Factors affecting customers’ life insurance purchasing decision in hanoi

LISTS OF FIGURES Figure 1: Research Process………14 Figure 2.1: Sheth’s Model of factors that affect customers’ life insurance products purchasing decision 2001………23 Figure 2.2: Research Mo

NATIONAL ECONOMICS UNIVERSITY

BUSINESS SCHOOL

FACTORS AFFECTING CUSTOMERS’ LIFE INSURANCE

PURCHASING DECISION IN HANOI Bachelor of Business Administration in English (E-BBA) Thesis

Student: Tran Phuong Linh Class: E-BBA 7B

Supervisor: Assoc Prof Dr Le Thi Bich Ngoc

HANOI, 2019

ACKNOWLEDMENTS

First of all, I would like to show my sincere gratefulness to my supervisor, Assoc Prof Dr Le Thi Bich Ngoc for her helpful guidance throughout the process Without her careful and detailed suggestions, this thesis would not have been completely accomplished

Secondly, I want to honor all lecturers and staff at Business School for eagerly supporting me during the past four years In addition, I gratefully acknowledge E-BBA program for providing me with high-quality learning condition where I can not only acquire useful knowledge but also hone my intellectual and social skills

Also, I dedicate my thanks and appreciation to the board of directors and all the employees at BIC’s Company, where I took a three-month internship, for supporting me with my study and providing all the data needed to complete the thesis

All in all, to my beloved family and friends, it is my pleasure to receive your assistance, encouragement, trust and timely support Thank you

TABLE OF CONTENTS

ACKNOWLEDMENTS 2

ABBREVIATIONS 7

LIST OF TABLES 8

LISTS OF FIGURES 9

EXECUTIVE SUMMARY 10

CHAPTER 1: INTRODUCTION 12

1.1 Rationale 12

1.2 Research Objectives 13

1.3 Research Questions 13

1.4 Research Methodology 14

1.4.1 Research Process 14

1.4.2 Data Collection 15

1.4.3 Data Analysis 15

1.5 Research Scope 15

1.6 Research Structure 15

CHAPTER 2: THEORETICAL BACKGROUND OF FACTORS AFFECTING LIFE INSURANCE PURCHASING DECISION 17

2.1 Introduction to Life Insurance 17

2.1.1 Definitions of Life Insurance 17

2.1.2 Types of Life Insurance 18

2.1.2.1 Term Insurance 18

2.1.2.2 Permanent Life Insurance 18

a, Whole Life Insurance 19

b, Universal Life Coverage 20

c, Endowment Insurance 20

2.1.2.3 Variable Life Insurance 21

2.1.2.4 Variable Universal Life Insurance 21

2.1.2.5 Accidental Death 21

2.2 Definition of Purchasing Decision 22

2.2.1 Purchasing Decision Process 22

2.2.2 Factors affecting Consumer Behavior 22

2.3 Literature Review of Factors Affecting Customers’ Decision to Buy Life Insurance 23

2.4 Research Model 25

2.4.1 Customers’ Motives to Buy Life Insurance 27

2.4.2 Customers’ Experience of Purchasing Insurance 28

2.4.3 Events in Life 28

2.4.4 Barriers When Purchasing Life Insurance 28

2.4.5 Reputation of the Insurance Company 30

2.2.6 Opinions of Family Members and Friends 30

2.2.7 Distribution Channels 30

2.2.8 Demographic Factors’ Influence on Life Insurance Purchasing Decision 31

2.2.8.1 Income 31

2.2.8.2 Age 31

2.2.8.3 Gender 32

CHAPTER 3: AN OVERVIEW OF THE LIFE INSURANCE MARKET IN VIETNAM 33

3.1 The Development of Life Insurance Industry 33

3.1.1 The Life Insurance Industry and the Demands for Life Insurance in Vietnam 33

3.1.2 Competitors in the Life Insurance Market 35

3.1.3 Life Insurance Products in Vietnam 37

3.2 The Potential of Life Insurance Industry in Vietnam 38

CHAPTER 4 – RESEARCH METHODOLOGY AND FINDINGS 42

4.1 Research Methodology 42

4.1.1 Research Information 42

4.1.2 Creating Data Measurement Scales 44

4.1.3 Data Processing Methods 46

4.2 Research Findings 46

4.2.1 Sample Information 46

4.2.1.1 Age and gender of the sample 46

4.2.1.2 Occupation 47

4.2.1.3 Income 47

4.2.1.4 Educational Level 48

4.2.1.5 Customers' knowledge about life insurance 48

4.2.2 Verification Result of the Scales 49

4.2.2.1 The Results of Exploratory Factor Analysis (EFA) 49

4.2.2.2 The Results of the Cronbach Alpha Coefficient Analysis 51

4.2.3 Regression Analysis 52

To determine and evaluate the effect of each factors on the decision to buy life insurance, the research used the linear regression 52

