Abstract
This study investigated the effects of promotional strategies on penetration of life insurance products in south- east Nigeria. Specifically, the study examined the influence of four promotional strategies (Advertising, Personal selling, direct marketing and referral marketing) on the number of life products sold and on the number of policy holders of the selected life insurance firms in the region. The study adopted a survey research design and used structured questionnaire to collect data from two hundred and five (205) staff of the selected insurance firms in the study area. Out of Two hundred and five copies of questionnaire distributed, one hundred and eighty (180) were found properly filled, completed and returned by the respondents. The data collection instrument was subjected to standardization and validity test. The reliability and internal consistency tests of the questionnaire were done with the aid of Cronbach’s alpha which gave a high reliability co-efficient of 0.904. Data collected were analyzed using descriptive statistics such as frequencies, percentages and mean scores of the responses by the respondents and presented in tables for each promotional strategy under study. The hypotheses stated in this work were subjected to statistical test with ordinary least squares (OLS) method of multiple regression, using the statistical package for social sciences (SPSS) version 20. The study revealed that all the predictor variables used as promotional tools under advertising, employed in the study have positive and significant effects on the life insurance penetration variables, that is, the number of life products sold and the number of life policy holders in the study area. On the other hand, one predictor variable under personal selling strategy (person to person interaction) indicated negative effect on the number of products sold, while the rest showed positive and significant effect on both the numbers of products sold and the number of life policy holders in the region. Furthermore, the study found that all the predictor variables under direct marketing and referral marketing had positive but moderate effect on the number of life products sold as well as on the number of life policy holders. Therefore, we concluded that the depth or the degree of penetration of life policy products within the south east region of Nigeria, depends significantly on the extent of promotional activities deployed by the insurance firms. Based on this, we recommended that insurance companies should engage in more frequent promotional activities in the south east region of Nigeria as it was seen that the more frequent the number of promotional activities, the more the penetration of their life products in the study area. It was also recommended that insurance firms should engage experts in marketing communications to create some appropriate promotional messages that can appeal to their prospective customers and thereby deepen the penetration of these products in the region.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vii
List of Tables x
List of figures xii
Abstract xiii
CHAPTER 1: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 5
1.3 Objectives of the Study 8
1.4 Research Questions 9
1.5 Research Hypotheses 10
1.6 Significance of the Study 11
1.7 Scope of the Study 11
1.8 Operational Definition of Terms 11
CHAPTER 2: REVIEW OF RELATED LITERATURE
2.1 Conceptual Review 13
2.1.1 Meaning of insurance 13
2.1.2 Meaning of life insurance 14
2.1.3 Classifications of insurance business in Nigeria 16
2.1.4 Life insurance products and marketing mix 19
2.1.4.1 Conceptual frame work 24
2.1.5 Promotion/marketing communications 24
2.1.6 Market penetration 52
2.1.7 Insurance companies and the Nigeria economy 54
2.1.8 Insurance penetration measurements 57
2.1.9 Promotional strategies and life insurance penetration 58
2.2 Theoretical Review 63
2.2.1 Decision making theory (Herbert Simon, 1948) 63
2.2.2 Theory of constrains (Eliyahu Goldratt, 1990) 63
2.2.3 Expectation-Disconfirmation theory (Richard L. Oliver, 1977) 64
2.3 Review of Empirical Studies 65
2.4 Summary and Gap in Literature 73
CHAPTER 3: METHODOLOGY
3.1 Research Design 75
3.2 Study Area 75
3.3 Population of the Study 76
3.4 Sample Size 77
3.5 Sampling Technique 78
3.6 Sources and Method of Data Collection 79
3.7 Research Instrument 79
3.8 Validity of Research Instrument 79
3.9 Pilot Survey 79
3.10 Reliability of Instrument 80
3.11 Data Collection 80
3.12 Method of Data Analysis 80
3.13 Model Specification 81
CHAPTER 4: RESULTS AND DISCUSSIONS
4.1 Field Survey Report 85
4.2 Demographic Characteristics of Respondents 86
