WAII PROJECT (GROUP 3)

RISK PERCEPTION AND THE DEMAND FOR

INSURANCE IN WEST AFRICA

(A CASE STUDY OF THE GAMBIA)

A PROJECT WORK SUBMITTED IN PARTIAL FULFILMENT

OF THE REQUIREMENT FOR THE AWARD OF DIPLOMA IN

INSURANCE

AT

WEST AFRICAN INSURANCE INSTITUTE (W.A.I.I)

THE GAMBIA

JUNE 2013

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CERTIFICATIONThis project titled ‘RISK PERCEPTION AND THE DEMAND FOR

INSURANCE IN WEST AFRICA - A CASE STUDY OF THE GAMBIA’

Written by the following persons

1. VALERIA ISSAKA

2. AMBROSE BATU WUREH

3. SAMUEL ADOM BAIDOO

4. MAIMA BLAMAH JOHNSON

5. BOLATITO AKANJI GHAFAR

6. NELSON INEMESIT EKANEM

7. AYOBOLA T. OLUGBEMI

8. PATRICK HUSSAINI ATTAHIRU

9. SAINABU JOBE B.

10.PATRICIA AFUA MINTAH

Has been read and approved by the undersigned as meeting the requirement of the

West African Insurance Institute, The Gambia, for the award of Diploma

Certificate in Insurance.

……………………………….. …………………………………...

(Project Supervisor) DATE

……………………………….. …………

PROFESSOR PRINCE MIKE IKUPOLATI DATE

(DIRECTOR GENERAL, WAII)

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DEDICATION

We wholeheartedly dedicate this project work to the Almighty God, for his grace

towards us throughout the period of this course, to our various companies, families

and the staff of W.A.I.I.

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ACKNOWLEDGEMENTThroughout the duration of this course, of which this project work is an integral part, we have

been privileged and fortunate to have the support and encouragement of many.

First and foremost, we wish to express our profound gratitude to the Almighty God, for all his

doings in our lives especially for seeing us to a successful end of this distinguished course.

Our gratitude goes to our project supervisor Mr Festus Ahaotu for his/her patience,

understanding and consideration.

We are equally grateful to Professor Prince Mike Ikupolati, the Director General of W.A.I.I.,

who has not only taught us but given us a treasure in our lives’ pursuit. We pray to God for

goodness and blessings for you immeasurably.

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ABSTRACTRisk perception is a global phenomenon. How products or services are perceived has effects on

the demand for those products and services in question. Would the perceived risk of failure cause

a student to study, that of theft or burglary cause households or organisations to put in place

security and central anti-burglary mechanism? Then, what effect would risk perception have on

the demand for insurance?

The principal objective of this paper is to investigate risk perception’s role in the demand for

insurance. Overall, this work represents analyses of risk perception and the demand for insurance

and the roles both insurance companies and the government can play to develop and improve an

environment that can stimulate a favourable risk perception towards insurance and thereby

increase the demand for insurance.

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TABLE OF CONTENT

PAGE NUMBERS

CERTIFICATION ii

DEDICATION iii

ACKNOLEDGEMENT iv

ABSTRACT v

TABLE OF CONTENT vi

CHAPTER ONE

1.0 INTRODUCTION 1

1.1 GENERAL DESCRIPTION OF THE AREA OF STUDY 2

1.2 PROBLEM ANALYSIS 2

1.3 PURPOSE OF STUDY 3

1.4 RELEVANT RESEARCH QUESTIONS 3

1.5 STATEMENT OF THE HYPOTHESES 4

1.6 DEFINITION OF TERMS 5

1.7 DELIMITATION (SCOPE) OF STUDY 6

1.8 SIGNIFICANCE OF THE RESEARCH PROBLEM AND

JUSTIFICATION FOR INVESTIGATION 7

1.9 REFERENCES 8

CHAPTER TWO

2.0 REVIEW OF LITERATURE 9

2.1 HISTORICAL BACKGROUND 9

2.2 THEORIES 10

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2.3 CURRENT LITERATURE BASED ON EACH OF THE

RELEVANT VARIABLES OF THE MODEL OR THEORY 12

2.3.1 INSURANCE AND DEMAND FOR INSURANCE 12

2.3.2 HISTORY OF INSURANCE 12

2.3.3 FACTORS AFFECTING DEMAND FOR INSURANCE 13

2.4 SUMMARY OF CHAPTER 17

2.5 REFERENCES 18

CHAPTER THREE

3.0 METHODOLOGY 20

3.1 BRIEF OUTLINE OF THE CHAPTER 20

3.2 RESTATEMENT OF THE RESEARCH QUESTIONS

AND HYPOTHESES 20

3.2.1 RESTATEMENT OF RESEARCH QUESTIONS 20

3.2.2 RESTATEMENT OF RESEARCH HYPOTHESES 21

3.3 RESEARCH DESIGN 22

3.4 CHARACTERISTICS OF STUDY POPULATION 22

3.5 SAMPLING DESIGN AND PROCEDURES 23

3.6 METHOD OF DATA COLLECTION 23

3.7 PILOT STUDY, TEST OF VALIDITY AND RELIABILITY

OF STUDY INSTRUMENT 24

3.7.1 PILOT STUDY 24

3.7.2 TEST OF VALIDITY 24

3.7.3 RELIABILITY OF STUDY 24

3.8 METHOD OF DATA ANALYSIS 24

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3.8.1 TEST OF PROPORTIONALITY 25

3.9 LIMITATION OF THE METHODOLOGY 26

3.10 REFERENCES 27

CHAPTER FOUR

4.0 PRESENTATION AND ANALYSIS OF DATA 28

4.1 A BRIEF INTRODUCTION OF THE CHAPTER 28

4.2 RESPONDENTS’ CHARACTERISTICS AND CLASSIFICATION 28

4.3 PRESENTATION AND ANALYSIS OF DATA

ACCORDIND TO RESEARCH QUESTION 29

4.3.1 SECTION A: PERSONAL DATA 29

4.3.2 SECTION B: RESEARCH QUESTIONS 30

4.4 PRESENTATION AND ANALYSIS OF DATA ACCORDIND

TO TESTS OF HYPOTHESES 38

4.4.1 SUMMARY TO RESPONSE ACCORDING TO

THE TEST OF HYPOTHESES 38

4.5 REFERENCES 44

CHAPTER FIVE

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 45

5.1 SUMMARY 45

5.2 CONCLUSIONS 46

5.4 RECOMMENDATIONS 47

5.5 SUGGESTION FOR FURTHER STUDIES 51

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5.6 REFERENCE 52

APPENDICES 53

BIBLOGRAPHY

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CHAPTER ONE1.0 INTRODUCTIONThe insurance market in the Gambia has evolved over the years and is described as one of the

major players of economic growth in the country and international insurance business. However,

risk perception has been the reason for The Gambia and Africa as a whole, lagging behind in the

international insurance business. The insurance market is open, dynamic and competitive and

hosts a number of companies with varying sizes in the country. These companies have been the

key players for many years in the insurance and reinsurance markets.

The prevailing use of direct insurance on the domestic scene to provide the needed security for

any economic or industrial effort and the use of reinsurance to spread risk exposures worldwide,

serve to provide some assurance for developing countries in their bold undertaking to improve

upon the lives of their people.

The challenge faced by the insurance industry is that, it is now a buyer’s market and not a seller’s

market. Insurance products are therefore designed to meet the needs of consumers. People usually

purchase insurance when it is made compulsory. In most cases, they have no set expectations

because they purchase insurance infrequently. This is where educating the populace on insurance

plays a critical role. Ill- informed people are usually deprived of better service as they are

unaware of the benefits available to them.

A good education on risk and insurance is important for the people as their perception to risk is

diverse. A bad experience with an insurance provider can tarnish the image of the whole company

and diminish the expectation of getting more people to sign on to policies.

