Introduction Of Insurance In Malaysia Commerce Essay


The introduction of insurance in Malaysia dates back to the 18th and 19th centuries where trading firms and agency houses acted as agents for insurance companies from the United Kingdom. Upon the achievement of independence, there was an effort to establish domestic insurance companies. The early 1960's saw the growth of many life and general insurance companies. Some of these companies operated on an unsound basis with improper underwriting guidelines. The Government subsequently intervened and the Insurance Act, 1963 was introduced. Under the Act, the general conduct and supervision of the insurance industry was vested in the Director-General of Insurance under the Ministry of Finance.

In the early theoretical literature, most theories regarding life insurance purchases concluded that risk aversion is one of the important factors to influence consumers' purchasing decisions (Yaari, 1965; Mantis and Farmer, 1968; Fisher, 1973; Campbell, 1980; Lewis, 1989; Bernheim, 1991). Zietz (2003) broadly considered key economic, financial, and demographic factors influencing life insurance purchases. These results included disposable income, financial development, social security, risk aversion, and education level. The Finance and Insurance sub-sector grew by 6.4% (2Q 10: 8.4%) led by the sustained growth in net interest income during the quarter (2010; Quarterly Bulletin, Development in the Malaysian Economy).

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In Law and Economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent uncertain loss and insurance is an intricate economic and social device for the handling of risks to life and property. It is social in nature because it represents the cooperation of various individuals for mutual benefits by combining together to reduce the consequence of similar risks. Insurance industry nowadays is become an integral part of the global financial market, with insurance companies being significant institutional investors. In recent decades, the insurance sector has grown in economic importance.

Life insurance is designed to protect against premature death and superannuation. Death is an uncertainty because we do not know when we will die. For most people death at any age may be considered premature when one dies before adequate preparation has been made for future financial requirements of dependants. Life insurance thus becomes the mechanism for one to ensure a continuous stream of income to the beneficiaries. We are concerned with superannuating as a person can outlive his income earning ability. Again, life insurance may serve as a mechanism to ensure a continuous stream of income.

Life insurance comes in two basic types, whole life and term life. The main different is the term covered by the insurance policy. Whole life insured people until them die. Term life insured people for certain number of years. Life insurance is used to replace whole or part of the economic value of human life either for family or business purposes. Life insurance provides a monitory benefit to a decedent's family or other designated beneficiary such as income and also used to finance funeral and other expenses related. Life insurance policy often allows the option of having the compensation amount paid to the beneficiary in lump sum cash.


For the person who actually starts his or her own business, the experience is filled with enthusiasm, frustration, anxiety, and hard work. There is a high failure rate due to such things as poor sales, intense competition, lack of capital, or lack of managerial ability. The financial and emotional risk can also be very high. That can be best explored by looking at the decision process involved in becoming an entrepreneur.

The concept of an entrepreneur is further refined when principles and terms from a business, managerial, and personal perspective are considered. In particular, the concept of entrepreneurship from a personal perspective has been thoroughly explored in this century. They all contain similar notions, such as newness, organizing, creating, wealth, and risk taking.

Entrepreneurs will need to establish two types of insurance programs, first is Property &

Casualty (Liability) insurance (some refer to it as "P&C" or "business insurance"), and the second is insurance programs for health, life, and disability, Insurance is the transfer of risk from the business owner to an insurance underwriter and allows business owners and providers of capital to businesses to, in essence, take on additional risk or pursue activities that, uninsured, might prove too uncertain to risk capital (2003, Insurance Essentials for Entrepreneurs).

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There are also hundreds of insurance companies selling group health, life and disability coverage, but usually 5-10 that are competitive for small businesses in each state. Each insurer offers variations of their health and life insurance product that vary the benefits paid, which affects the cost. Complimenting the insurance coverage should be the steps that can be take to reduce the possibility of losses (2003, Insurance Essentials for Entrepreneurs). Yet each definition is somewhat restrictive, since entrepreneurs are found in all professions education, medicine, research, law, architecture, engineering, social work, distribution and Government. So, there are four factors that can influence entrepreneur on purchasing life insurance.


The purpose of the study is to analyzed and identifies the factors that can influence entrepreneur on purchasing life insurance in Klang Valley. This study also was conducted to investigate the awareness of entrepreneurs towards life insurance products.


In this study, the researcher chooses the population at Klang Valley because there are many entrepreneurs in Klang Valley area. These entrepreneurs are consists of retailers, contractors, manufacturers and many else.