4.2.3.1 Adjusted R square and ANOVA Analysis 52

4.2.3.2 Regression Analysis 53

4.2.4 T-test and Anova Differential Analysis 56

4.2.4.1 T-test for Male and Female Customers 56

4.2.4.2 T-test for Customers who have bought and have not bought life insurance before 57

4.2.4.3 Anova Differential Analysis 58

a, Customers of Different Income 58

b, Customers of Different Age Groups 59

CHAPTER 5 – RESULTS ANALYSIS AND RECOMMENDATIONS 61

5.1 Analysis of factors affecting the purchase decision of products insured in the regression model 61

5.2 Recommendations for Life Insurance Companies in Vietnam 62

5.2.1 Raising Awareness of the Benefits of Life Insurance for People 62

5.2.1.1 Focus on expanding and developing communication channels 63

5.2.1.2 Improving skills and knowledge for insurance staff 64

5.2.1.3 Promoting consultation to specific customers 65

5.2.2 Boosting the Reputation of the Company in the Insurance Market 65

5.2.3 Improving Customer Services 66

CONCLUSION 68

REFERENCES 70

APPENDIXES 73

APPENDIXES II: Result of Survey Questionnaire 80

ABBREVIATIONS

LIST OF TABLES

Table4.1: Survey Questionnaire.……… 42

Table 4.2: Customers’ Occupation………45

Table 4.3: KMO and Bartlett’s Test of the Independent Variables……… 77

Table 4.4: Total Variance Explained of the Independent Variables……… 77

Table 4.5: Rotated Component Matrixof Independent Variables……….49

Table 4.6: KMO and Bartlett’s Test of the Dependent Variables……….79

Table 4.7: Total Variance Explained of the Dependent Variables………79

Table 4.8: Cronbach Alpha Reliability Statistics of all variables……… 50

Table 4.9: Cronbach Alpha Analysis of Variables………50

Table 4.10: Cronbach Alpha Analysis……… 50

Table 4.11: Model Summary of the Regression Analysis……….51

Table 4.12: Regression Anova Analysis………51

Table 4.13: Regression Analysis of Decision to Buy Life Insurance………52

Table 4.14: T-test Analysis for Male and Female Customers……… 54

Table 4.15: T-test Analysis for Customers who have bought and have not bought life insurance………55

Table 4.16: Descriptive Results between Different Income Range……… 56

Table 4.17: Anova Analysis for Customers of Different Levels of Income……… 56

Table 4.18: Descriptive Results between Different Age Groups……… 57

Table 4.19: Anova Analysis for Customers of Different Age Groups……… 57

Table 4.20: Survey Questionnaire in English………74

Table 4.21: Survey Questionnaire in Vietnamese……….76

LISTS OF FIGURES

Figure 1: Research Process………14

Figure 2.1: Sheth’s Model of factors that affect customers’ life insurance products purchasing decision (2001)………23

Figure 2.2: Research Model of factors that affect customers’ life insurance products purchasing decision………24

Figure 3.1: Structure of Vietnam Insurance Industry………32

Figure 3.2: Market Share Proportion of Life Insurance Companies in Vietnam (2014) 34

Figure 3.3: Market Share Proportion of Life Insurance Companies in Vietnam (2017) 34

Figure 3.4: Gross Direct Premiums for Insurance Industry in 2015……… 37

Figure 3.5: Insurance Penetration Rates Vs GDP Per Capita……… 38

Figure 4: Customers’ Income Range……….46

EXECUTIVE SUMMARY

The research conducted to find out and understand consumers’ making in the life insurance sector in Vietnam market, to recommend some solutions in order to help life insurance companies make better progress in their business and to collect complementary data of the whole market

decision-It has become common that Vietnamese people are uninsured against a wide range of risks, disability, health, longevity, goodness or other pitfalls Conventional thinking assumes that the purchase of risk protection through life insurance products would help to increase individual and social welfare A simple inference is that individuals buy insurance to meet a basic need for protection Life insurance industry was set up in Vietnam in 1996 and up to now, there are 9 enterprises operating in the market and more insurance companies are licensed to operate in the future With the entry of life insurance companies, the life insurance market in Vietnam has developed in terms of scale, products, quality of service and professionalism Total premiums in the first two months of 2018 of life insurance revenue is estimated at VND 9,316 billion, increased 33.34% compared with the same period of 2017 It is from this source that the life insurance industry has provided a large amount of capital for the economy The number of new agents recruited in the first 6 months of 2017 is 141,305 agents, increased 25.3% over the same period last year

Life insurance coverage industry is showing great potential to grow in Vietnam market More and more Vietnamese have demands to buy life insurance as

a form of saving and accumulating personal financial investment with weak risk control factor Currently the population of Vietnam is 96 million people, ranking 14th in the world, with 66 million people in working age However, the proportion

of people taking life insurance now in Vietnam accounts for only 8% of the population With the fact that Vietnam has the highest savings rate in the world and GDP per capita will reach USD 2300 in 2019, the development opportunities for the life insurance industry in Vietnam are believed to be greater, but also the challenges are not small To be successful, businesses need to have production strategy, distribution, and technology in place

The research was quantitative research, conducted through offline and offline questionnaire surveys of people who have and have not bought life insurance before

The survey interviewed people aged from 25 to 55 years old, settled in 5 main districts of Hanoi such as Ba Dinh, Hai Ba Trung, Hoan Kiem, Cau Giay and Long Bien The scale is based on the theory of building the scale and the decision to buy life insurance products of customers The Likert scale is used to measure each statement of the research variables

The research expected to suggest some recommendations to help life insurance companies improve their current business Firstly, insurance companies should not be too focused on approaching and explaining to the insurers themselves but also on their family as well as the people being closest to the customers, ensuring that everyone understands the benefits of life insurance They should continue to introduce life insurance and the benefits of life insurance to people through mass media such as TV, newspapers and magazines Secondly, life insurance companies should pay attention to improve the ability of their consultants Companies need to equip their staff with basic knowledge and advanced soft skills Thirdly, insurance companies need to be transparent and open about their financial capabilities on the company websites, in press conferences and especially in public financial statements with customers at all time Fourth, companies need to modernize technologies and techniques to support customer service activities Finally, insurance companies should design products that are flexible and can serve the demands of customers

CHAPTER 1: INTRODUCTION

This chapter presents the rationale of the study on factors affecting customers’ decision to buy life insurance, research questions, research objectives and an overview of research methodology and thesis structure

1.1 Rationale

Legal and General (2017) stated that a life insurance policy is commonly known as a contract between an insured and an insurance company The insurance company provides a lump-sum payment and other expenses, such as funeral expenses, known as a death benefit, to beneficiaries upon the insured's death to exchange for premium payments Life insurance has great importance because it helps individuals in their time of need; retirement, death or disability to the benefit

of society In addition, the development of life insurance contributes to national economic growth It not only provides jobs and contributes to the national GDP but also increases the average income for households

In the development of the economy, the Finance sector in general and the life insurance sector in particular has made remarkable progress According to S&P Global Market Intelligence (2017), the life insurance industry posted a 6.8 percent increase in net income after taxes; surplus and capital and increased by $394.5 billion in 2017 from $380.7 billion in 2016 Moreover, sustained improvement in emerging markets is expected to raise global life insurance growth to about 4% by