1.1 GENERAL DESCRIPTION OF THE AREA OF STUDY

The word ‘risk’ is a household name that one has been living with. Individuals and businesses are

exposed to different types of risks. This is because risk is not only the center of insurance but also

inseparable from life. Risk is defined in its simplest form as ‘uncertainty of loss’. Risk is therefore

evaluated as the deviation of future outcome from the expected or predicted values. According to

Ikupolati (2012), ‘Risk is concomitant to life. We cannot avoid risk. If we know all that will

happen each day in our lives, risk would not exist. However, we know better that each living day

is full of RISKS’. The importance of risk in one’s life has led to its different perception by

different individuals. Risk perception is the subjective judgment that people make about the

characteristics and severity of a risk. Risk perception has a great impact on the demand for

insurance.

However, demand for insurance is dependent on perception of some hazards which determine

valuation of risks. The theory of demand for insurance has been based on expected utility theory

and an assured preference for certain issues over uncertain ones of the same magnitude (Savage,

1972). Demand for insurance is a decision to purchase not only the apparent current condition of

the product but also its future conditions. Dionne, G. D. (2000). Research on demand for

catastrophe insurance finds that one reason insurance is not purchased is because those at risk are

ill-informed about the risk. For instance, Kunreuther et al. (1978), via in-person interviews, find

that individuals whose property has been damaged in the past in a natural disaster are more likely

than others to purchase flood insurance. These perceived risks can be financial, psychological,

performance or time risks. Moreover, laws of each country also influence how the citizens

perceive risk and its subsequent demand.

1.2 PROBLEM ANALYSISDemand for insurance in The Gambia is not appreciating as expected compared to the demand for

insurance in other countries. Many people in The Gambia are indifferent about the need for

insurance; this may be attributable to their perception of risk.

The Gambia is one of the smallest developing countries yet it is experiencing moderate growth in

the area of insurance.

The research questions will guide the researcher to provide answers to the problem that is being

investigated based on the purpose of study.

1.3 PURPOSE OF THE STUDY The purpose of the study is to;

1. Find out the effects of perceived risks on the demand of insurance in the Gambia.

2. Know the basis for understanding and anticipating public perception of risks,

3. Aid in providing a communication of perceived risk information among laypeople, technical

experts, and policy makers.

4. Consumers’ view about Insurance in general.

5. To know about the types of insurance policies taken by consumer.

6. To find out the awareness level of insurance of the consumer and,

7. To recommend improvement in the insurance industry.

1.4 RELEVANT RESEARCH QUESTIONS

1. Does the thought of premature death have an effect on the demand for life assurance

products?

2. Does the thought of being involved in an accident have an effect on the demand for

accident policies?

3. Does the thought of fire damage to property have an effect on the demand for

fire/household content policies?

4. Does the thought of car theft, fire and accident have an effect on the demand for motor

insurance policies?

5. Does religion, level of income and previous claims experience with an insurance company

have an effect on the demand for insurance.

1.5 STATEMENT OF THE HYPOTHESESBased on the above research questions, the following hypotheses have been drawn.

HYPOTHESIS 1

H0: The demand for life assurance products does not depend on the thought of premature death.

H1: The demand for life assurance products depends on the thought of premature death.

HYPOTHESIS 2

H0: The demand for life accident insurance policies does not depend on the thought of being involved in an accident.

H1: The demand for life accident insurance policies depends on the thought of being involved in an accident

HYPOTHESIS 3

H0: The demand for fire/household content policies does not depend on the thought of fire damage to properties.

H1: The demand for fire/household content policies depends on the thought of fire damage to properties.

HYPOTHESIS 4

H0: The demand for motor insurance policies does not depend on the thought of car theft, fire and accident.

H1: The demand for motor insurance policies depends on the thought of car theft, fire and accident.

HYPOTHESIS 5

H0: The demand for insurance does not depend on the level of income, religion and previous claims experience.

H1: The demand for insurance depends on the level of income, religion and previous claims experience.

1.6 DEFINITION OF TERMS

Insurance: It is a pool of risk or risk-transfer mechanism that ensures full or partial financial

compensation for the loss or damage caused by event(s) beyond the control of the insured party.

Characteristics of insurance Sharing of risks

Cooperative device

Evaluation of risk

Payment on happening of a special event

The amount of payment depends on the nature of losses incurred.

Insurance business depends on the law of large number of people insured against similar

risk.

Insurance is a plan, which spreads the risk and losses of few people among a large number

of people.

The insurance is a plan in which the insured transfers his risk on the insurer.

Insurance is a legal contract which is based upon certain principles of insurance which

includes utmost good faith, insurable interest, contribution, indemnity, proximate cause,

and subrogation.

Functions of insurance: 1. Provide protection: - Insurance does prevent the occurrence of the event, but can

compensate for the loss.

2. Collective bearing of risk: - Insurance is a device to share the financial losses of few

among many others.

3. Assessment of risk: - Insurance determines the probable volume of risk by evaluating

various factors that give rise to risk.

4. Prevention of losses: - Insurance cautions businessmen and individuals to adopt suitable

device to prevent unfortunate consequences of risk by observing safety instructions.

5. Small capital to cover large risks: - Insurance relives businessmen from security

investment, by paying small amount of insurance against larger risks and uncertainty.

6. Contributes towards development of industries.

7. Contribution to economic growth.

Risk: A possibility of something unpleasant happening.

Perception: The process of using the senses to acquire information about the surrounding

environment or situation.

Risk perception: Risk perception is the subjective judgment that people make about the

characteristics and severity of a risk.

Demand: The willingness and ability to pay a sum of money for some amount of a particular

goods and services.

Service: Any activity or benefit that one can offer to another to satisfy a need that is essentially

intangible.

Concomitant: Following or accompanying as a consequence.

1.7 DELIMITATION (SCOPE) OF THE STUDYThe research will be limited to life and non-life insurance products and how peoples’ perception

affects the demand for these products, a case study in the Gambia.

The choice of study was influenced by access to available relevant information and data with

ease.

The conclusion of the study concerning the Gambia will be brought by information and data

gathered on the effects of risk perception on the demand for insurance.

1.8 SIGNIFICANCE OF THE RESEARCH PROBLEM AND

JUSTIFICATION FOR INVESTIGATIONThe research will help us find out why we need to know Gambians risk perception relating to

demand for insurance.

Growth in the insurance industry means more revenue for the country which brings about

employment and expansion among others. Knowledge of peoples’ perception in relation to

demand for insurance will help the country in effective planning of national insurances.

In addition, it is hoped that this study will serve as a basis for further research for the people with

similar aims and objectives.

1.9 REFERENCES:1. Onafalujo, Akinwunmi Kunle; Abass, Olufemi Adebowale; Dansu, and Sewhenu Francis,

Effects of Risk Perception on the Demand for Insurance: Implications on Nigerian

Road Users

2. Professor Prince Mike Ikupolati, (2012), Unpublished Lecture Notes on risks

management.

3. Tian Zhou-Richter, Prof. Mark J. Browne, Ph.D. and Prof. Dr. Helmut Gründl , Risk

Perception and the Demand for Long-Term Care Insurance

4. www.accessgambia.com

CHAPTER 2

2.0 LITERATURE REVIEW

2.1 HISTORICAL BACKGROUND

IDENTIFICATION

The Republic of the Gambia is the official name the Gambia. It was named after the Gambia

River. It is the smallest country on the mainland Africa.

LOCATION AND GEOGRAPHY

The Gambia is very small and narrow country whose borders mirror the meandering Gambia

River. It lies between latitudes 13o and 14o N, and longitudes 13o and 17oW. It is surrounded by

Senegal, apart from a short strip of Atlantic coastline at its western end. The country is less than

48.2km (30.0mi) wide at its widest point, with a total area of 11,295km2. Approximately

1,300km2 (11.5%) of the Gambia’s area is covered by water. It is the smallest country on the

continent of Africa. The climate is tropical. There is hot and rainy season, normally from June

until November, but from then until May there are cooler temperatures with less precipitation. On

18 February 1965, the Gambia gained independence from the United Kingdom. Banjul is the

Gambian capital, but the largest cities are Serekunda and Brikama.