4.3 Effects of Promotional Strategies on the number of life insurance Policies sold 89
4.4 Effects of Promotional Strategies on number Life Policy Holders 96
4.5 Test Hypotheses 104
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings 132
5.2 Conclusion 138
5.3 Recommendations 139
5.4 Contributions to Knowledge 140
5.5 Areas of Further Research 140
References 141
Appendices 148
LIST OF TABLES
3.1 Population of Staff of Insurance Firms with Life Products in South East 76
3.2 Allocation of the Respondents by States and by insurance firms in the study area 78
3.3 Allocation of the Respondents among the Insurance firms in the study area 69
4.1 Copies of the Questionnaire Administered and Retrieved per State in South-East. 85
4. 2: Distribution of Respondents according to their Socioeconomic Characteristics in
the study area. 87
4.3: Mean score Distribution of responses according to the effects of Advertising
Strategies on number of life insurance policies sold 90
4.4: Distribution of Mean score of response according to effects of Personal Selling
Strategies on number of life insurance policies sold 92
4.5: Distribution of Mean score of response according to effects of Direct Marketing
Strategies on number of life insurance policies sold 93
4.6: Distribution of Mean score of response according to effects of Referral
Marketing Strategies on number of life insurance policies sold 95
4.7: Distribution of Mean score of response according to effects of Advertising
Strategies on number life policy holders in the study area. 97
4.8: Distribution of Mean score of response according to effects of Personal Selling
Strategies on number life policy holders in the study area. 99
4.9: Distribution of Mean score of response according to effects of Direct Marketing 101
4.10: Distribution of Mean score of response according to effects of Referral
Marketing Strategies on the number of Life Policy Holders in the study area. 103
4.11: Regression estimate of effect of advertising strategies on the number of life
insurance products sold in the study area 105
4.12: Regression estimate of effect of personal selling strategies on the number of life insurance products old in the study area 107
4.13: Regression estimate of effect of direct marketing strategies on the number of life insurance products old in the study area 109
4.14: regression estimate of effect of referral marketing strategies on the number of life insurance products old in the study area 112
4.15: Regression estimate of effect of advertising strategies on number of life insurance
policy holder in the study area. 115
4.16: Regression estimate of effect of personal selling strategies on number of life
insurance policy holder in the study area. 117
4.17: Regression estimate of effect of direct marketing strategies on number of life
insurance policy holder in the study area. 119
4.18: Regression estimate of effect of referral strategies on number of life insurance
policy holder in the study area. 122
4.19: Ranking of the predictor Variables for Annuity Policy 125
4.20: Ranking of the predictor Variables for Endowment Policy 126
4.21: Ranking of the predictor Variables for Whole life Policy 128
4.22 Ranking of predictor variables for pension Policies 129
4.23: Ranking of predictor variables for Term Assurance Policy 130
LIST OF FIGURES
2.1 Conceptual Framework of Promotional Strategies and Market
Penetration of Life Insurance Products in South East, Nigeria 24
2.2: Dagmar Model 43
2.3: Frazen Model 45
2. 4: Linear Model of Communication 46
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Life is full of risks and uncertainties. Every man wants to live long and enjoy the good things of life; and to be able to achieve this, he engages in several activities and risky ventures with uncertain outcomes. Many of these activities are so risky that they could cause man his life or leave him with permanent disability. Although medical science has helped to improve on the longevity of man to an appreciable degree; fate still plays the final arbiter. When the unexpected happens to man, the family is left with such excruciating pain and so much untold hardship; for some families, the children drop out of school and constitute nuisance to the society; some families get ejected from their residences; dreams are shattered leaving them in a state of hopelessness etc. It is however this uncertainty over man’s fatality and the attempt to cushion the effect of the consequences that follows, that the life insurance industry thrives upon and as such the insurance business generally provides a cushion to these risks and uncertainties of life (Chukwude S.O, 2014).