2019

According to Bao Viet Securities (2018), Vietnam’s life insurance industry has grown at a relatively rapid 30% in each of the last three years but the penetration rate was just 1%, or about $3 billion, as at the end of 2017 This is relatively low compared to developed markets Around 7-8% of the population have insurance policies, which represents substantial potential in the country People’s awareness about insurance is also improving and is driving the industry forward Vietnam’s middle class is also growing, and the country’s population is aging rather quickly Other factors include international cooperation, with many foreigners investing in Vietnam and creating competition in the insurance market The continuous development of the insurance sector also provides good opportunities for insurance companies operating in Vietnam Therefore, it is necessary for insurance companies

to try to optimize their financial performance and improve the flexibility of their

insurance services By improving all these features, they can contribute to the financial standing of insured businesses and households as well This can be made possible by a search for factors that can improve the competitiveness of businesses and by raising the awareness of the general public Also, insurance companies want

to seek for new comprehensive solutions in order to maximize their profits

According to CafeF (2018), there are many insurance companies which provides life insurance products in the market nowadays such as Bao Viet Life Corporation, Prudential Vietnam Assurance Private Limited, Manulife Vietnam Insurance Company Limited, … With the wide range of prestigious insurance companies, customers have more opportunities to find out and get acquainted with insurance It has brought many options to customers when making a purchase decision, which increases the competition within companies in the market day by day In general, statistics have shown that the life insurance market in Vietnam has great vision to develop, but the growth has not met full potential as expected

In this research, the author hopes to contribute to helping life insurance companies understand more about Vietnamese customers by identifying the factors that influence the decision to buy life insurance This will also help insurance companies operating in Vietnam easily find solutions to grow the business, meet the needs of customers and increase sales That is why the author chose the research topic "Factors affecting the decision to buy life insurance products in Hanoi"

1.2 Research Objectives

The following are the specific objectives of the study:

- To clarify the theoretical background of the factors that affect life insurance purchasing decision of customers

- Analyzing factors that influence life insurance purchasing decision

- To deliver some recommendations to insurance companies in Vietnam to improve sales and business activities

1.3 Research Questions

The five keys questions were designed as follow:

- How customers’ psychological characteristics affect life insurance purchasing decision?

- Are factors such as demographic characteristics, knowledge about life insurance and events in life affect life insurance purchasing decision?

- What motivates customers in Hanoi buy life insurance?

- What barriers do customers face up with that discourage them to buy life insurance?

- Which are the factors that affect life insurance purchasing decision of customers in Hanoi?

1.4 Research Methodology

1.4.1 Research Process

The research started by analyzing its main objectives, which is to find out the factors that affecting the decision to buy life insurance products of customers in Hanoi and the relating theoretical framework from previous research Next, the author had some findings about the Life Insurance Industry and its products From these information, the research conducted a suitable research model and set out main methods used in the research All the data collected in the survey then would be analyzed by specific software The research would suggest some recommendations for life insurance companies to boost their business capability

Figure 1: Research Process

(Source: Author’s Illustration)

Research Objectives & Theoretical Background

Life Insurance & Life Insurance Products

Research Model

Research Methods:

Secondary DataPrimary Data

Data Analysis

Research Findings

Recommendations

 Primary data

Primary data is collected by conducting a survey with 260 people aged from 25

to 55 in Hanoi The survey set out with questions asking for the surveyor’s background information and scaling questions regarding how they evaluate factors affecting their decisions to buy life insurance Out of the 260 distributed questionnaires, 233 were received back (both online and offline survey), which made up for 89.6% of the chosen sample More detailed explanation will be

presented in the Research Method chapter

1.4.3 Data Analysis

The author used quantitative data analysis for the study The quantitative analysis was carried out by using Microsoft Excel and SPSS 20 for the analysis of Cronbach Alpha reliability coefficient, EFA discovery factor, T-test analysis, Anova analysis of variance and regression analysis

 Secondary data collection: 1 month (from August to December, 2018)

 Primary data collection: 3 months (from September to December, 2018)

1.6 Research Structure

The thesis included five chapters:

Chapter 1: Introduction

Chapter 2: Theoretical Background

Chapter 3: Research Methodology

Chapter 4: Data Analysis

Chapter 5: Recommendations

CHAPTER 2: THEORETICAL BACKGROUND OF FACTORS

AFFECTING LIFE INSURANCE PURCHASING DECISION

This chapter provides a background of the theory relating to factors affecting customers’ life insurance purchasing decision It defines the concepts, different types of life insurance and factors that influence that decision to buy life insurance

2.1 Introduction to Life Insurance

2.1.1 Definitions of Life Insurance

“Life insurance is a contract which provides for payment of a sum of money

to the person assured or to his nominee, on the happening of certain events”, cited

by Jyotsna and Nishwan (2007) Generally, life insurance can be defined as a kind

of insurance plan, which is normally conducted by the insurers This type of service

is directly related to providing assurance against the events in human life because it

is impossible to control every unexpected thing that can happen It provides future benefits against unforeseen accidents and it helps people to live comfortably during their retirement and incapable stages of life

Jones (1999) cited that individual insurance is a way of transferring risks and accumulating financial assets when the policyholders agree to participate in the insurance contract with an insurance company The policyholders then have to pay a premium to the insurance company, and the insurance company will in turn pays a premium if the insured person is dead in the time of the contract; or in the case that the insured person lives up to a specified period of time

Crane (1980) defined insurance as a way to combine loss exposure, and the losses will be shared by all the participants Simply, insurance is a service that helps

to minimize as much as possible all future uncertainties and losses In other words, insurance can be referred to a financial institute that protects future economic losses From the abovementioned definitions, insurance is regarded as one of the important factors to raise their confidence by providing an aid to deal with risks which are faced by people on everyday basis Insurance has emerged as a multi-dimensional business at the moment It provides benefits both directly and indirectly for different sectors of the society Moreover, insurance agencies provide an assistance for the economic growth of a country by the protection against the property losses and health problems Insurance can help to protect one society against degradation It is

crucial to know about risks and how to manage risks before starting to know deeper about insurance

2.1.2 Types of Life Insurance

According to Policygenious (2016), there are many different types to choose

as follows:

2.1.2.1 Term Insurance

Term life insurance is considered the most basic product of life insurance that can be purchased Term life insurance provides insurance for the policyholders in a short time The time that they and the insurance company agreed to If the insured die within the specified time, the insurance company will pay for their family When

it expires, they can buy it again or stop it completely There are some insurance companies that guarantee they will get the customers back after their program has ended Usually the program of term life is from 5 years to 30 years

Term insurance is a great solution to solve the temporary needs of our life Insurance fee for term life insurance will always be lower than permanent life insurance However, its premium will increase over time Insurance ends when the contract ends If the insured die beyond the contract time, there will be no compensation

Term insurance policy is the most common life insurance policy and it covers for a specified term Rios, Hong and Jose (2004) mentioned that parents should buy term life insurance for their children till the time they turn 18 and can earn a living themselves

2.1.2.2 Permanent Life Insurance

Permanent life insurance is a kind of life insurance that covers the remaining lifetime of insurers The programs of permanent life insurance will protect the insured until 95 or 100 years old, usually the premium will not change As long as they pay premium, their insurance will always be valid Secondly, all the programs

of permanent life accumulate cash value The premium the insured pay for each month will be included in two different account chapters: one account will be paid

to the insurance company, and the other will be credited into a savings account

called a cash value This cash value program will increase their monthly contribution, interest, and dividends

Thirdly, according to the law, the policyholders’ cash value will be deferred tax and tax exemption Most people who buy permanent life insurance for this reason Tax deferral and exemption are two different concepts Deferring taxes is that the insured will not need to pay taxes until the day they take them out, and when they take them out they only need to pay taxes on interest The benefit is that it will help the cash value increase more quickly As for tax exemption, when the insured die, the person receiving the money will not need to pay taxes Tax exemption or also called free tax

Fourth, the policyholders can borrow money on their life insurance The insurance company will lend them money with interest Finally, they can use cash value to pay for premium in the future and can get money in cash value to pay in hard time

The three basic types of permanent insurance which are named as whole life insurance, universal insurance and endowment

a, Whole Life Insurance

Whole life is a permanent life insurance and it is also the most used insurance products Like all permanent life programs, whole life insurance has a savings program called cash value Rios, Hong & Jose (2004) stated that whole life insurance does not have any expiration date The insured only need to buy once and will be protected for life As long as they pay premium, whole life insurance will pay death benefit to their family when the insured die In general, the benefit of whole life insurance is that the premiums and compensation will not change For this reason, the policyholders and their family need not worry about the future when they are older and the compensation will always be guaranteed

A part of the money the insured pay is paid for insurance premiums, and the rest of the money will be put into the cash value account Cash value can be used as

an emergency fund They can take money out or borrow money by taking your whole life program as a mortgage

Depending on the whole life insurance program the policyholders purchase, they may have the opportunity to earn dividends Dividend is when the insurance

company shares the profit they earn in the year Normally, the insured will receive the dividend after buying insurance for two years When the insured pay a premium, they usually pay a premium once in a year Some insurance companies will give monthly payments, every 3 months, or twice a year However, we should not choose

to pay multiple times for the year because we may need to pay extra fees for the insurance

b, Universal Life Coverage

Insurance universal life is a kind of permanent life insurance Like permanent life insurance, universal life with a savings account is called cash value When the policyholders pay premium, an amount will be added to the cash value, while the remaining amount will be paid to the cost of insurance As long as they pay premium, their insurance will always be valid Unlike the whole life insurance program, the premium money will not be fixed and will change At the same time, when the insured have a difficult time, they can reduce their premium or not pay for

a period of time As long as the cash value account still has money, their insurance chapter will continue

This program is best for those who can spend a lot of money at the beginning Firstly, they can increase the value of cash value during mounting time Instead of waiting for 5-6 years for the value of cash value to be increased, their money will be invested and take interest immediately Secondly, the income in cash value will be more and will be covered for the cost of insurance As a result, the insured would not need to worry much when the cost of insurance increases later Finally, the more money they put in, the more death benefit will be increased and the sooner they can borrow money than others

c, Endowment Insurance

An endowment policy is a type of life insurance contract that is designed to pay an amount of money after a particular term (on its 'maturity') or on death Typical maturities are 10, 15 or 20 years up to a certain age limit Some policies also pay out in the case of critical illness The amount of money will be paid when the insured person dies within the time of the contract or will be paid back when the contract is halted and the person is still alive Endowment insurance also contains the combination of savings and protection; can be refundable

2.1.2.3 Variable Life Insurance

Rejda (2004) stated that variable life insurance can be defined as a fixed premium policy where death benefit and cash values vary because of the investment performance of a separate account This policy incorporating death benefit with re-saving account gives the insured the opportunity to invest in stock, bond, and money market mutual fund Cash value will increase faster, but their money is also riskier

If they make a loss, then cash value and death benefit will decrease Because people want to buy this program, many insurance companies will make sure their customers don't lose money and death benefit will not take more than a certain limit The policyholders also have the option to choose where their money will be invested 2.1.2.4 Variable Universal Life Insurance

Variable universal life insurance is a popular type of cash value insurance which has been widely purchased in recent years This program combines the above two programs: Variable life insurance and Universal life insurance This program gives the insured the freedom to pay premium and also has investment opportunities Rejda (2004) cited that most variable universal life insurance products are sold as investments or tax shelters They should be very careful when buying this program because this insurance program has the disadvantages of both variable and universal programs The kinds of investments are the same as those of variable life insurance, ranging from very conservative guaranteed fixed accounts, to bonds, to common stocks and highly aggressive sector funds

2.1.2.5 Accidental Death

The type of accident insurance under which the insured or beneficiary will be entitled to compensation or the specified amount of insurance in the event of the insured's death or injury due to an accident For example, some insured person has a hand amputated in an accident The amount paid to the insured in this particular case will be determined based on a table of rates of payment of the fixed amount of

insurance This insurance premium table also sets the amount of payment in case the insured person dies or loses other body parts caused by the accident

2.2 Definition of Purchasing Decision

2.2.1 Purchasing Decision Process

According to Engel (1968), the buying decision process is the making process which is used by consumers regarding market transactions before, during, and after the purchase of a good or service It can be seen as a typical form

decision-of a cost–benefit analysis with multiple choices There have been many models decision-of purchasing decision processes that have been introduced so far, but the most fundamental is still the 5-stage model which was first introduced by Dewey (1910):