DEMOGRAPHY

The population of the Gambia was estimated at 1.361 million at the 2003 population census. More

than 63% of Gambians live in rural villages (1993), although more and younger people come to

the capital in search of work and education. In 2003, urbanisation rate was estimated at 50.3%.

The UNDP’s Human Development Report for 2010 ranks the Gambia 151st out of 169 countries

on its Human Development Index, putting it in ‘Low Human Development’ category.

ETHNICITY AND LANGUAGE

A variety of ethnic groups live in the Gambia, each preserving its own language and traditions.

The Mandinkra ethnicity is the largest, followed by the Fula, Wolof. Jola. Serahule, Serers and

the Bianunkas. English is the official language of the Gambia. Other languages are Mandinka,

Wolof, Fula, Serer, Krio and other indigenous vernaculars.

CURRENCY

The Gambia uses delasis (GMD). The denominations range from 5 to 50 notes. The delasis is the

legal tender within the country (Gambia) and not outside.

HISTORY OF INSURANCE IN THE GAMBIA

In 1972 there was only one insurance company operating in The Gambia market. This was the

Northern Assurance Co. Ltd., later joined by the Gambia National Insurance Company Ltd.

Presently there are 12 companies operating in the insurance sector of The Gambia with latest

addition being in December, 2007, of Takaful Insurance Company which is run on Islamic

(Sharia) principles.

2.2 THEORIES

Risk theory is the likelihood to experience catastrophic or economic loss which can be physical,

emotional harm of any kind. Dake (1991) defines risk as the variation in possible outcomes of an

event based on chance. This is similar with Vaughan & Vaughan (1996) who defined risk as a

condition in which there is a possibility of an adverse deviation from a desired outcome that is

expected or hoped for. The above definitions centre on the premise that individuals generally

attempt to avoid incurring risk through developing various ‘risk reducing’ strategies in areas of

lives.

Risk perception on the other hand, is the process by which an individual selects, organizes and

interprets stimuli into a meaningful and coherent picture of the world (Burn 1992).

However, from a social point of view, Wildavsky (1991) defines risk perception as

conceptualized and a contraction process which can be through different forms, like consumer’s

self-image, positioning of services, service environment and perceived quality of products which

can either be intrinsic that is physical characteristics of the product itself or extrinsic like pricing,

advertising and so on.

Basically, Douglas and Wildavsky (1983) and Slovic (2000) proposed different approaches

towards risk perception.

While Slovic (2000) concentrated on psychometric paradigm, Douglas and Wildavsky (1983)

proposed cultural approach. The psychometric concentrates on various characteristics or

dimensions to explain sometimes ‘irrational’ perception of lay persons. The major aim of this

approach was the unveiling of the cognitive structure of risk. It is believed that people’s

perception of risk in various sources is related to the factor of dread and unknown risk.

On the other hand, cultural theory places affiliation with social way of life and corresponding

world views in the centre of their theoretical concept of risk perceptions. Hierarchical fears

attached in social order, example: crime, the individualistic fear of regulation, (market

interventions by the state).

The egalitarian worries about environmental risk and the fatalistic is scared of almost everything

in social life, Douglas and Wildavsky (1993).

Several factors that may influence how risk is perceived include:

I. Characteristic of the risk sources itself (Slovic 2000)

II. Value attitude (Dake 1991)

III. Ethno-cultural and socio-economic background (Vaughan & Vaughan 1996 )

IV. Level of information

2.3 CURRENT LITERATURE BASED ON EACH OF THE RELEVANT

VARIABLES OF THE MODEL OR THEORY

2.3.1 INSURANCE AND DEMAND FOR INSURANCE

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for

payment. It is a form of risk management primarily used to hedge against the risk of contingent,

uncertain loss.

The transaction involves the insured assuming guaranteed and known relatively small loss in the

form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in

case of a financial loss.

2.3.2 HISTORY OF INSURANCE

In some sense we can say that insurance appeared simultaneously with the appearance of human

society. However, early methods of transferring (distributing) risk were practiced by Chinese and

Babylonian traders as far back as the third and second millennia BC respectively. Chinese

merchants travelling treacherous river rapids would redistribute their wares across many vessels

to limit the loss due to any single vessel capsizing. The Babylonians developed a system which

was recorded in the famous code of Hammurabi, C. 1750 BC and practised by early

Mediterranean sailing merchant. If a merchant received a loan to fund his shipment, he would pay

the lender an additional sum in exchange for the lender’s guarantee to cancel the loan should

shipment be stolen or lost at sea. Today, the idea or concept behind what pertained as insurance in

the olden days has not changed. But in modern insurance, there are different types of insurances

to cover every facet of human endeavour. It has been put in two broad categories;

1. Life insurance

2. General insurance

2.3.3 FACTORS AFFECTING DEMAND FOR INSURANCE

The theory for insurance has been based on expected utility theory and an assured preference for

certain issues over uncertain ones of the same magnitude (Savage 1972). Demand for insurance is

a decision to purchase not only the apparent current condition of the product but also its future

conditions of the produce, Dionne (2000).

1. Unavailability of desirable insurance products

The availability of insurance products is vital to satisfying consumer needs. Insurance providers

sell insurance services without tailoring the services to meet the needs of the consumer. Products

that have existed to the present day in the industry are categorised into:

Life Assurance Products

General Business Products

Life Assurance Products

These tend to focus on insurances of the person. Products such as Whole Life, Endowment,

Pensions and Group Life policies, have been offered in varied forms to the insuring public.

Insurance products have not been dynamic, and tend to have static life cycles. This has made

insurance marketers less innovative. These products, over the years have been adversely affected

by inflation, thus, leaving most consumers dissatisfied. The result is, low demand for insurance.

General Business Products

In the area of general business, products such as Fire, Motor, Burglary, Marine, Accident, and

Engineering insurances have been marketed by various companies in The Gambia. Most of these

products are technically obsolete and static in nature, for the understanding of the average

insurance consumer. Insurance companies have so far not been able to present their products

attractively or offered variations of their core products in line with changing needs of the

consumer.

Consequently, there is a yawning gap in terms of consumer needs and expectations and its

concomitant low demand for insurance.

2. Attitude towards risk and risk awareness

Individual decisions on whether to purchase insurance products are largely determined by the

characteristics of the individual risk aversion, expectation regarding the likelihood of loss and the

price of insurance products (Dionne Georges, Neil & Nathalic, 2000). Numerous studies have

shown that risk perception is linked to demand for insurance. Mc Clelland, Shulze and Hund

(1990) assert that some people are found to perceive risk as if no hazard exists while others rate a

low probability risk equal to more frequent risk exposure, as a matter of perception.

Also, being aware of a particular risk is another reason that affects demand for insurance. Some

people may not have insurance cover for a particular risk because they did not know such a

facility is available. Therefore, individual according to Camerer (1989) resort to having self-

insurance or protection. Self- insurance is a way of mitigation for cases when human actions

cannot affect the probability of risk but can influence the consequences of the risk.

3. Price of insurance

With the purchase of insurance services, Blincoe (1996) asserts that, a consumer widens his scope

of discretion and the opportunity of protecting themselves from financial loss in the event of a

loss. Therefore, the price of insurance is an essential determinant in the level of insurance demand

(Swiss Re, 1993).

However, the relationship between alternative prices on the current demand will determine the

demand curve. That is, demand and prices are inversely related. In standard economic theory, the

price of a product is the key determinant in the supply and demand of that product (Varian 1999).

Therefore, if insurers price insurance without taking into consideration the level of risk, age and

gender and offer everyone the same price relating to average risk, insurance becomes expensive.

Looking at the Gambian population, based on the 2003 estimates, 69% of the population are

living below the poverty line. Even though The Gambia has in recent years experienced increase

GDP growth rates averaging about 5.4%, poverty is on the increase. As a result, people based on

their risk perception can decide to or not to buy insurance.

4. Income and wealth

The demand for insurance grows (income sensitive), sometimes at a faster rate than income level,

that is, income elastic. Consumers can only purchase insurance if they have sufficient income to

do so. In the hierarchy of needs, people will first satisfy the basic needs such as food, clothing and

shelter before meeting other needs including insurance. Thus, as income grows, demand for

insurance grows as well. Also, as people become affluent, they tend to have more to insure.