The Malaysian insurance industry maintained positive growth in 2005 despite more challenging investment challenging conditions. One major feature in the modern society is increasing risks in economic life. When we talk about risk in the economic life, we are referring to the risk which may lead to the occurrence of loss. Although classic economics acknowledges the difference of risk bearing across different individuals, there is lack of modelling on different economic results due to the existence of risks. But there are some entrepreneurs still do not know and not fully understanding why they should buy insurance.

This study is to find the main factor among the three major factors that can influence entrepreneur's decision to buy life insurance. This study will be useful to the entrepreneur to know why they should buy insurance and to the insurer it is good or them to know what is the main factoring that can influence them on buying life insurance.


What is the main factor that can influence the ownership of life insurance among entrepreneurs in Malaysia?

How can the satisfaction level of customers affect the ownership of life insurance among entrepreneur?

How company loyalty can affect entrepreneur on buying life insurance?

How importance the characteristics of life insurance product?


To identify the main factor that can influence entrepreneur on buying life insurance.

To identify the relationship between independent variables toward dependent variables.

To identify on how can demographic factors influence the ownership of life insurance among entrepreneurs


The result of this research will help entrepreneurs in Malaysia to have better and deeper knowledge about insurance and thus will give awareness to them the benefit and importance of insurance. On the other hand this research also can help insurance companies to build up some good ideas on how to improve and increase the ownership of life insurance products among entrepreneurs. This research also can help the insurance company to design suitable plan so that meet the consumer's financial position.

The result of this research will help insurance companies to know the main factor that can influence entrepreneur's decision to buy life insurance. This research also will give evidence on how worthy they spend their money for the insurance purposes.


In this section, this study presented a simplified theoretical framework positing the various reasons that will be the main factor that can influence the ownership of life insurance among entrepreneur in Malaysia.







Figure 1

Figure 1 shows theoretical framework of all the factors that can influence the ownership of life insurance among entrepreneurs. Based on the theoretical frame work above, there are two important variables which explain the relationship between each namely dependent and independent. The dependent variable would be the factors that can influence the ownership of life insurance among entrepreneurs in Malaysia. The independent variables are the importance of product characteristics, satisfaction level and company loyalty. This mean one of the three factors will be the main factor that can influence entrepreneur decision on buying life insurance.


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This research has been conducted to identify the main factor that can influence the ownership of life insurance among entrepreneurs in Malaysia. There are the important of product characteristics, satisfaction level and company loyalty. These factors become the independent variables which affects the dependent variable. The limitations that have been face during this research are like the research area, respondent response, time, suitable information and cooperation from related party.

Unavailability data from respondents, where the researcher is not able to know whether respondents are not truly answer the question given or otherwise. This can give affects to the research result, because we as the researcher unable to get approximate data. This research will only focus on the Klang Valley area because it had been chosen as area for scope of study. This research cannot go beyond the area.

Besides the barrier that has been found is the time to complete the research is limited in a period of four months only. Collecting data such as distributing questionnaire doing data analysis is time consuming due to some of respondents might not return and response the questionnaire. This also can bring difficulties to the researcher to get the information quickly to get the best result. It is because the earlier we can get data the more time that we can spend to go through each data thoroughly.


Insurer or insurance company

Insurance in simple term is a contract between the person who buys insurance and insurance company who sold the policy. The person is called insured. Insurance companies collect premiums from insured and provide them with protection. By paying sum of money to insurer, people can safeguard themselves and their family financially from unfortunate event.


Entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative. It is a term applied to a person who is willing to help launch a new venture or enterprise and accept full responsibility for the outcome. The entrepreneur shifts economic resources out of lower and into higher productivity and greater yield. In this study, entrepreneurs are to be choosing as respondent. Entrepreneur chosen must have insurance coverage either life or general insurance, so that they can response effectively to the question asked in this study.


The person who obtains or is otherwise covered by insurance on his or her health, life, or property. The insured in a policy is not limited to the insured named in the policy but applies to anyone who is insured under the policy.


The specified amount of payment required periodically by an insurer to provide coverage under a given insurance plan for a defined period of time. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required.


A respondent is a person who is called upon to issue a response to a communication made by another. In legal usage, this specifically refers to the defendant in a legal proceeding commenced by a petition, or to an appalled, or the opposing party, in an appeal of a decision by an initial fact-finder. In non-legal or informal usage, the term refers to one who refutes or responds to a thesis or an argument. In cross-cultural communication, the second person responding to the meaning or message from an original source which has been contextualised or decoded for the understanding of respondents as recipients or hearers of the message occurring from a different cultural context. The term as used in psychology evokes a much faster and less thoughtful reaction. In that field, respondent conditioning is a synonym for classical or Pavlovian conditioning. Respondent behaviour specifically refers to the behaviour consistently elicited by a reflexive or classically conditioned stimulus.