- Problem / Need Recognition: This is considered to be the most important stage of the process when needs can come from within (customers themselves already have needs) or formed by external impacts (such as advertisements or

be introduced by a friend about a product or service)

- Information Search: At this stage, customers will find information to find the options that they feel is most optimal They can find information from sources outside the business (forum, social networks, press .) and information provided by enterprises (leaflets, catalogs, websites, )

- Evaluation of Options / Alternatives: Customers will evaluate, consider similar products and different brands

- Purchase Decision: Philip Kotler (2003) said that this period could be affected by two factors: negative feedback from other customers and the impact of that feedback

- Post-purchase Behavior: In this stage, customers will give their feedback on the product If customers are satisfied, the results will be brand loyalty and future business opportunities

From this model, it is clear that in order to make customers decide to buy a good

or service, businesses have to focus on these five steps For first-time buyers, we focus on the first 4 steps and for customers who have bought the products before, we have to take notice of the last steps as well

2.2.2 Factors affecting Consumer Behavior

According to Philip Kotler (2007), research on consumer behavior is to study how every consumer will make decisions when using their assets to procure and use goods and services

- Cultural factors influence consumer behavior because each culture is different and consumer behavior is different Culture influences the purchasing behavior of consumers mainly through three main forms: culture, cultural branch and social class

- Social factors: Consumers tend to refer to groups of friends, colleagues and families before deciding to buy a product or service The role and status of consumers also have a significant influence on their consumer behavior, many people want to show off, there are also people who choose products or services that suit their budget

- Psychological factors: Understanding consumer psychology is an extremely important factor because consumer shopping behavior is influenced by psychological factors: Motivation to promote purchases to satisfy demand; The higher the awareness, the more consumers more potential customers will have to buy; belief based on knowledge, public opinion or trust; attitude of love or hate

- Personal factors: People buy goods / services depending on the needs of their own life stages Careers and lifestyle also affect shopping behavior and how

to choose products / services

2.3 Literature Review of Factors Affecting Customers’ Decision to Buy Life Insurance

Sahel (2011) conducted a survey in Iran to find out the factors affecting purchasing decision in the life insurance sector The researcher explored ten factors, which are distributed into three categories: price, quality, and convenience

Kotler (2003) stated that a company which practice market segmentation notices that purchasers are different in what they want and need, how they make a purchase and buying habits, what demographic features are, their locations and other characteristics

Srinivas (2000) highlighted that the link between insurance products and other benefits should be given more focus by the insurers Low levels of income, structure of the society, lack of understanding among the public and lack of new distribution channels are the causes of poor performance of some insurance companies

Mishra (1987) mentioned that life insurance companies before 1960 have not paid enough attention to the importance of customer satisfaction, but after 1980, they have suggested some remedies to deliver better customer service and improve the customer satisfaction Roy (1987) scrutinized the role of better customer services

to the insured and highlighted the demands for high quality in service He has given several solutions for Life Insurance Companies to improve the customer service such as employee training programmes conducted by companies, new branches launching and introduction of technology in insurance branch offices

Vijayavani (1999) discussed in her technical paper the essential role of improving the distribution channels She then suggested that better call centers should be served to the customers to improve business Chandhani (1999) made an attempt to view that key employees and staff who are skillful and knowledgeable are more valuable to the organization as they can level up the quality of customer satisfaction

Nguyen Thi Anh Xuan (2004) mentioned in her paper factors that influencing customers’ decision to buy life insurance products which contains demographic factors, psychological factors, external factors such as the reputation of life insurance companies, distribution channels and difficulties customers may face up with when buying life insurance She also cited the importance of factor Opinions of family members and friends towards one’s decision to buy insurance as customers will have more potential to buy if they receive the approval of their relatives and friends

According to Sheth, Mittal and Newman (2001), there are 6 factors that affect the decision to purchase life insurance products: Demographic factors; Events in life; Motives to buy life insurance; Customers’ previous purchasing experience; Barriers may be faced when buying life insurance and Reputation of Life insurance companies

Figure 2.1: Sheth’s Model of factors that affect customers’ life insurance

products purchasing decision (2001)

2.4 Research Model

According to Sheth, Mittal and Newman (2001), the research developed a research model to find factors affecting customers’ life insurance purchasing decision Sheth’s model can be seen as the most detailed and closet to Vietnamese market, so this is the reason why the research decided to choose his model In this study the research included 2 factors from other research in order to provide a more precise measurement in Vietnamese market, one factor is Opinions of Family Members and Friends because considering Vietnam market and the attitudes of Vietnamese people, one would make easier decision to buy life insurance if his or her family and friends support him or her to do so and vice versa, if anyone in their family and friends show a sense of dissatisfaction and disapproval, the decision would be less potential Another factor is Distribution channels because nowadays,

Factors Affecting Customers’

Life Insurance Purchasing Decision

Reputation

of LI Company

Opinions of Family and Friends Customers’

Experience

with the development of various media, products can be advertised and be bought through many types of channels So, in this study, there are 8 factors that affect the decision to purchase life insurance products: Demographic factors, Events in life, Motives to buy life insurance, Customers’ previous purchasing experience, Barriers may be faced when buying life insurance, Opinions of family and friends; Reputation of Life insurance companies and Distribution channels

Figure 2.2: Research Model of factors that affect customers’ life insurance

products purchasing decision

(The author developed the model from Sheth, Mittal and Newman’s model (2001))

This is the model of 7 independent variables affecting one dependent variable, the decision to buy life insurance In addition, the model also analyzes the influence of demographic factors on the dependent variable The model shows the dependence of independent and dependent factors

- Dependent factor: Decision to buy life insurance

Factors Affecting Customers’

Life Insurance Purchasing Decision

Reputation

of LI Company

Opinions of Family and Friends

Customers’

Experience

Distri- bution Channels H4(-)

- Independent factors: 7 independent factors will be explained as follows

2.4.1 Customers’ Motives to Buy Life Insurance

H1: Motives to buy life insurance directly and positively affects the decision to buy life insurance of customers