Higher income means greater ability to acquire insurable assets and consequently an increase in

demand for insurance. Beenstock et al. (1988) made this observation using an internal dataset to

examine the relationship between property liability, insurance and income. He found out that

marginal propensity to insure that is, increase in insurance spending when income rises by 1

dollar. The Gambia is no different.

5. Public awareness of insurance

Despite the essential place of insurance in the society, the level of public awareness is still far

from satisfactory in The Gambia and the African continent as a whole.

This situation may be attributed to various factors including government’s attitude towards the

insurance industry, quality of the insurance personnel, finance, illiteracy and the economic status

of the country. The effect of public awareness of insurance can only be crippling to the insurance

industry and the economies of the nation, considering all of its benefits. Lack of public awareness

leads to low demand of insurance covers, which will result in the unavailability of insurance

products due to the low level of innovation and creativity in the industry. Ultimately the

availability of insurance services will lead to colossal economic losses or wastages which could

have been preventable or mitigated by insurance services. Generally, all benefits associated with

the practice of insurance are threatened by the lack of public awareness thus highlighting the

relevance of the relevance of the relationship between public awareness and the demand for

insurance.

Public awareness is unique in its importance since it provides the basis of market research,

guiding insurers on products to produce, since only an enlightened client can adequately identify

insurance needs, thus minimising time and procurement. Public awareness is the key to demand

for insurance, and it involves the communication between the industry and the public on

insurance products, services available and benefits. It can be achieved by the various methods, but

requires constant monitoring to determine public responses such as misconceptions, areas of need,

and misinformation, so as to ensure adequate reactions by the industry in either providing services

to satisfy the needs or information dissemination to correct misinformation. This simply implies

that the process of maintaining public awareness is a continuous process involving the integration

of all the parts involved in a communication process.

6. Religion

One other factor determining the demand for insurance is religion. In The Gambia, 90% of the

population are mostly ‘Sunni Muslims’, making them the largest religious group. Not only is The

Gambia mainly Muslim country, but it is also located in a strongly Muslim region. The influence

of Islam in the country can be dated back as far as the 7th century, when the Berbers of North

Africa converted to Islam and plied West Africa for trading reasons.

Under common interpretations of Islamic law, conventional insurance is forbidden in Islam.

Scholars such as Sheikh Mohammed Al – Munaiid criticised the system of conventional insurance

as exploitative and unjust. They point out that paying money for something with no guarantee of

benefit involves high ambiguity and risk. One pays into the programme, but may or may not need

to receive compensation from the programme, which could be considered as a form of gambling.

Against this background, one can understand the reason for low patronage of insurance in The

Gambia.

In Muslim majority countries and in some Muslim countries, there is often an alternative to

insurance available called takaful. It is based on a cooperative, shared risk model – Ikupolati

(2013).

2.4 SUMMARY OF THE CHAPTER

Insurance has been in existence from the time of the appearance of human society. It has been used

from that time as a risk transfer mechanism.

Despite the advantages that go with insurance, there has been a low patronage of insurance

services in The Gambia in particular and West Africa as a whole. This is so because individual

differences in risk perception – risk lovers, neutral and risk averse.

Apart from the effects of risk perception of the people on demand for insurance, there are other

variables that have accounted for the low demand for insurance.

Price of insurance was one of the variables mentioned. It can increase or decrease the demand for

insurance. If insurers price insurance without looking at the level of risk, by age and gender, and

offer everyone the same price relating to average risk, insurance becomes expensive.

Income and wealth also determines demand for insurance. People can only purchase insurance if

they have sufficient income to do so.

Public awareness of risk and insurance services and policies will result in the development of

public confidence in the industry and therefore in the whole financial system. Policyholders should

be able to understand products and policies offered and to compare different companies to make

their choice hence demand for insurance.

Religion was also mentioned as one of the variables determining the demand for insurance.

2.5 REFERENCES

1. Onafalujo, A. K (2011) Effects of Risk Perception on the Demand for Insurance:

Implication on Nigerian Road Users.

2. Dake,K(1991). Disposition in the Perception of Risk: An analysis of Contemporary

Worldviews and Cultural basis, Journal of Cross – Cultural Psychology

3. Wildavsky, A. (1991). The Rise of Radical Egalitarianism. The American University

Press.

4. Schmidt, M (2004). Investigating Risk Perception: a short introduction.

5. Akhigbe, A. (1992). Promoting Insurance Awareness through Public Enlightenment

and Manpower Development, presented at the 19th WAICA AGM & Educational

Conference, The Nigerian Institute of International Affairs, Victoria Island, Lagos,

Nigeria.

6. McCllelland G. H, Schulze W.D, & Hurd (1990). The Effects of Risk Belief on Property

Values: a case study of hazardous waste site, Risk analysis

7. Savage, L. J., (1978). The Foundation of Statistics, New York. Dover Publication.

8. Slovic , P., (2000). The Perception of Risk. London / Sterling.

9. Brun, W., (1992). Cognitive Components in Risk Perception Natural versus

Manmade Risks. Journal of Behavioural Decision Making 117 – 132.

10. Dionne, G. D., (2000). Adverse Selection in Insurance Markets. Handbook of

Insurance. London.

11. en.wikipedia.org/wiki/The_Gambia. History of the Gambia

12. www.accessgambia.com/information/population.html

http://www.accessgambia.com/information/population.html

13. www.about.com//Islam. What do muslims believe about insurance.

14. Varian, H (1999). Intermediate Microeconomics – A Modern Approach. 5th ed. New

York.

15. Swiss Re (2000). Profitability of Non-Life Insurance Industry,its back to time. Swiss

Re economic research and consulting, Sigma No. 5/2001.

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 BRIEF OUTLINE OF THE CHAPTER

This part will detail how the research objective will be achieved and it will also justify the choice

of method in the light of the research objective.

http://www.about.com//Islam

This chapter will focus on the description of the techniques adopted in this research work, the

identification of the data gathering techniques and data processing methods to be adopted, among

others, in extracting meaning from the data to be gathered in the course of the research work. The

limitations of the approaches adopted will also form an essential part of this chapter.

This project work will be based purely on the Deductive Approach due to the nature of the

population involved.

3.2 RESTATEMENT OF THE RESEARCH QUESTIONS AND

HYPOTHESES

3.2.1 RESTATEMENT OF RESEARCH QUESTIONS


products?


accident policies?




insurance policies?


have an effect on the demand for insurance?

3.2.2 RESTATEMENT OF RESEARCH HYPOTHESES

Based on the above research questions, the following hypotheses have been drawn.

HYPOTHESIS 1

H0: The demand for life assurance products does not depend on the thought of premature death.


HYPOTHESIS 2

H0: The demand for life accident insurance policies does not depend on the thought of being involved in an accident.

H1: The demand for life accident insurance policies depends on the thought of being involved in an accident

HYPOTHESIS 3

H0: The demand for fire/household content policies does not depend on the thought of fire damage to properties.

H1: The demand for fire/household content policies depends on the thought of fire damage to properties.

HYPOTHESIS 4

H0: The demand for motor insurance policies does not depend on the thought of car theft, fire and accident.

H1: The demand for motor insurance policies depends on the thought of car theft, fire and accident.

HYPOTHESIS 5

H0: The demand for insurance does not depend on the level of income, religion and previous claims experience.

H1: The demand for insurance depends on the level of income, religion and previous claims experience.

3.3 RESEARCH DESIGN

To facilitate effective resolution of the central problem of this research work, adequate planning is

required. The strategy, the plan and the structure for the efficient conduct of the entire research is

the thrust of this section of the study.

To achieve the above task we will need data on the income level, education and religion and these

would be collected primarily through our questionnaire. The responses from the questionnaire

would provide the required data.

3.4 CHARACTERISTICS OF STUDY THE POPULATION

The Gambia, which is the study area of our research, has an estimated population of 1.361 million

as at the 2003 population census. The population is increasing at a rate of 2.8 percent a year

(Microsoft Encarta Encyclopedia, 2006 estimate).