Longe (2012), defines insurance as the agreement whereby one party (the insurer), promises to indemnify or pay another, (the policy holder), a sum of money in the event of the policy holder suffering a specific loss or damage. Akulanna, Ndinaechi and Arukwe (2011), defined insurance as a contract by which one party undertakes to indemnify another against loss, damage or liability arising from an unknown or contingent event. Following from the above, insurance therefore provides financial compensation to the insured in the event of the occurrence of the risks insured against. The principles of insurance do not eliminate loss nor stop the disaster from happening; it only softens the blow in a purely financial sense by offering monetary compensation to the victim and placing him in the same financial position after loss as he was before, though, within the terms of the policy. This payment or compensation is usually made from the accumulated contributions of all the participatory in the fund or scheme. Hence, insurance is based on the principle of pooling of risks. The insurance company (insurer) collects premium from a group of people who suffer similar risks to create a common fund of which compensation will be paid to those who suffer losses (Longe, 2012).
Life insurance on the other hand, is the type of insurance which pays benefits on policy holder’s death, or at the expiration of a certain length of time as agreed in the policy document. It indemnifies a person upon incapacitation, injury or incurrence of disease. The life assurance policy, as the name implies provides a capital sum, payable at death to the beneficiaries of the sum assured. It has been an age long development when there was need to get security for humankind. In the opinion of Arodiogbu (2005), humans have, from time immemorial, always sought for security. This desire for securities was perhaps the reason for the formation of families, clans, tribes, thrift societies and other groups. Humans today have continued their quest to achieve security and reduce the consequences of uncertainties; because in some way we are still more vulnerable today than our ancestors.
Life insurance encourages savings and investment, job creation and growth in the capital market financial assets. Whenever there are significant investments in the insurance industry, more funds are made available for investors and entrepreneurs and this aids development. Life insurance firms perform other roles such as stability and efficient diversification of risks; provide means of accumulating fund for investor and entrepreneurs for investments and higher returns. Researchers like Ozuomba (2012), found that Gross Domestic Product (GDP) is positively related to investment in insurance. Okolo, Ani and Okolo (2015), also noted that insurance premiums, asset size of insurance industry have positive impact on foreign direct investment inflow of Nigeria. All these go to show that the contributions and importance of life insurance businesses are not in doubt. Unfortunately, despite these benefits from life insurance business, researchers ( Ibok, 2012), have asserted that apart from third-party vehicle insurance and group life insurance (for those employees whose companies have a pension plan) that are compulsory, less than 1% of the adults population have life insurance policies. This therefore, suggests that the major insurance policies in use in Nigeria are non-life policies and as such, showed low level penetration of life insurance organizations in the market as there are lots of untapped potentials for life assurance businesses in Nigeria.
Market penetration refers to the successful selling of a product or service in a specified target market, and it is a measure of the amount of sales volume of an existing good or service compared to the total target market for that product or service. Market penetration involves targeting on selling existing goods or services in the targeted markets to increase a better market share/value.
The market penetration of Life insurance products in Nigeria market appear to be low; given the number of people that have life insurance policies in the country. The non-life policies appear to be selling more in market. The reason for this may be that most of them are compulsory like the vehicle insurance, property insurance, travelling insurance etc. The life insurance policies are not doing so well perhaps because the industry has not developed appropriate promotional strategies to communicate and enable them sell these products. The objective of insurance firms should not just be to develop products but should also include developing appropriate marketing strategies that would enable their products sell in the market place so as to increase the level of penetration.