 Saving: According to Mishra (1987), one of the purposes of investing in life insurance is that customers can save a great amount of money used in many situations Many people want to accumulate money to meet the increasing financial needs in the future such as buying a house, paying for education fees, traveling and retirement There are many ways of saving money: investing, saving money in banks and purchasing life insurance Investing in life insurance

is an effective way of saving and also bring out interest in the future

 Retirement: In the context of life insurance, people work until retirement age but they do not want their standard of living, measured by consumption, to be reduced dramatically Therefore, some people tend to save when they are still working According to Yaari (1965), the household maximizes lifetime utility subject to a vector of interest rates and a vector of prices, including insurance premium rate As mentioned previously, many customers want to save money for their retirement Besides, it is common that many people continue to work for a full-time or a part-time job even after they retire and will still have to use their income when they die Life insurance will replace the pay-checks that no longer arrive

 Family’s Finance Protection: Kotler (2003) mentioned that life insurance can be seen as a way of protection for a family’s finance Life insurance will have to pay inherited people a tax-free amount of money if the policyholder dies The benefit should be great so that it can allow them to have the choices and lifestyles that financial security plans set out to achieve

Life insurance could also play a crucial role to protect a business when one starts a company, he or she should have a life insurance policy Life insurance can provide funds to allow him or her to save the share of the company, and he

or she would not have to sell assets

2.4.2 Customers’ Experience of Purchasing Insurance

H2: Customers’ experience to buy life insurance directly and positively affects the decision to buy life insurance of customers

Mishra (1987) stated in her paper that life insurance companies from 1980 onwards have suggested some remedies to deliver better customer service and improve the customer satisfaction because they understood the nature and role of better customer services and how it affected customers’ experience of the companies Previous experience with an insurance company can determine whether the customer wants to buy the product from the company again If customers are satisfied with previous products, they will continue to buy and recommend for their acquaintances On the other hand, unsatisfied customers tend to stop buying from the previous insurance company and seek for another Besides, the experience of buying insurance including customer service impacts greatly on the decision of customers

2.4.3 Events in Life

H3: Events in life directly and positively affects the decision to buy life

insurance of customers

Zhu (2007) mentioned that when a customer decides to buy life insurance and

stocks, what he or she would consider first is his or her personal circumstance, such

as levels of income, health problems and how he or she think of risks and benefits There are special events in life that people may require specific financial demands, for instance setting up a family and saving educational funds for children Accidental incidents and fatal diseases have made people worried for their future so they want to have a financial source to secure themselves Besides, events such as

promotion and retirement also play a vital role in customers’ financial demands 2.4.4 Barriers When Purchasing Life Insurance

H4: Barriers when buying life insurance directly and negatively affects the decision to buy life insurance of customers

There are some barriers that hinder customers to buy insurance, they are the lack the trust of customers in insurance products; the price of life insurance products

is expensive and insurance companies do not provide good service for customers

 Lack of Trust: Mishra (1987) mentioned that the biggest hurdle facing the insurance industry is that consumers simply don’t trust insurance companies

Added to this is lack of awareness and failure of professional advice Due to excessive fragmentation of the insurance market, many insurers don’t have the critical size to build adequate risk pools, underwrite contracts, and innovate The lack of professional skills in the industry has been another major deterrent Having a customer base that is both unresponsive and potentially volatile is the worst possible state of affairs for the development the insurance market There should be a joint industry-government program to educate the public about the role of insurance and generate greater trust in the sector

 High Costs: Sahel (2011) explored ten factors the factors affecting purchasing decision in the life insurance sector, which are distributed into three categories: price, quality, and convenience Customers hesitate to buy coverage because they think it is too expensive That could mean they think it is not worth the money or they cannot afford it to their budget Some insurance purchasers recognize that they may not be able to afford it every year This has caused customers to not attend insurance coverage In addition, customers tend to focus

on meeting the short-term needs rather than long-term financial demands This kind of thought results in the hesitation in buying insurance products of some customers

 Poor Customer Services: Dissatisfaction with the customer service is another common barrier that affects customers’ decision to buy life insurance A study

by the Claes Fornell International Group showed that nearly 26% said they will choose another company if they encounter a bad call center experience The Genesys USA Consumer Survey (2007) highlighted the importance of customer service in their survey, with almost half of the respondents agreed that it is customer service that has the biggest effect on their loyalty to a company, and 44% mentioned that the main reason why they no longer do business with a company was because of the poor quality call center Some insurance companies still struggle to find the ways to achieve acceptable customer satisfaction levels despite of the fact that they know about the importance of customer service In addition, customers also frequently complain about the professionalism of the insurance consultants, for instance not having sufficient knowledge about insurance industry and financial service; some are not polite and patient to talk

to customers

2.4.5 Reputation of the Insurance Company

H5: Reputation of the life insurance company directly and positively affects the decision to buy life insurance of customers

The research outcomes of Elyria (2014) mentioned in order to have the trust

of customers, insurance companies must establish long-term commitment with their customers Musibau (2014) observed that brand image can positively impact the productivity level of the insurance provider company under study as well as branding have significant effect on repurchases patronage Singh (2011) examined if branding had any relevance in insurance sector through various sub-factors of advertisements, social status, policies and benefits, family tradition, national heritage, self-identity and concluded that brand image has a major role in the selection of an insurance purchasers as well as significant effect on repurchases patronage

2.2.6 Opinions of Family Members and Friends

H6: Opinions of family members and friends directly and positively affects the decision to buy life insurance of customers

In addition to the two mentioned groups of factors that influence the decision

to buy insurance products, there is one important factor for the Vietnamese market that should be taken into account, which is the Opinions of Family Members and Friends As stated in Nguyen Thi Anh Xuan’s bachelor thesis (2004), insurance purchaser’s family members such as parents, husband or wife and the children of the purchaser can also affect the decision to buy the products The family must have interpersonal relationships and consent of the husband or wife, so contracts are made and maintained at the contractual length Therefore, the author decided to add this factor as a request for additional supplements in the research model

distribution channels (such as direct mail, Internet, websites, or insurance agencies)