As at 1993 more than 63% of Gambians lived in rural villages, although more and younger people

come to the capital in search of work and education. In 2003, urbanisation rate was estimated at

50.3%. The UNDP’s Human Development Report for 2010 ranks the Gambia 151st out of 169

countries on its Human Development Index, putting it in ‘Low Human Development’ category.

Prospective buyers of insurance in this context are Individuals, Private and Public Corporations,

Institutions and the Government Agencies within The Gambia.

3.5 SAMPLING DESIGN AND SAMPLING PROCEDURE

The units of this research work are the insuring public which consist mainly of the urban

population for obvious reasons.

The population of the Gambia is mainly young with more than half (about 63.55%) below 25

years and the elderly persons of 65 years and above account for 2.8% of the population. The age

structure: The 0-14 age range makes up 43.9% of the population (males 382,385/females

378,853) and the 15-64 age range makes up 53.4% (males 459,315/ females 466,689). And the 65

years and above group represents 2.8% (males 24,303, females 23,919)- July 2008 estimate.

The research survey will concentrate on the adult population the major urban centres. The sample

size of seventy (70) will be drawn by random selection method from this population to whom the

questionnaires will be administered.

3.6 METHOD OF DATA COLLECTION

This part describes how the data are to be collected in order to answer the stated research

questions.

In this study, we made use of primary data obtained by means of questionnaires. The

questionnaire was made simple and easily understandable to a reasonable man consisting mainly

close-ended questions.

The questionnaire is made up of two sections – Sections ‘A’ and ‘B’. Section ‘A’ consists of four

items to elicit personal information about the respondents which include age, sex, marital status,

occupation, level of education, income, and religion.

Section ‘B’ was designed to find out the opinion and the risk perception of the people. The items

in this section were structured differently.

The questionnaires were distributed on the major streets around Serrekunda, Kanifing,

Senegambia, Brimkama, Kairaba Avenue, Banjul and retrieved immediately. The response from

the questionnaires was used for testing the various hypotheses.

3.7 PILOT STUDY, TEST OF VALIDITY AND RELIABILITY OF THE

STUDY INSTRUMENT

3.7.1 PILOT STUDY

A pilot study on the questionnaire was carried out through an interview with several persons. All

the respondents of this pilot study went through an interview and then discussion was held

concerning their perception of risk in relation to insurance.

3.7.2 VALIDITY

The validity aspect revolves on how well the questionnaire is able to measure what it is aimed to

measure. It is important that validity is good, because if the study does not measure what it is

supposed to measure, the results are useless. (Widersheim and Eriksson, 1997)

3.7.3 RELIABILITY

Reliability refers to the stability and consistency of the results derived from research: that is the

probability that the same results could be obtained if the measures used for the research were

replicated (Chisnall 1995). Reliability means whether the research instruments are neutral in their

effect, and can measure the same result when used on different occasions and applied on the same

subject; that is if someone else undertakes the same study, would the person arrive at the same

result as well as similar conclusion?

3.8 METHOD OF DATA ANALYSIS

Test of Proportion of Z-statistics was used to analyse the data for the purpose of logical and

meaningful presentation. The data collected was edited; the edited data was coded accordingly.

This enabled us to utilize simple percentages presented in a tabular form for the analysis of the

hypotheses.

3.8.1 TEST OF PROPORTION

Zcal = P – π

Where π = 50% (0.5)

P = Sample Proportion

q = 1-P

n = Sample Size

Zcal = Test Statistics (Calculated Value)

For the purpose of this study, a confidence level of 95% is used:

-1.96 ≤ Z ≤ 1.96

Decision Rule:

Accept the null hypothesis (H0) and reject the alternative hypothesis (H1), if the Z calculated value

falls within the defined acceptance region.

Reject the null hypothesis (H0) and accept the alternative hypothesis (H1), if the Z calculated value

falls outside the defined acceptance region (that is within critical).

To test the degree of acceptance, three questions have been grouped into one for the purpose of

testing the hypothesis.

3.9 LIMITATIONS OF THE METHODOLOGY

1. Time Constraint: the time taken to distribute and collect the questionnaires is a bit of a

problem due to the busy scheduled of the school programmes.

2. Unwillingness to divulge information: respondents viewed the questionnaire with some

suspicion, thus, they were reluctant to provide all the necessary information required.

3. Language Barrier: most of the respondents are illiterates or semi-illiterates thus making

communication in English or Wolof a problem. We had to use an indigene as an

interpreter to aid us.

3.10 REFERENCES

1. Boholm A.(1998). Comparative Studies of Risk Perception: A Review of Twenty Years of Research. Journal of Risk Research 1: 135-164.

2. Chisnall (1995), “Online Buyers Say Yes To Banking And Consumer Products: No to Insurance”.

3. Jeanne Hartley Consulting; Methods of Collecting Data; Mgt. 450

4. Litwin, M.S. (1995). How to Measure Survey Reliability and Validity. Thousand Oaks, CA: Sage Publications.

5. Sjoberg L. (2000). “Factors in Risk Perception. Risk Analysis “: 1-11.

6. Widersheim and Eriksson (1997).”Revitalization Agents and Brokers”, Cambridge, MA; Forest Research Institute.

7. Zikmund William, (2003) “Essentials of Marketing Research”, USA: Thomas South-Western

8. Microsoft Encarta Encyclopedia (2007)

CHAPTER 4

4.0 PRESENTATION AND ANALYSIS OF DATA

4.1 INTRODUCTIONThe main focus of this chapter is on data presentation and analysis, empirical findings and the

results of the survey on risk perception and the demand for insurance in The Gambia. The

structure of this chapter will be based on sequential order of the questionnaire in order to present

the data and the results of the survey.

This Chapter presents the answers to all questions cited in the questionnaire and the results of the

analysis of data collected from the study. The data were organised and presented in tables

showing frequencies and percentages. The percentage statistical method will be used to analyse

the data collected and interpretation will be made based on the results. The test of proportion

statistical method will be used to test the hypothesis.

4.2 RESPONDENTS’ CLASSIFICATION AND CHARACTERISTICS

Table 1: Summary of Administered Questionnaires

Items Total Number PercentageQuestionnaires administered 70 100%

Total no. of questionnaires received 70 100%Questionnaires wrongly filled 7 10%Questionnaires correctly filled 63 90%

The data was collected from the general public. A total of 70 copies of the questionnaires were

sent out, 70 were received, 63 were correctly filled and 7 were wrongly filled. This implies that

the questions were well understood by the individual respondents. The research analysis is based

on the 63 (i.e. 90%) completed questionnaires for this study.

4.3 PRESENTATION AND ANAIYSIS OF DATA ACCORDING TO

RESEARCH QUESTIONS

4.3.1 SECTION A: PERSONAL DATA

Table 2: Age Distribution of Respondents

Age Range No. of Responses Percentage21 - 30 yrs 33 52%31 - 40 yrs 14 22%41 - 50 yrs 13 21%51 and above 3 5%TOTAL 63 100%

From the above table, 33 respondents representing 52% were within the age of 21-30, 14

respondents representing 22% were within the age range of 31-40, 13 respondents representing

21% were within the age of 41-50 and 3 respondents representing 5% were within the age of 51

and above. This gives a clear indication that majority of the respondents are within the working

class age and are independent.

Table 3: Occupation of Respondents

Occupation No. of Responses PercentageEmployed 49 78%Self-Employed 9 14%Unemployed 5 8%TOTAL 63 100%

Table 3 above indicates that out of the 63 respondents, 49 were employed showing 78%, 9 were

self-employed showing 14% and 5 were unemployed showing 8%. This implies that the majority

of the respondents are gainfully employed.

Table 4: Income Level of Respondents

Income level (D) No. of Responses PercentageLess than 5,000 30 48%5,000 - 10,000 26 41%10,000 - 20,000 7 11%20,000 and above 0 0%TOTAL 63 100%

Table 4 above shows that out of the 63 respondents, 30 has income level below D5,000

representing 48%, 26 has income level between (D5,000 – D10,000.00) representing 41%, 7 has

income level between (D10,000.00 – D20,000.00) representing 11% and nobody has income

above D20,000. This implies that majority of the respondents have average standard of living.