Life Insurance business lack high penetration of the industry and this hampers the general growth of the industry and hence its’ low contribution to the GDP of the country. There are many challenges responsible for poor performance and growth in the insurance business in Nigeria like unawareness on the part of the insurable public, nonpayment of claims, lack of trust, low public confidence on the sector etc. ( Folie (2016) also noted that these challenges are the reasons for low level of insurance penetration in Nigeria. Aghoghovbia (2005) pointed out that low level of deployment of the information and communication technology (ICT), leverage negatively on the Nigerian insurance environment and consequently cause low penetration of the products. Researchers like Omar (2005) and Nthenge (2012), agreed that there is a general lack of knowledge about life insurance policies by the insurable public.
The established mode for creating awareness and knowledge about the life insurance products is the promotional tools but despite the above contributions by previous researchers and the general belief that the insurable public lack awareness and adequate knowledge of the life insurance products, no researcher has investigated the effect of promotional strategies on the penetration of life insurance products particularly in South-east Nigeria. This obvious Lacuna is what this work sets to fill.
The south-east Nigeria is geopolitical zone with a high concentration of the Igbos. The Igbos are noted as very industrious people with a great business mind and interest. They are mainly risk lovers, who are not deterred by any life-threatening situation to carry out their businesses. It is also widely believed that Igbos are the most widely travelled group of all ethnic groups in Nigeria and have the greatest number of immigrants in countries like America, Japan, Britain, China, Malaysia, etc. (Soludo, 2018). Even the most recent xenophobic attack on Nigeria in South Africa, recorded the Igbos as their worst victims. The degree of businesses and their associated level of risks by Igbos both in Nigeria and in Diaspora make the acquisition of life insurance policies imperative for the people of the zone. Unfortunately, the study by African Insurance Trend (2018) indicates that the level of life insurance penetration in the zone is below 1% of the insurable public. The report further affirmed the position of Okezie, (2017), that pension funds that provide sources of long-term funds appear not to be exploited in the zone because large number of the population do not have life insurance coverage. The reason for this abysmal performance could be traced to unawareness and lack of knowledge of the inherent benefits by the people of the zone (Okezie, 2017). Therefore, the effectiveness of the established marketing communication tools in creating the desired awareness needs to be investigated. Hence, it is against this background that the researcher examines the effect of promotional strategies on penetration of life insurance products in Nigeria with a focus on the South East zone of the country.
1.2 STATEMENT OF THE PROBLEM
The poor performance of insurance stocks at the Nigeria Stock Exchange (NSE) market, with its attendant consequence on economic development, calls for serious intervention by stakeholders in the industry. Critical sectors of the economy cannot be financed through short-term funds and consequently a means of providing long term capital, to cater for long term infrastructural projects, have to be found. Life insurance policies and pension funds that provide sources of long-term funds appear not to have been adequately and substantially tapped, because large number of the population do not have life insurance coverage (Okezie, 2017). This implies that life insurance products have not really penetrated a large chunk of the insurable populace.
Life Insurance business in Nigeria has been noted to encounter many challenges and these challenges have been attributed to low level of insurance penetration in the country. Life Insurance business lacks high penetration of the industry and this hampers the general growth of the industry and hence its’ low contribution to the GDP). Ejide and Tsowa (2010) citing Versi (2008), emphasized on the importance of insurance sector to the GDP. They noted that insurance in Nigeria contributed only about 0.7% to GDP while in South Africa, it contributes 12% of the GDP. There are many challenges responsible for the poor performance and growth in the life insurance business in Nigeria. Fola (2018) noted that these challenges are the reasons for low level of insurance penetration in Nigeria. According to him, these challenges include among others, lack of insurance awareness and low public confidence about the sector. Voskanyan (2018) also agreed that low level of information and technology leverage negatively on the Nigerian insurance environment. Researchers like Omar (2005), Nthenge (2012), agreed that there is a general lack of knowledge about life insurance policies by the insurable public. They therefore called for a renewed marketing communication strategy that will be based on creating awareness and informing the consumers of the benefits inherent in life insurance so as to reinforce the purchasing decision. Aroyewun (2016) also noted that Nigeria consumers do not believe in insurance and as such insurers have responsibility of educating them on what insurance is all about. The tools for educating the insurable masses are obviously the marketing communication channels: advertising, personal selling, publicity, direct marketing etc.