In other words, customers can select and purchase the products at any time via suitable channels Customers would like to buy insurance products through a distribution channel that are easy to access and adaptable to the location and time They also require the right service when buying a product A distribution channel provides various levels of service to meet different needs would attract a wide range

of customers

2.2.8 Demographic Factors’ Influence on Life Insurance Purchasing Decision

2.2.8.1 Income

Showers and Shotick (1994) stated that because income increased the motive

to buy more life insurance of a household and life insurance is purchased as a purpose of income replacement needed, in case there is an unexpected death of the breadwinner The purchase of financial products and life insurance depends dramatically on customers’ levels of income Customers of different income range will have different insurance product requirements Customers with higher income range may require wider range of insurance products which provide “full-protection” benefits and help them to achieve the need to save money Average earners also have a demand for individual protection products, however they can only afford products at a lower price range For low income customers, because of limited budgets, they have the tendency to buy insurance products that provide financial security rather than the products that combine savings and financial protection

2.2.8.2 Age

Berekson (1972) found that the effect of age significant factor in the act of purchasing life insurance Different age groups often have different requirements towards kinds of insurance products Young people prefer buying insurance products to meet the increasing financial needs such as the need to save money to buy a house, setting up a family or taking care of children later in life Meanwhile, people aged 50 or over are more interested in insurance products that can provide them with financial support when they retire or whole life insurance that can pay

medical expenses support when they suffer from sickness or accidents In short, the

age of a person can affect the selection and purchase of insurance products

2.2.8.3 Gender

There are distinctive differences in feelings, thoughts and interests between men and women It is considered a fact that women often have more worries about the future of the family and expect a life with peace and fewer changes Therefore, they would like to care for the sake of the family, for the achievements of the children and for saving for future use According to Nguyen Thi Anh Xuan (2004), female customers have more potential to buy life insurance than men When investing a certain amount of money to bring in future profits, women usually tend

to choose safer, cheaper and lower-risk forms of investment than men This difference also influences the decision to purchase insurance products of customers

CHAPTER 3: AN OVERVIEW OF THE LIFE INSURANCE MARKET IN

VIETNAM

This chapter provides an overview about life insurance industry in Vietnam and the potential of the sector to develop in the market in the future

3.1 The Development of Life Insurance Industry

3.1.1 The Life Insurance Industry and the Demands for Life Insurance in Vietnam

In 1986, Vietnam officially implemented the "Doi Moi" policy, with the focus shifted to a centrally planned, subsidized economy to a market economy managed by the state Innovation policy has had a positive impact on the entire socio-economic life of the country, bringing about stable and high economic growth and improved people's lives According to Viet Stock (2018), average annual GDP growth rate is about 7% The rate of poor households has decreased from 58.1% in

1993 to 32% in 2000 and to less than 6% in 2018 High economic growth along with the phasing out of the subsidy mechanism has spurred the demand of life insurance market of Vietnamese people

Life insurance industry was set up in Vietnam in 1996, with the Ministry of Finance allowing Bao Viet to pilot life insurance in response to the need for openness and integration as well as the development of the life insurance industry itself After the pilot period, the Ministry of Finance has granted licenses for foreign life insurers (licensed in 1999 to three companies namely Prudential, Manulife, Bao Minh now renamed as Daiichi Life, followed by AIA, Prevoir, ACE Life, Great Eastern Life and Cathay Life Up to now, there are 9 enterprises operating in the market and more insurance companies are licensed to operate in the future

With the entry of foreign life insurance companies, the life insurance market

in Vietnam has developed in terms of scale, products, quality of service and professionalism The following numbers and information are worth mentioning:

- Up to 2018, Vietnamese insurance market has 63 insurance companies (including 30 non-life insurance companies, 18 life insurers, 2 reinsurers and 13 brokers) and 1 branch of foreign non-life insurance companies

Figure 3.1: Structure of Vietnam Insurance Industry

(Source: Vietnam Credit, 2018)

- Total premiums in the first two months of 2018 are estimated at VND 16,587 billion, increased 24.4% compared with the same period last year, of which life insurance revenue is estimated at VND 9,316 billion, increased 33.34% compared with the same period of 2017

- According to Vietnam Insurance Association (IAV) (2018), insurance industry's revenue continued to grow higher than the previous year, ensuring safe and efficient business activities, meeting the increasing insurance increasing demand

of the economy and society Total insurance revenue is estimated at VND 133,000 billion, increased 24% compared to the same period of 2017 In particular, the revenue of life insurance businesses is estimated at VND 87,000 billion Compared

to 2017, the group of life insurance businesses grew by 33.8% It is from this source that the life insurance industry has provided a large amount of capital for the economy

- The number of new agents recruited in the first 6 months of 2017 is 141,305 agents, up 25.3% over the same period last year, insurance companies have the largest number of new recruiters in the market in order Baoviet Life Insurance - 31,057 agents, Prudential - 24,498 agents, Dai-ichi - 19,489 agents, AIA - 15,392 agents and Hanwha Life 13,946 agents By the end of June 2017, the total number of agents available in the market was 525,150 agents, up 20% over the same period last

year The companies with the highest number of agents are Prudential - 163,755 agents, Bao Viet Life - 142,382 agents, Dai-ichi life - 66,738 agents, Hanwha Life - 35,710 agents and AIA - 34,025 agents

Today, as the economy goes further, more and more Vietnamese are buying life insurance as a form of saving and accumulating personal financial investment with weak risk control factor Vietnamese people also have changed their way of thinking from being dependent on children to reserving property for children and grandchildren and this thought increasingly widespread This is one of the reasons that the domestic life insurance market is growing

In recent years, the need to learn and participate in life insurance services is increasing People are aware that risk can happen to anyone, at any time and will seriously affect their lives as well as the whole family Owning at least one insurance policy will ensure the financial back up to deal with the consequences of the risk

In addition, insurance is a form of accumulation for the future Every laborer

is aware of saving, saving money to make plans in the future Life insurance is one

of the ways to make regular savings and plan for each family People are aware that life insurance contributes to the financial planning of each family, such as raising funds for the education of their children and having money to spend on retirement