Table 5: Religion of Respondents

Religion No. of Responses PercentageChristianity 5 8%Islam 58 92%Others 0 0%TOTAL 63 100%

The result in table 5 above shows that out of the 63 respondents, 5 people practice Christianity

representing 8%, 58 people practice Islam representing 92% and nobody practices other religion.

This implies that majority of the respondents are Muslims.

4.3.2 SECTION B: RESEARCH QUESTIONS

Question 1: What does insurance mean to you?

The following responses were given by the respondents

a) Risk transfer (15 respondents)

b) Financial protection (5 respondents)

c) Family protection (28 respondents)

d) Means of saving/investment (10 respondents)

e) Gambling/ Fraudster (3 respondents)

f) No idea (2 respondents)

From the above data, it can be said that most of the respondents knew what insurance means to

them.

Question 2: Have you heard of the word “Risk” before?

Table 6

Types of Response No. of Responses PercentageYes 62 98%No 1 2%TOTAL 63 100%

The result in table 6 above shows that out of a total of 63 respondents, 62 answered Yes and 1

answered No representing 98% and 2% respectively.

Question 3: If “Yes” to question 2, do you agree that risk is part of our daily activities?

Table 7


The result in table 7 shows that out of a total of 63 respondents, 62 answered Yes and 1 answered

No representing 98% and 2% respectively.

Question 4: Have you ever thought of premature /untimely death someday?

Table 8


The result in table 8 shows that out of a total of 63 respondents, 61 answered Yes and 2 answered

No representing 97% and 3% respectively. This implies that people have thought about dying

prematurely.

Question 5: If “Yes” to question 4, do you have any insurance in place for protection of

your family?

Table 9


The result in table 9 shows that out of a total of 63 respondents, 27 answered Yes and 36

answered No representing 43% and 57% respectively. This implies that majority of the

respondents has no form of measured in place for the protection of their family in case of

premature death.

Question 6: Would you take a Life Assurance Policy if it is recommended to you?

Table 10




respondents would take a Life Policy for the protection of their family.

Question 7: Have you ever thought of being involved in an accident that would result into permanent disablement and as a result you could not work to earn income?

Table 11




Question 8: If “Yes” to question 7, do you have any measure in place which will provide and alternative income?

Table 12




respondents has no measure in place which will provide an alternative income.

Question 9: Would you take an Accident Policy if it is recommended to you?

Table 13




respondents would take an Accident Policy if it is recommended.

Question 10: Do you have property (ies) [e.g. buildings, household contents, electronics, personal effects etc.] and have you ever thought that someday they may be damaged or destroy by fire?

Table 14


The result in table 14 shows that out of total of 63 respondents, 52 answered Yes and 11 answered

No representing 83% and 17% respectively.

Question 11: If “Yes” to question 10, do you have any measure in place to transfer the loss?

Table 15



answered No representing 35% and 65% respectively. This implies that majority has no measure

in place to transfer the loss.

Question 12: Would you take a Fire/Household Contents Policy to protect your home, office/business against risk of fire damage?

Table 16

Types of Response No. of Responses PercentageYes 49 78%

No 14 22%TOTAL 63 100%


answered No representing 78% and 22% respectively. This implies that majority of the people

would take a Fire/Household Content Policy to protect their homes, offices and businesses against

risk of fire damage.

Question 13: Do you have a car, have you ever thought that someday the car could be stolen, involved in an accident or engulfed by fire?

Table 17




Question 14: If “Yes” to question 13, do you have any measure in place to protect yourself from loss?

Table 18




respondents have no measure in place to protect themselves from the loss.

Question 15: Would you have a Motor Insurance Policy if it is recommended?

Table 19




respondents would buy motor insurance policy to protect themselves.

Question 16: Generally, would you have taken an insurance policy for any risk not mentioned above if you perceive/sense danger in the future?

Table 20




respondents would take insurance cover for other related risk if they perceive danger in the future.

Question 17: Do you think your religion would prevent you from taking an insurance

cover?

Table 21



answered No representing 22% and 78% respectively. This shows that religion would not affect

or prevent majority of the respondents from buying and insurance cover.

Question 18: Do you think your level of income will prevent you from taking an insurance

cover?

Table 22




respondents are not affected by their level of income in buying insurance cover.

Question 19: Do you think your previous claims experiences or the experiences of your friends or family members with an insurance company will prevent you from taking an insurance cover?

Table 23

Types of Response No. of Responses PercentageYes 16 25%No 47 75%

TOTAL 63 100%

The result in table 23 shows that out of a total 63 respondents, 16 answered yes and 47 No

representing 25% and 75% respectively. This implies that majority of the respondents are not

affected by previous claim experience involving themselves, friends or family members.

4.4 PRESENTATION AND ANALYSIS OF DATA ACCORDING TO TEST OF HYPOTHESES

4.4.1 Summary of Responses According to Test of hypotheses (Questionnaire – Appendix

A)

Table 24

Question No.

Total Questionnaires Correctly Filled

Yes No

Number Percentage Number Percentage2 63 62 98% 1 2%3 63 62 98% 1 2%4 63 61 97% 2 3%5 63 27 43% 36 57%6 63 52 83% 11 17%7 63 41 65% 22 35%8 63 19 30% 44 70%9 63 49 78% 14 22%10 63 52 83% 11 17%11 63 22 35% 41 65%12 63 49 78% 14 22%13 63 36 57% 27 43%14 63 22 35% 41 65%15 63 58 92% 5 8%16 63 55 87% 8 13%17 63 14 22% 49 78%18 63 22 35% 41 65%19 63 16 25% 47 75%

The table above shows summary of responses to questionnaire received from 63 respondents.

HYPOTHETICAL STATEMENTS

Hypothesis 1

H0: The demand for life assurance products does not depend on the thought of premature

death.


Table 25: Question 4, 5 and 6


From the above table the Z calculated value at 5% significant level is 4.58 and the Z table value at

5% significant level is ± 1.96.

Decision:Since the Z calculated value of 4.58 falls within the critical region, there is no enough evidence to

accept H0, therefore we reject H0 and accept H1.

Interpretation:There is sufficient evidence at 95% confidence level to conclude that the demand for life

assurance products depends on the thought of premature death.

Please refer to Appendix B (i)

Hypothesis 2

H0: The demand for accident insurance policies does not depend on the thought of being involved in an accident.H1: The demand for accident insurance policies depends on the thought of being involved in an accident.

TABLE 26: Question 7, 8 and 9


From the above table, the Z calculated value at 5% significant level is 1.12 and the Z table value

at 5% significant level is ± 1.96.

DecisionSince the Z calculated value of 1.12 falls within the acceptance region, there is no enough

evidence to reject H0, therefore we accept H0 and reject H1.

Interpretation There is sufficient evidence at 95% confidence level to conclude that the demand for accident

insurance policies does not depend on the thought of being involved in an accident.

Please refer to Appendix B (ii).

Hypothesis 3

H0: The demand for fire/household content policies does not depend on the thought of fire damage to property.

H1: The demand for fire/ household content policies depends on the thought of fire damage to property.



From the above table the Z calculated value at 5% significant level is 2.50 and the Z table value at

5% significant level is ± 1.96.

DecisionSince the Z calculated value of 2.50 falls within the critical region, there is no enough evidence to accept H0, therefore we accept H1 and reject H0.

Interpretation There is sufficient evidence at 95% confidence level to conclude that the demand for fire/ household content policies depend on the thought of fire damage to property.

Please refer to Appendix B (iii).

Hypothesis 4

H0: The demand for the motor insurance policies does not depend on the thought of car theft, fire and accident.H1: The demand for the motor insurance policies depends on the thought of car theft, fire and accident.



From the above table the Z calculated value at 5% significant level is 1.9623 and the Z table value


Decision:Since the Z calculated value of 1.9623 falls within the critical region, there is no enough evidence

to accept H0, therefore we accept H1 and reject H0.