2.1 Importance of Product Characteristics

Product characteristics are attributes of a product that a customer can choose. For example, we sell a product in three colors. As part of creating this product, we would define an attribute called Color and assign it the three colors. As part of purchasing the product, customers would choose one of the colors. A product attribute or characteristics has two parts: the name of the attribute and the possible values of the attribute. For example, we could define an attribute of the insurance with the same benefits and the rates of premium are different among the different companies. The allowable values for an attribute are called the attribute domain. In a configuration session, customer can select only one value for an attribute (2007, About Product Attributes).

Product attributes and product features are similar concepts. They both describe characteristics of the product that are of interest to customers. However, feature definitions do not create configurability. We can define attributes directly in the administration interface. We do not need to create database table extensions or new field definitions in Oracle's Siebel Tools. Attributes are implemented in a way that allows customers to select the desired attribute value when they configure the product. (2007, About Product Attributes).

Postulating a single concrete to abstract attribute continuum allows consider research to focus on an important theoretical issue, the inherently complex structure of attribute or propositional knowledge (Anderson 1983, Oden 1987). In particular, Howard's theory of buyer behavior (Howard 1977; Howard and Sheth 1969) uses a concreteness-abstractness continuum to begin to address the critical question of attribute structure. Following the basic principles of categorization (cf. Rosch 1975), Howard views consumers as systematically grouping and distinguishing products, on the basis of similarity, into hierarchies. Consumers make choices at different levels of these hierarchies or different levels of abstraction. Category-level choices occur at more abstract levels of a hierarchy, while brand-level choices occur at a more concrete level. An important component of Howard's model is that consumers also form hierarchies of attributes, from the abstract to the concrete, that correspond to their product hierarchies. A major prediction of the model is that consumers select and process attributes at a level of abstraction of their attribute hierarchies that corresponds to their level of choice. Howard thus predicts a direct relationship between the level of abstraction of a choice (e.g., category versus brand) and the abstractness of the choice criteria. Boote (1975), using Rokeach's instrumental and terminal values as proxies for concrete and abstract choice criteria, reports a study that supports this hypothesis. Recently, Johnson and Fornell (1987) found support for a generalized version of Howard's hypothesis. They found the abstractness of descriptive product attributes, not just choice criteria, varying directly with the abstractness of the product. This result is consistent with existing views of human memory (Anderson 1983) and, in particular, the concept of cognitive economy (Collins and Loftus 1975). Another aspect of Howard's attribute hierarchies that is well supported is the notion that descriptive attributes generally decrease with abstraction (Boote 1975; Johnson 1984). Abstraction, by definition, implies a concentration or summation of attribute information (2004-2009; The Nature of Product Attributes).

As research on consumption experiences grows, evidence suggests that consumers purchase goods and services for a combination of two types of benefits where are hedonic and utilitarian. Hedonic benefits are associated with the sensory and experiential attributes of the product. Utilitarian benefits of a product are associated with the more instrumental and functional attributes of the product ( 1990 ; Batra and Athola).

2.2 Satisfaction Level

Customer satisfaction, this is a term frequently used in marketing, is a measure of how product and services supplied by a company meet or surpass customer expectation. In a survey of nearly 200 senior marketing managers, 71 % of respondent respond that they found a customer satisfaction metric very useful in managing and monitoring their businesses (2010; Marketing Metrics, The Definitive Guide to Measuring Marketing Performance). It is seen as a key performance indicator within business and is often part of a Balanced Scorecard. In a competitive marketplace customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy (2005; The Future of Business, The Essentials. Mason, Ohio: South-Western). Customer satisfaction is measured at the individual level, but it is almost always reported at an aggregate level. It can be, and often is, measured along various dimensions.

File:Business Feedback Loop PNG version.png

A business ideally is continually seeking feedback to improve customer satisfaction. Customer satisfaction data are among the most frequently collected indicators of market perceptions.

If sales are the engine that drives the business, then customer satisfaction is the fuel. The minimum requirement to simply stay in business or to survive in the business is to meet the customer expectations. Sometimes in business and as entrepreneur should exceed the customer expectations. Customer who experience the kind of service that exceeds their expectations are often willing to pay for it, enabling supplier to raise prices and thus improve profit margins (2009; Level of Customer Satisfaction by Brian Tracy).

