conceptual framework is made up of theoretical and empirical work relevant to investigate specific
purpose.
Independent variables dependent variable

Demographic factors

Age, sex, education level, income Buyer’s attitude on life insurance

level

Socio-cultural factors

Number of Dependents, religion.

Organizational factors

Claim procedures, cost of premiums,

sales strategies.

Figure1: factors affecting buyer’s attitude towards life insurance

20
 Chapter three

3. Research methodology and design

3.1. Research paradigm

There are also two types of research which are Deduction research approach emphasizes on the
scientific principles, moving from theory to data, the need to explain causal relationships between
variables ,the collection of quantitative data, the application of controls to ensure validity of data ,the
operation of concepts to ensure clarity of definition , a highly structured approach ,researcher
independence of what is being researched ,the necessity to select samples of sufficient size in order to
generalize conclusions. Induction research approach emphasizes On the gaining an understanding of
the meanings humans attach to events, a close understanding of the research context, the collection of
qualitative data, more flexible structure to permit changes of research emphasis as the research
progresses, a realization that the researcher is part of the research process, less concern with the need to
generalize. [ CITATION Mar07 \l 1033 ]This research uses deduction type of approach to show the effect
of the demographic, socio-cultural, and organizational.
There are two types of research which are Basic and Applied the basic research to expand
knowledge of processes of business and management results in universal principles relating to the
process and its relationship to outcomes findings of significance and value to society in general and
also its context are undertaken by people based in universities , choice of topic and objectives
determined by the researcher, flexible time scales as well the Applied research for improve
understanding of particular business or management problem, results in solution to problem, new
knowledge limited to problem, findings of practical relevance and value to Manager in organization(s)
and its contexts are as follow undertaken by people based in a variety of Settings, including
organizations and universities, objectives negotiated with originator, tight timescales. [ CITATION
Mar07 \l 1033 ] So this research will be applied research which shows the factors which affect the
attitude of customers towards life insurance business.
3.2 Research Approach
According to Bobbie the research approaches divided in three which is qualitative, quantitative and
mixed. Studies which quantify their results through statistical summary and analysis are called
quantitative research the objective is also to develop mathematical models theories hypothesis testing.
Qualitative researches are which express their data in description not in numbers. A mixed type uses
both qualitative and quantitative (Bobbie 1990). This research will use mixed approach for hypothesis
testing and to process the data. And non- experimental causal research design used and also cross
sectional in its nature which the data which are collected at one point in its time horizon by the survey
technique the sample data was collected which are quantifiable and responsiveness to regression
analysis.

3.3 Research Design

An exploratory study is a valuable means of finding out ‘what is happening; to seek new insights; to
ask questions and to assess phenomena in a new light. It is particularly useful if you wish to clarify
your understanding of a problem. Descriptive research is ‘to portray an accurate profile of persons,
events or Situations. Explanatory studies establish causal relationships between variables, the emphasis
here is on studying a situation or a problem in order to explain the relationships between variable.
[ CITATION Mar07 \l 1033 ] . And the researcher will use explanatory research design to show which
shows the effect of the demographic, socio-cultural, and organizational.
3.4 population and sampling
The aim of this research is to investigate and describe buyers’ attitude towards life insurance policy
purchase as well as explaining the underlying causes for the observed pattern of attitude. Thus to
conduct the research, the target population has been defined as all individual buyers who have
purchased life insurance from nyala insurance S.C life branch on their own accord; Therefore the
researcher has deliberately disregarded those who are life policy owners because the organization
they have worked for has granted them as a corporate benefit .This is especially true for those who
work in NGOs and international companies. The major reason for not taking into account these
corporate clients was that it would not be feasible to generalize their attitude towards life policy
purchase based on the demographic, socio –cultural and organizational parameters. Therefore in
order to accomplish the above, the researcher has used convenience purposive sampling method to
identify and approach those individual buyers who are readily available or were close to hand. The
sampling techniques available to you can be divided into two type’s probability or representative
which most commonly associated with survey-based research strategies where you need to make
inferences from your sample about a population to answer your research question(s) or to meet your
objectives. And non-probability or judgmental sampling which provides a range of alternative
techniques to select samples based on your subjective judgment. [ CITATION Mar07 \l 1033 ]
A survey will conducted to test. The populations of life insurance 201 customers of Nyala Insurance
S,C The mixed research methodology approach was used in this research which conducted by survey.
The survey was considered the Age, Income, Marital status, and Gender, regarding that every Element
has different standard on the customer. The researchers calculate the sample size of the probability
sample by Yamane sample size calculation technique which is:-
n = N
1 + Ne2
Where:
n = required responses
e2 = error limit
N = sample size

Source: [ CITATION TYa67 \l 1033 ]

n= 201

1+201(0.05)2

n=134 samples

3.5 Data collection, Techniques, and Procedures.

The researcher will use both primary and secondary data sources the primary data will collects by self-
administered questionnaires from the other types which are interviews, may be highly formalized and
structured, using standardized questions for each respondent or they may be informal and unstructured
conversations. In between there are intermediate positions. One typology that is commonly used is thus
related to the level of formality and structure[ CITATION Mar07 \l 1033 ] and the second one Observation
if you have studied sociology or anthropology in the past you are certain to be familiar with participant
observation. This is where the researcher attempts to participate fully in the lives and activities of
subjects and thus becomes a member of their group, organization or community. This enables
researchers to share their experiences. [ CITATION Mar07 \l 1033 ] The self- administered questioner will
selected because it is easy to administer, to cover large amount of samples and also to collect the data
and also Questionnaires can therefore be used for descriptive or explanatory research. Descriptive
research, such as that undertaken using attitude and opinion questionnaires and questionnaires of
organizational practices, will enable you to identify and describe the variability in different
phenomena. In contrast, explanatory or analytical research will enable you to examine and explain
relationships between variables, in particular cause and-effect relationships. These two purposes have
different research design requirements. Then the samples under each population will address by
convenient method. So the data will collect by using convenient sampling method. And the secondary
data will conduct different monthly and yearly reports, magazines and also from the company data.