Interpretation:There is sufficient evidence at 95% confidence level to conclude that the demand for motor

insurance policies depends on the thought of car theft, fire and accident.

Please refer to Appendix B (iv).

Hypothesis 5

H0: The demand for insurance does not depend on the level of income, religion and previous claim experience.

H1: The demand for insurance depends on the level of income, religion and previous claim experience.



From the above table the Z calculated value at 5% significant level is -4.11 and the Z table value


Decision:Since the Z calculated value of -4.11 falls within the critical region, there is no enough evidence

to accept H0, therefore we accept H1 and reject H0.

Interpretation:There is sufficient evidence at 95% confidence level to conclude that the demand for insurance

depends on the level of income, religion and previous claim experience.

Please refer to Appendix B (v).

4.5 REFERENCES

1. Asika, Nnamdi, Research Methodology in Behavioural Science, (Lagos, Longman Nigeria

Plc 1991)

2. Lucey, T.; Quantitative Techniques (Longman D. P. Publication, 1979)

3. Spiegel M, Statistics (New York, McGraw-Hill, 1961)

4. Prof. Prince mike Ikupolati, “Unpublished lecture Notes on Risk Management”, WAII

2012

5. Prof. Prince mike Ikupolati, “Unpublished lecture Notes on Quantitative Method”, WAII

2012

CHAPTER 5

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 SUMMARY

“If risk is like a smoldering coal that may spark a fire at any moment, then insurance is our fire

extinguisher” (Beattie, 2010). Since the inception of insurance till now, insurance has been and

continues to be a vital part of our existence. Through the years insurance has maintained its

unwavering status by lessening the financial burdens placed on individuals and corporations as a

result of the damage to or loss of person or a property. Insurance is continuously evolving in order

to counter the many new and different risks we face every day. One thing is certain; the

importance of insurance cannot be over emphasized. In our part of the world, however, many of

us fail to see the essence of insurance in our lives and this gravely affects the demand for

insurance products. A person or a company’s demand for insurance may be attributed to many

factors. Some of these factors include; the level of income, compulsory insurance, the availability

of tax relief, the fear of the financial burden in the event of a loss, and so on. All of these factors

on their own do not guarantee a positive patronage of insurance unless they are accompanied with

a realistic perception of risk.

The overriding purpose of this study was to determine the relative importance of risk perception

and its subsequent demand for insurance in West Africa from The Gambia perspective. To

accomplish that purpose it became necessary to reach some prerequisite goals. Determining the

factors affecting the demand for insurance assumed a high degree of importance during the

literature review conducted for this dissertation. Related to that effort, it became necessary to

reach an understanding about the different ways in which individuals of different classes perceive

risk in connection with their circumstances. To provide for the possibility that risk perception

constitutes a vital component of the demand for insurance, it was important to develop a model

for proving this. Once these fundamental steps were achieved, this research was able to go

forward. This chapter reports the conclusions and recommendations that resulted from this study.

For our survey, a total of 70 copies close-ended questionnaires were sent out to a cross section of

the general populace of The Gambia. We received all 70 copies back, of which 63 copies were

filled correctly whiles 7 were wrongly filled. From the 63 copies received, it was clearly indicated

that the majority of the respondents were of the working class age, were gainfully employed, had

an average standard of living and were predominantly of the Islamic religion.

The questionnaire contained the following key research questions;


products?


accident policies?




insurance policies?


have an effect on the demand for insurance?

Through the use of the survey instrument developed for this study, data were collected which

addresses the research problems posed in the first chapter of this dissertation.

5.2.0 CONCLUSION

Our study yielded some conclusions which answered the research questions based on the findings

that were summarized in the previous section.

5.2.1 How the study answered the research questions:

a. From the study there was ample evidence to prove that the demand for life assurance

products depends on the thought of premature death.

b. From the findings, it can be concluded that the demand for accident insurance policies

does not depend on the thought of being involved in an accident.

c. It was also evident from the study that the demand for fire/household content policies

does not depend on the thought of fire damage to properties.

d. Furthermore, from the study, there was sufficient evidence to conclude that the demand

for motor insurance policies depends on the thought of car theft, damage caused to the

vehicle by fire and accident.

e. From the study, there was also enough evidence to confirm that the demand for insurance

depends on the level of income, religion and previous claim experience.

5.3.0 RECOMMENDATIONS

Our recommendations are done in the order of the research questions asked. Based on our

findings and conclusion from the study, we recommend that;

1. With respect to life assurance,

a. There should be intensive promotion and awareness of life assurance. Insurance

companies as well as the government should make it a point to sensitize the general

public on the essence of the various life assurance products available. It is a fact that

people generally do not want to think about death and what will happen afterwards but

by continuously bringing this to their notice, their perception will gradually and

eventually shift in favour of life insurance. This could be done through advertisement

(radio, television, newspaper, internet, billboards and so on), education in schools,

seminars, workshops and symposia.

b. Insurance companies should carry out continuous market research on their customers

and potential customers in order to know their needs, the type of risks they are

exposed to and their level of income. This will give the company the advantage of

concentrating and directing their products to the market segment that needs their

product the most.

c. Also, with the information gathered from customers and potential customers, insurers

should make it a point to tailor their various products to suit the individual needs of

their customers. For instance, instead of selling separate life assurance products to one

customer who has the need for all of them, the company could creatively combine all

the products into one policy.

d. In the case of The Gambia where the population is predominantly Muslim, insurance

companies and the government must take a critical look into the introduction and

expansion of Family Takaful Insurance. Being Sharia compliant, Takaful Insurance

eliminates the issue of “Haram” (acts that are forbidden by God) in conventional

insurance and which is the main reason conventional insurance is not widely

patronized by the majority of Muslims. As well as serving its original intention of

insuring, Takaful also appeals to the religious conscious of Muslims by serving as a

medium of helping other Muslims that are in need.

2. With respect to Accident Insurance;

a. To encourage companies to patronize accident insurance policies, which goes a long

way to give employees and the general public a sense of security, the government

should make it a point to provide corporation tax relief to those entities who have

procured various accident policies such as employers' liability and group personal

accident policies. This will significantly boost the demand for accident insurance.

b. Also, accident insurance policies such as group personal accident policy and

employers’ liability policy should be made compulsory by the government.

c. Again, just like in the case of Life Assurance, there should be adequate awareness

created by the insurance companies and the government. Regular radio, television and

newspapers advertisement on the importance of Accident Insurance should be carried

out. Workshops, symposiums, seminars and debates, especially in schools, should be

held.

3. With respect to Fire/Household content Policies;

a. Again, like in the first two recommendations above, there should be intensive and

adequate awareness on the need for companies, building owners and house owners to

patronize fire/household content insurance policies. It is very important that the loss

that can be caused by fire be imprinted into the minds of these individuals.

b. Also, fire insurance for certain types of structure should be made compulsory and

should be rigorously enforced by the government. Making fire insurance compulsory

will have a ripple effect on the perception and demand for insurance. Ghana is a fine

example of the importance of making fire a compulsory insurance for commercial

buildings.

4. With respect to motor insurance;

a. Yet again we recommend that insurance companies as well as the government carry

out and promote thorough awareness on relevance of Motor Insurance. Even though

motor insurance has been made compulsory in The Gambia, there are still a significant

number of vehicle owners who feels reluctant to acquire motor insurance for their

vehicles. Awareness here could be done through radio, television and newspapers

advertisement with emphasis placed on injuries and the loss of lives due to motor

accidents, loss of or damage to vehicles as a result of accidents, fire and theft and the

benefits of a comprehensive policy over third party policy and third party fire and theft

policy.

b. Also, we recommend that insurance companies in The Gambia cultivate the practice of

providing incentives for customers who have proven themselves worthy in one way or

the other. These incentives could be in the form of ‘No Claim Discount’ for clients

who have a good claims record with the company, ‘Fleet Discount’ for clients who

insure a large number of vehicles with the company or even Long Term Agreements

for clients who intend to spend a long time insuring with that particular company.