Each organization needs to retain existing customers while targeting non-customers. Measuring customer satisfaction provides an indication of how successful the organization is at providing products or services to the marketplace. It is essential for businesses to effectively manage customer satisfaction. Firms need reliable and representative measures of satisfaction. Good quality measures need to have high satisfaction loadings, good reliability, and low error variances. Customer satisfaction is an ambiguous and abstract concept and the actual manifestation of the state of satisfaction will vary from person to person, product to product and service to service. The state of satisfaction depends on a number of both psychological and physical variables which correlate with satisfaction behaviors such as return and recommend rate. The level of satisfaction can also vary depending on other options the customer may have and other products against which the customer can compare the organization's products or services.

2.3 Company Loyalty

At a very general level, loyalty is something that consumers may exhibit to brands, services, stores, product categories and activities. Loyalty can be defined as primarily an attitude that sometimes leads to a relationship with the brand (1999; Oliver). Customer loyalty can be defined in two distinct ways (1996; Roger Hallowell). The first defines loyalty as an attitude. Different feelings create an individual's overall attachment to a product, service, or organization (1994; Fornier). These feelings define the individual's degree of loyalty.

Company loyalty is the loyalty of customers towards the company that they choose. Customer loyalty in service industries has received considerable attention in both marketing and management theory and practice. As customer loyalty may act as a barrier to customer switching behavior it has an impact on the development of a sustainable competitive edge (1995; Keaveney, 1996; Gremler and Brown). The past decades has seen many firm adopt a customer focus, often through a formal program of customer relationship management (2000; Brown). Two aims of customer loyalty programs stand out. One is to increase sales revenues by raising purchase or usage levels and increasing the range of products bought from the supplier. A second aim is more defensive by building a closer bond between the brand and current customers it is hoped to maintain the current customer base.

In insurance perspective, insurance companies are the ones that can develop an overall corporate customer strategy where aligning multiple customer touch points improves business execution. There are four keys from Harold Goldberg. First, insurance companies should close the sale of product. The primary goal is about providing the customer with a pleasant experience rather than simply closing the sale. Second, deliver on a promise of the contract. Third, claiming the customer. This is critical condition for the insurance company since the agent or the claims adjuster must empathize with the customer and be as supportive and helpful as possible. Lastly is alignment in order to secure customer loyalty, insurance companies must have procedures in place to monitor the performance of the sales and service staff in these four areas.




Data can be collected in variety of ways, at different settings and from different sources. The two types of data collection method used for this research would be primary sources and secondary sources for the purpose of analyzing and testing of the research questions.

Sample description

In this study, the customers of insurance companies which are entrepreneur group had been chosen as sample target. The sample taken for this study would be 120 respondents.


Primary data are collected first hand, for subsequent analysis and find solutions to the problem being researched. Primary data that will be used would be responds from the questionnaire and answers from interviews that have been conducted. The extractions from this primary data are important to support all the findings from the research and will make the research valid itself. By using primary data that is collected through survey has been most frequently used method of data collection.


Questionnaires are an efficient data collection mechanism when the researcher knows exactly what is required and how to measure the variables of interest. This is so that the completed response can be collected in a short period of time and any doubts the respondents have on question could be clarified on the spot. The data gathered will be analyzed and presented in charts, tables, and graphs.

The questionnaires consist of four sections namely Section A, Section B, Section C, Section D and Section E. The questionnaire will start with the demographic information of respondents. The next part of the questionnaire shall be the importance of product charateristics. Section C is the question that related to the satisfaction level, Section D consists of questions that related to the company loyalty. Last section, Section E is for dependent variables. The questionnaires are adapted from a thesis on Factor Influencing Consumers' Life Insurance Purchasing Decisions in China by Huihui Wang in 2010 and A study of the Factors Enhancing the Purchase of Life Insurance in Nigeria in 2011.

Likert scale will be used in most questions as it is used to determine the level of satisfaction or dissatisfaction of the respondent with the service in 5 point scale:

Strongly dissatisfied




Neither satisfied or dissatisfied




Strongly satisfied



Secondary data are data that are gathered by someone else prior to the current needs of the researcher. Sources of secondary data include books, journals, government publications, statistical data, abstracts, articles, data bases and annual reports.

Printed sources

Library sources

Sources from books and articles from the library will be used to support the theories and findings to ensure that no important factors or information are left out which is relevant to the study.

Published data and thesis

Previous theses are other sources of information that will also be used as guidelines to the researcher and further support the research findings.

Electronic sources

Websites from the World Wide Web were used as rich sources of information as it is quick and reliable information are available that can be used in the study

Data analysis technique

In this research, data analysis technique is very useful in providing an outline for the method used in analyzing and presenting the data that has been collected. Several methods that are going to be used in this research are frequency analysis.

Statistical Package for Social Science Tool (SPSS) will be used. The theoretical framework earlier expresses the relationship among the independent variable and dependent variables enrolment decision. Multiple Regression Analysis can be used to explain whether the independent variables explain the changes that can come out in the dependent variable.