For those with high income, life insurance is an effective investment channel Especially, in the context of the stock market, many stocks fell sharply, the market was sluggish, large investments and high risks The savings interest rates are not high so they can choose life insurance for investment because they can make profit

on the amount of premiums paid and when the risks are still protected

3.1.2 Competitors in the Life Insurance Market

Up to 2018, Vietnamese insurance market has 18 life insurance companies such as Prudential, Bao Viet Life, Manulife, Bao Minh - CMG - now renamed as Daiichi Life, followed by AIA, Prevoir, ACE Life, Great Eastern Life and Cathay Life,… According to BizLive (2014), the market share proportion of Prudential topped in Vietnam Life Insurance market with 32.85%, followed by Bao Viet with 26.94% However, the data in June, 2018 from the Department of Insurance Supervision and Supervision of the Ministry of Finance (MoF) showed that in terms

of new market share of insurance companies in the top five, Bao Viet Life took its

leading position with 22.12% of market share Dai-ichi overtook Prudential to the second position with 15.59% market share (at the end of 2017, Prudential ranked second) Prudential went back to No 3 with 15.25% market share, followed by Manulife (14.34%), AIA (10.51%)

Figure 3.2: Market Share Proportion of Life Insurance Companies in Vietnam

With the positive growth of the market, many insurers, especially the top companies are trying to increase capital, expand the network, diversify distribution channels ., expect strong growth in business revenue and market share in the future For example, Sun Life Vietnam has just been approved by the Ministry of Finance to raise its chartered capital to VND 1,870 billion Recently, Sun Life Vietnam officially opened two more offices in Ninh Thuan and Lam Dong According to the company's representative, new offices are being deployed with modern equipment and facilities, which will create favorable conditions for customer service and a professional working environment for staffs and employees

Life insurance coverage industry is still abundant Bancassurance coverage is currently only 6% of total industry revenue, while the worldwide coverage is 70% Therefore, the participation of large banks is expected to promote and simultaneously impact the market share of the insurance market While Bao Viet recently signed with OCB, Prudential previously cooperated with VIB, Maritime Bank; Dai-ichi cooperates with Sacombank, SHB; Manulife cooperates with Techcombank; AIA with VPBank and DongABank, …

3.1.3 Life Insurance Products in Vietnam

The total number of insurance products in Vietnamese market today is up to

450 life insurance products In addition to the development of the number, insurance products are developed in the direction of increasingly diverse and flexible

- Whole Life insurance: Whole Life insurance is an insurance service that pays only once to the beneficiary when the insured dies The insurance period is not determined, depending on the life of the insured During the insurance period, when the insured person dies, the insurance company will proceed to pay the insured amount to the beneficiary Premiums in this type of insurance can be paid once or periodically

- Additional Term Insurance: This is the type of benefit insurance when the insured person dies within the contract period, usually a set time period When the contract expires and the insured is alive, the insurer will not pay the insurance or any fees to the beneficiary Death insurance was born in the early life of life insurance, there were many restrictions on benefits for customers, so the cost was quite low In particular, death insurance is not an investment, saving for insurance buyers

- Endowment: This is a combination of additional term insurance and insurance With this insurance business, customers will benefit more when they receive a large amount of insurance when they die unfortunately during the insurance period Conversely, when the policy expires and the insured person is still alive, the company will pay back the sum of the insurance with interest and special payments due to the contract This is the most commonly used life insurance on the life insurance market in the world

- Term Insurance (Annuity): The insured person lives up to a certain period specified in the contract, after that time, the insurer will pay the periodic insurance premium called the annuity to the beneficiary under the agreement The annuity may be a fixed or incremental / gradual pay-off number over time depending on the type and choice of customers when participating in insurance

- Variable Life Insurance: This is a way to help customers maximize their savings in investment to receive more profits Thus, investment-linked insurance is capable of simultaneously meeting the risk transfer needs and investment needs of insurance buyers The premium after deducting the cost will be used to invest in the financial items in the affiliate fund including bonds and stocks

- Senior Life Insurance: This is a combination insurance of additional term insurance and term insurance When the insured person reaches a preset age, the insurance company will pay the annuity or a lump sum when the insured person retires

In addition, there are more and more new insurance products to such as micro-insurance, pension insurance, and health insurance, which are increasingly meeting the diverse needs of customers, contributing to the socio-economic development and ensuring social security

3.2 The Potential of Life Insurance Industry in Vietnam

Currently the population of Vietnam is 96 million people, ranking 14th in the world, with an annual increase of about 1 million people Interestingly, Vietnam has

a young population structure with 66 million people of working age, accounting for more than 69% of the total population Life expectancy has also improved steadily

(from 50 in the 1960s to 76.6 in 2017) However, the proportion of people taking life insurance now in Vietnam accounts for only 8% of the population

In recent years, Vietnam's economy has made great progress and it is predicted that Vietnam will continue to achieve high economic growth rate in the coming time (forecast at 7% per year), and the life of the people is markedly improved According to the World Bank's 2016 forecast, GDP per capita will reach USD 2300 Swiss Re (2015) predicted with this GDP per capita, life insurance penetration rate can be at 1.58% Moreover, Vietnamese have the highest savings and income in the world Vietnam has been identified as one of the fastest growing economies in Southeast Asia, with a rapidly growing middle class Notably, the economic development has made the middle class more and more popular, creating

a high demand for life insurance

Figure 3.4: Gross Direct Premiums for Insurance Industry in 2015

(Source: Swiss Re, 2015)

Figure 3.5: Insurance Penetration Rates Vs GDP Per Capita

(Source: Swiss Re, 2015)

The need for financial planning and financial independence is getting higher With the momentum of socio-economic development and the formation of the nuclear family (parents and children), the demand for financial planning and the need for financial independence are increasing to create a better life For example, individuals have paid more attention to financial resources when they retire, to work

as hard as they can to live financially independent, not dependent on their children

or relatives

The development of the financial market on the one hand allows to improve the investment efficiency of life insurance companies and create the basis for the introduction of insurance products associated with investment and integrate life insurance products with other financial insurance products (for example, can combine insurance products with bank credit products) In addition, the rise of the stock market shows that the demand for investment trusts for professional investors (for example, investment funds) is increasingly urgent, creating the premise for the development of unit linked products