3.6. Instrumentation
The design of a questionnaire differs according to how it is administered and, in particular, the amount
of contact you have with the respondents Self-administered questionnaires are usually completed by
the respondents. Such questionnaires are administered electronically using the Internet (Internet-
mediated questionnaires) or intranet (intranet-mediated questionnaires), posted to respondents who
return them by post after completion (postal or mail questionnaires), or delivered by hand to each
respondent and collected later (delivery and collection questionnaires). Responses to interviewer-
administered questionnaires are recorded by the interviewer on the basis of each respondent’s answers.
A growing number of surveys, particularly in the area of market research, contact respondents and
administer questionnaires using the telephone. These are known as telephone questionnaires. The final
category, structured interviews (sometimes known as interview schedules), refers to those
questionnaires where interviewers physically meet respondents and ask the questions face to face.
These differ from semi-structured and unstructured (in-depth) interviews as there is a defined schedule
of questions, from which interviewers should not deviate. [ CITATION Mar07 \l 1033 ].
The first section of the questionnaire consists of 6 questions regarding the demographic and socio
cultural aspect of the respondents and the second part of the questionnaire consists of 12 statements
evaluated on a 1-5 Likert Scale, where ‘1’ indicates strongly disagree with the statement, and ‘5’
refers to strongly agree with the statement. The researcher has made use of proposal form, a
secondary source of information, to supplement the primary source of information In order to make
sure most of the respondents can read and understand the questionnaire; it was designed in an Amharic
and English version.

3.7 Data Analysis Technique

The most commonly applied econometric tool is regression. This is used when the goal is to quantify
the impact of one set of variables on another variable. [ CITATION Bru06 \l 1033 ]

This study will uses survey to collect data five point likert scales use to examine factors affecting
attitude of customers towards life insurance. Descriptive analysis use for demographic data and the
effect will examine by SPSS. Correlation and regression analysis will use for analysis.

3.8 Validity and Reliability

Mugenda and Mugenda(2003) defines validity as the accuracy and meaningfulness of inferences,
which are based on the research results. The two also define reliability as a measure of the degree to
which a research instrument yields consistent results or data after repeated trials. Validity and
reliability will establishes for standardization of the research instrument used in the current study. A
content validity ofthe research instrument was established in order to make sure that they reflected the
content of the study concepts. Firstly, the researcher went through the instruments and compared them
with the set objectives to ensure that they contained all the information that answered the set questions
and addressed the objectives. Secondly, expert input from the Nyala Insurance S.C life branch
members was sought to scrutinize the relevance of the items on the instruments against the set
objectives .A reliability coefficient of0.721 was achieved therefore the instruments were adopted for
the study .A reliability coefficient of0.7 or over reflect the internal reliability of the instruments
(Fraenkel&Wallen, 2000).

3.9. Ethical Consideration

Ethics refers to the appropriateness of your behavior in relation to the rights of those who become the
subject of your work, or are affected by it. Therefore it relates to questions about how we formulate and
clarify our research topic, design our research and gain access, collect data, process and store our data,
analyze data and write up our research findings in a moral and responsible way [ CITATION Mar07 \l
1033 ]
The researchers consider the objectivity, honesty integrity, carefulness, openness respect to intellectual
property, confidentiality, and respect for colleagues, social responsibility and legality of the research
paper.

Voluntary participation and harmlessness: Subjects in a research project must be aware that their
participation in the study is voluntary, that they have the freedom to withdraw from the study at any
time without any unfavorable consequences, and they are not harmed as a result of their participation
or non-participation in the thesis. To this effect, the researcher gave freedom to the respondents and
they exercised freely on the given questionnaire.

Anonymity and confidentiality: to protect subjects’ interests and future well-being, their identity
must be protected in a scientific study. This is done using the dual principles of anonymity and
confidentiality. Anonymity implies that the researcher or reader of the final research report or paper
cannot identify a given response with a specific respondent. Confidentiality means the researcher can
identify a person’s responses, but promises not to divulge (reveal) that person’s identify in any report,
paper, or public forum. In both cases, this has been confirmed by the researcher in such a way that
there was no need to fill their name on the questionnaire.
Disclosure: usually, the researcher has an obligation to provide some information about his/her study
to potential subjects before data collection to help him/her decide whether or not they wish to
participate in the study. For instance, who is conducting the study, for what purpose, what outcomes
are expected, and who will benefit from the results. Guided by this ethical principle, the researcher has
disclosed about the content and purpose of the study. Moreover, the benefit of the research after
finalization has been well-disclosed to the respondents.
Analysis and reporting: it has been evident that the researcher also has ethical obligations to the
scientific community on how data is analyzed and reported in the study. Accordingly, more clear and
candid information has been forwarded not to mislead the scientific community.