Agbonifoh, Ogwo, Nnolim and Nkamnebe (2007), noted that some of these communications are aimed at attracting reliable support of labour and raw materials, others are aimed at attracting financial support; some others elicit governmental support and favourable legislation; while others seek patronage for the company’s products. They further asserted that it will be a great loss to the managers if their products are not well known by the target market. This will lead to poor sales, and eventually to the death of the products. Irrespective of the nature of the basic product, the necessity of promotion as a critical tool in creating product awareness cannot be over emphasized. This is based on the fact that people cannot buy product(s) that they are not aware of or acquire products with uncertain benefits. To provide the much-needed information about their products, organizations to embark on all possible means of communicating the effectiveness of their products to the target market. Oko (2016), also agrees that promotion creates awareness, acceptance and preference for the product in offer; as it is persuasive and usually designed to change target market attitude and behavior in the desired direction. Therefore, the effective use of the promotional channels by the insurance companies in communicating life insurance products for increased market penetration is the main thrust for investigation in this study.
The inability of the insurance industry to profitably sell life policies to the prospective consumers is the reason for low premium generation and the reason adduced for this is the high information gap between the insurance companies and the insurable public. Marketing communication tools are therefore the established modes of creating the needed awareness by the insurance companies. The effectiveness of these tools in communicating the required information appears to be under scrutiny owing to this information gap. Hence, there is need to develop a dependable market system that will enable the insurers sell their products to the prospective consumers by making effective use of appropriate marketing communication channels. There is the need therefore, to determine the appropriate communication channels that will impact positively on market penetration so as to close the information gap that have been identified as the reason for low penetration of the product.
Improving the productivity and marketing activities of life insurance products most likely will improve the general standard of living and the sector’s contribution to the GDP. Previous studies on the effectiveness of the promotional tools in marketing life insurance policies in south east Nigeria do not exist. This is the gap which this study sets to fill. This study therefore examined the effect of promotional strategies on the penetration of life insurance products in South East Nigeria.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study was to examine the effect of promotional strategies on penetration of life insurance products in south east Nigeria. The specific objectives therefore were to:
i. determine the effect of advertising strategy on the number of life insurance products sold by the selected insurance companies in the study area;
ii. investigate the effect of personal selling strategy on the number of life insurance products sold by the selected insurance companies in the study area;
iii. examine the effect of direct marketing strategy on the number of life insurance products sold by the selected insurance companies in the study area;
iv. examine the effect of referral marketing strategy on the number of life insurance products sold by the selected insurance companies in the study area;
v. determine the effect of advertising strategy on the number of life policy holders among the selected insurance companies in the study area;
vi. investigate the effect of personal selling strategy on the number of life policy holders among the selected insurance companies in the study area;
vii. examine the effect of direct marketing strategy on the number of life policy holders among the selected insurance companies in the study area;
viii. examine the effect of referral marketing strategy on the number of life policy holders among the selected insurance companies in the study area;
ix. Provide rankings of the predictor variables for each promotional strategy among the five life insurance products under study.
1.4 RESEARCH QUESTIONS
Drawing from the problems stated above as well as the objectives of the study, the following research questions were raised to guide discussions in this work:
i. What is the effect of advertising strategy on the number of life insurance products sold by the selected insurance companies in the study area?
ii. What effect does personal selling strategy have on the number of life insurance products sold by the selected insurance companies in the study area?
iii. How does direct marketing strategy affect the number of life insurance products sold by the selected insurance companies in the study area?
iv. What is the effect of referral marketing strategy on the number of life insurance products sold by the selected insurance companies in the study area?
v. What is the effect of advertising strategy on the number of life policy holders among the selected insurance companies in the study area?
vi. What effect does personal selling strategy have on the number of life policy holders among the selected insurance companies in the study area?
vii. How does direct marketing strategy affect the number of life policy holders among the selected insurance companies in the study area?
viii. What is the effect of referral marketing strategy on the number of life policy holders among the selected insurance companies in the study area?
ix. What are the respondents’ perceptions of the strength the predictor variables for the promotional strategies adopted by insurance companies in South – East Nigeria?
