Measuring consumer knowledge of life insurance products in South Africa

Abstract

The financial services industry is characterized by product suppliers having more information than consumers regarding product features and services. The purpose of this article is to explore this information asymmetry with particular reference to the life insurance industry. Financial advisors, acting as intermediaries, are charged with the task of resolving this asymmetry through mandatory disclosures demanded by regulation. In South Africa, the Financial Services Board (FSB) monitors, regulates and supervises the financial services industry through the Financial Advisory and Intermediary Services Act of 2002 and The Code of Conduct for Financial Advisors. This paper distinguishes financial products from other products and highlights the need for disclosures regarding product features, by financial advisors. Using multistage sampling a national survey was conducted to establish whether consumers are knowledgeable of the features of basic insurance products. The findings were that consumers have a low to very low level of understanding of the features of basic insurance products. The study makes an important contribution to insurers’ understanding of consumers’ knowledge regarding the features of basic life insurance products. Furthermore, the findings would also contribute to insurersunderstanding the level to which intermediaries resolve the information asymmetry between product suppliers and consumers.

Measuring Students’ Knowledge Level of Life Insurance: A Case on the Students of the Department of Insurance and Risk Management at the Dumlupinar University, Turkey

“…In this study, the survey questions that Ramchander (2016) used in studying consumer's basic knowledge of life insurance were adapted for Turkey. Table 2 shows the number of answers (yes-no) whether students participate in the questions.…”

The Future of Insurance Intermediation in the Age of the Digital Platform Economy

“…A considerable proportion of the research related to insurance intermediation centers on or departs from the notion of imperfections both in terms of the market as well as related to the customer-broker relationship (Berger et al 1997;Eckardt and Räthke-Döppner 2010;Focht et al 2013;Ramchander 2016;Schwarcz and Siegelman 2015;Tseng and Kang 2014;Tseng et al 2016). In contrast, Scholtens andvan Wensveen (2000, p. 1249) argue that the theory of financial intermediation "should leave its paradigm of static perfect markets and assume a more dynamic concept in which new markets are developed for new products, where financial institutions do not act as 'agents' who intermediate between savers and investors and thus alleviate 'market imperfections' like asymmetric information and participation costs, but are independent market parties that create financial products and whose value added to their clients is the transformation of financial risk, term, scale, location, and liquidity."…”

“…The main task here is to organize the search and comparison of products and suppliers. Customers need intermediaries because finding the right insurance product is difficult due to its complexity (Cummins and Doherty 2006;Eckardt and Räthke-Döppner 2010;Focht et al 2013;Köhne and Brömmelmeyer 2018;Ramchander 2016), low financial literacy (Chen 2021;Ramchander 2016), variability, and non-commoditization or because consumer risk profiles and risk attitude are heterogeneous (Schwarcz and Siegelman 2015). The role of matchmakers is generally attributed to the presence of asymmetric information (Eckardt and Räthke-Döppner 2010), which is complicated by the existence of a large number of products and infrequent purchases (Bailey and Bakos 1997).…”