5. With respect to level of income, religion and claim experience,

a. We recommend that insurers study their clients and potential clients and produce

insurance products that will fit into their consumption pattern. This requires time and

ingenuity.

b. Also, like the Family Takaful, insurance companies in the Gambia should explore and

venture into other Takaful avenues. Religion wise, this form of insurance appeal

greatly to believers of the Islamic Religion of which the bulk of the population of the

Gambia belongs.

c. Importantly, insurance companies should strive to acquire, improve and maintain their

image by promptly and efficiently settling claims. Insurers should always remember

that the reason they are in business is to settle the claims of their policy holders.

Acquiring the image of a prompt claim settler is a goodwill that goes a long way to

market the company without any effort.

5.4 SUGGESTIONS FOR FURTHER STUDIES

Risk perception and the demand for insurance is a very wide topic and there is therefore the need

for further research in the following areas:

1. How has peoples’ perception of risk increased their demand for insurance?

2. The effect of negative perception of risk on the demand for insurance?

3. The contribution of risk perception to the expansion of the insurance industry?

5.5 REFERENCE

Andrew Bettie…www.investopedia.com/article/08/history-of-insurance.asp

APPENDIX A

SURVEY QUESTIONAIRE

We are students of Insurance from the West African Insurance Institute (WAII), The Gambia. As part of our research work for the completion of our academic program, we are carrying out a study on the Gambian Insurance sector; with the research theme:

“RISK PERCEPTION AND DEMAND FOR INSURANCE IN WEST AFRICA, A CASE STUDY IN THE GAMBIA”

SECTION Aii

1. Age 21-30( ) 31-40( ) 41-50( ) 51+( )2. Occupation Employed( ) Self Employed( ) Unemployed( )3. What is your level of income?

a) Less than D5,000 ( )b) D5,000 – D10,000 ( )c) D10,000 – D20,000 ( )d) D20,000 and above ( )

4. What is your religion?Christianity ( ) Islam( ) Others( )

SECTION B

1. What does INSURANCE mean to you?a) Risk Transfer ( )b) Financial Protection ( )c) Family Protection ( )d) Means of Savings/Investment ( )e) Gambling/Fraudster ( )f) No Idea ( )

2. Have you heard of the word ‘RISK’ before? Yes( ) No( )3. If the answer to question 2 is Yes; Do you agree that risk is part of our daily activities?

Yes( ) No( )4. Have you ever thought of Premature/Untimely death someday? Yes( ) No( )5. If Yes to question 4, do you have any measure in place for the protection of your family?

Yes( ) No( )

6. Would you have taken a Life Assurance Policy if it is recommended to you?

Yes( ) No( )

7. Have you ever thought of being involved in an accident that would result into permanent disablement and as a result you could not work to earn income? Yes( ) No( )

8. If Yes to question 7, do you have any measure in place which will provide an alternative income?

Yes( ) No( )

9. Would you have taken an Accident Policy if it recommended to you?

Yes( ) No( )

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10. Do you have property(ies) [e.g buildings, household contents, electronics, personal effects etc] and have you ever thought that someday they may be damaged or destroyed by fire?

Yes( ) No( )

11. If Yes to question 10, do you have any measure in place to transfer the loss?

Yes( ) No( )

12. Would you have taken a Fire/Household Contents Policy to protect your home, office/business against the risk of fire damage? Yes( ) No( )

13. Do you have a car, have you ever thought that someday the car could be stolen, involved in an accident or engulfed by fire? Yes( ) No( )

14. If Yes to question 13, do you have any measure in place to protect yourself from loss?

Yes( ) No( )

15. Would you have taken a Motor Insurance Policy if it is recommended to you?

Yes( ) No( )

16. Generally, would you have taken an insurance policy for any risk not mentioned above if you perceive/sense danger in the future? Yes( ) No( )

17. Do you think your religion would prevent you from taking an insurance cover?

Yes( ) No( )

18. Do you think your level of income will prevent you from taking an insurance cover?

Yes( ) No( )

19. Do you think your previous experience or the experiences of your friends or family members with an insurance company will prevent you from taking an insurance cover?

Yes( ) No( )

APPENDIX B

(i)Hypothesis 1

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H0: The demand for life assurance products does not depend on the thought of premature

death.


1. H0: π = 0.52. H1: π ≠ 0.5

3. Critical region at 95% confidence level i.e.

= 0.05

Z /2 = (from Normal Table)

4.

p = 0.75q = 1 – 0.75 = 0.25π = 0.5n = 63

= 4.58

Decision:

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-1.96 1.960

Reject H0 Reject H0

Accept H0

4.588-1.96 1.960

Reject H0 Reject H0

Accept H0

Since the Z calculated value of 4.58 falls within the critical region, there is no enough evidence to accept H0, therefore we reject H0 and accept H1.

Interpretation:There is sufficient evidence at the 95% confidence level to conclude that the demand for life assurance products depends on the thought of premature death.

(ii)Hypothesis 2

H0: The demand for accident insurance policies does not depend on the thought of being involved in an accident.H1: The demand for accident insurance policies depends on the thought of being involved in an accident.

1. H0: π = 0.52. H1: π ≠ 0.5


= 0.05


4.

p = 0.57q = 1 – 0.57 = 0.43π = 0.5n = 63

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-1.96 1.960

Reject H0 Reject H0

Accept H0

1.12 -1.96 1.960

Reject H0 Reject H0

Accept H0

= 1.12

DecisionSince the Z calculated value of 1.12 falls within the acceptance region, there is no enough evidence to reject H0, therefore we accept H0 and reject H1.

Interpretation There is sufficient evidence at 95% confidence level to conclude that the demand for accident insurance policies does not depend on the thought of being involved in an accident.

(iii)Hypothesis 3

H0: The demand for fire/household content policies does not depend on the thought of fire damage to property.

H1: The demand for fire/ household content policies depends on the thought of fire damage to property.

1. H0: π = 0.52. H1: π ≠ 0.5


= 0.05


ii

-1.96 1.960

Reject H0 Reject H0

Accept H0

4.

p = 0.65q = 1 – 0.65 = 0.35π = 0.5n = 63

= 2.50

DecisionSince the Z calculated value of 2.50 falls within the critical region, there is no enough evidence to accept H0, therefore we accept H1 and reject H0.

Interpretation There is sufficient evidence at 95% confidence level to conclude that the demand for fire/ household content policies depend on the thought of fire damage to property.

(iv)Hypothesis 4

H0: The demand for the motor insurance policies does not depend on the thought of car theft, fire and accident.

H1: The demand for the motor insurance policies depends on the thought of car theft, fire and accident.

ii

2.50-1.96 1.960

Reject H0 Reject H0

Accept H0

-1.96 1.960

Reject H0 Reject H0

Accept H0

1. H0: π = 0.52. H1: π ≠ 0.5


= 0.05


4.

p = 0.62q = 1 – 0.62 = 0.38π = 0.5n = 63

= 1.962

Decision:Since the Z calculated value of 1.9623 falls within the critical region, there is no enough evidence to accept H0, therefore we accept H1 and reject H0.

Interpretation:There is sufficient evidence at 95% confidence level to conclude that the demand for motor insurance policies depends on the thought of car theft, fire and accident.

(v)Hypothesis 5

H0: The demand for insurance does not depend on the level of income, religion and previous ii

1.9623-1.96 1.960

Reject H0 Reject H0

Accept H0

claim experience.

H1: The demand for insurance depends on the level of income, religion and previous claim experience.

1. H0: π = 0.52. H1: π ≠ 0.5


= 0.05


4.

p = 0.27q = 1 – 0.27 = 0.73π = 0.5n = 63

= -4.11

ii

-1.96 1.960

Reject H0 Reject H0

Accept H0

0 -4.11 1.96-1.96

Reject H0 Reject H0

Accept H0

Decision:Since the Z calculated value of -4.11 falls within the critical region, there is no enough evidence to accept H0, therefore we accept H1 and reject H0.

Interpretation:There is sufficient evidence at 95% confidence level to conclude that the demand for insurance depends on the level of income, religion and previous claim experience.

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