1.5 RESEARCH HYPOTHESES
The following formulated hypotheses have also been tested in this study:
i. the use of advertising strategy by life insurance firms does not have significant effect on the number of life insurance products sold in the study area
ii. the use of personal selling strategy by life insurance firms does not have significant effect on the number of life insurance products sold in the study area
iii. the use of direct marketing strategy by life insurance firms does not have significant effect on the number of life insurance products sold in the study area
iv. the use of referral marketing strategy by life insurance firms does not have significant effect on the number of life insurance products sold in the study area
v. the use of advertising strategy by life insurance firms does not have significant effect on the number of life policy holders in the study area
vi. the use of personal selling strategy by life insurance firms does not have significant effect on the number of life policy holders in the study area
vii. the use of direct marketing strategy by life insurance firms does not have significant effect on the number of life policy holders in the study area
viii. the use of referral marketing strategy by life insurance firms does not have significant effect on the number of life policy holders in the study area
1.6 SIGNIFICANCE OF THE STUDY
This work will be of great importance to various interest groups especially the insurance companies and the marketers of insurance policies in Nigeria. For the insurers, the work will reveal how to solve the problem of low premium generation as a result of informational gap between the insurance companies and the insurable public and recommend ways to improve. For the marketers, it will help them to know what hinders consumers’ patronage for their products. In most developing countries, especially, the financial sector, the insurance companies have not been fully accepted and trusted because of lack of appropriate marketing strategies and lack of inherent benefits of life insurance policies. The study will help the industry to develop appropriate strategies for creating desired awareness and restore the trust between the customer and companies. The study will also bring positive change to society because improving the productivity and marketing activities of life products most likely will improve the general standard of and the sectors’ contribution to the GDP. Another group of individuals that will find this research useful are the students, scholar and professional researchers who might want to explore more grounds on this area. The researcher will benefit from this research as the successful completion of this research will be the fulfillment of a major requirement for the award of a Doctor of Philosophy in Marketing (Ph.D.) in Marketing of Michael Okpara University of Agriculture, Umudike, Abia State.
1.7 SCOPE OF THE STUDY
This study empirically determined the effect of promotional strategies on the penetration of life insurance products in South East, Nigeria.
1.8 OPERATIONAL DEFINITION OF TERMS
Insurance firms: Business that provides coverage in form of compensation resulting from loss, damage, injury or hardship in exchange for premium payments.
Life insurance products: Insurance policies that provide financial stability to the insured and even the insured’s dependents in the event of the bread winner’s death.
Market penetration: The degree to which an insurance product or brand is bought, used, or known by a particular group of customers.
Market share: Market share represents the percentage of an industry, or a market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company in relation to its market and its competitors.
Target market: The part of the qualified market that the company decides to pursue.
Promotional strategies: The means, by which firms attempt to inform, persuade and remind consumers about the product they sell and these include: advertising, personal selling, publicity, referral marketing and others.
Annuity: The streams of income paid at stated time intervals, usually annually (or half yearly, quarterly, monthly to the annuitant.
Endowment policy: The type of life product which provides for the sum assured to be paid either after a fixed number of years or at death.
Whole life policy: The premium amount is locked in and will remain the same throughout the entire lifetime of the policy.
Pension: Sum of money that is added during an employee’s employment years and from which payments are drawn to support the person’s retirement from work in form of periodic payments.
Term assurance: The type of life assurance where the payment will be made to the insured if the life assured dies within the specified period.
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