4.1 Respondent's Profile








Monthly Income




< RM2000






RM2001 - RM3000




RM3001 - RM4000



< 25






26 - 35



Education Level

36 - 45






46 - 55






Marital Status

Bachelor Degree












Table 4.1 Respondents Profile

The total of 120 valid questionnaires was analyzed. There is more on female respondents than male respondents (70% versus 30%). Majority of the respondents was less than 25 years old (35.8%), so it can be concluded that most of respondents are young entrepreneurs. It shows that single respondent have the highest participation in this study (62.5%). Most of the respondents were Bachelor degree holders (48.3%), and majority earned a monthly income range between RM2001 - RM3000. The profile of respondents is illustrated in the Table 4.1.

4.2 Descriptive Analysis






Std. Deviation

Variance (%)

Importance of Product Characteristics







Satisfaction Level







Company Loyalty







Intention of Ownership







Table 4.2 Descriptive Analysis on factor that influence the ownership of life insurance among entrepreneur in Malaysia

Descriptive analysis in table 4.2 provide an information of continues variable that influence customer's intention to own Life Insurance policy. The variables identified in the questionnaire are the importance of product characteristics, satisfaction level and company loyalty. Finding shows that the highest variances of the factors are satisfaction level and company loyalty (17.65% and 17.88% respectively). It can be concluded that respondents are very concern in service satisfaction and company loyalty to make a decision on buying Life Insurance. This result may be due to many issues regarding the quality of the service provided and due to company reputation and benefits provided.

4.3 Reliability Analysis


Cronbach's Alpha

Important of Product Characteristics


Satisfaction Level


Company Loyalty


Intention of Ownership


Table 4.3 Reliability Analysis

Reliability refers to the extent to which a scale produces consistent results if measurements are made repeatedly (Sekaran, 2010). Reliability testing was done to examine the consistency and the stability of the research items. The Cronbach's Alpha is used to measure reliability. If the value of Cronbach's Alpha above 0.5, it is acceptable. A value below than 0.5, indicates unsatisfactory internal consistency reliability. Table 4.3 indicates that the Cronbach's Alpha in the study is >0.5 for all variable. This means it is reliable and the overall variables with 4 items could be acceptable in this study.

4.4 Hypotheses Testing

The following analyze the relationship between importance of product characteristics, satisfaction level and company loyalty with entrepreneur's intention to own Life Insurance.

H1 : There is relationship between the importance of product characteristics with entrepreneur's intention to own Life Insurance.

H2 : There is relationship between satisfaction level towards service provides with entrepreneur's intention to own Life Insurance.

H3 : There is relationship between the loyalties of entrepreneurs towards company with entrepreneur's intention to own Life Insurance.







Pearson Correlation


Sig. (2-tailed)




Pearson Correlation



Sig. (2-tailed)






Pearson Correlation




Sig. (2-tailed)








Pearson Correlation





Sig. (2-tailed)









**. Correlation is significant at the 0.01 level (2-tailed).

Table 4.4 Correlation among importance of product characteristics, satisfaction level and company loyalty with the entrepreneur's intention of ownership Life Insurance

Pearson Correlation analysis is used to emphasize the strength and direction of the relationship between two variables. The report of findings is as table 4.4. The variables in the correlation analysis displayed in table 4.4 are importance of product characteristics, satisfaction level and company loyalty. Importance of product characteristics result showed the negative sign that means the factor is less important. Satisfaction level showed moderately positive relationship with intention of ownership Life Insurance (r = 0.40). Besides that, company loyalty has moderately high positive relationship with the intention of entrepreneur to own Life Insurance (r = 0.96).

4.5 Multi Regression Analysis

Model Summary



R Square

Adjusted R Square

Std. Error of the Estimate






Table 4.5 Independent variables interpret Dependent Variable

The R Square indicates the percentage of independent variable which is importance of product characteristic, satisfaction level and company loyalty can explain the dependent variable, the factor that can influence the ownership of Life Insurance among entrepreneurs in Malaysia. Table 4.5 explains that 92.9% of the independent variables can explain dependent variable.



Unstandardized Coefficients

Standardized Coefficients




Std. Error


























Table 4.6 Relationship between Independent Variables and Dependent Variable

Regression analysis is used to examine the relationship between independent and dependent variable. Based on regression analysis in table 4.6, all the variables are significant except for importance of product characteristics. The relationship between company loyalty and intention of ownership are significant (p<0.01). Satisfaction level are also significant (p<0.1). The result of this study is quite similar with previous studies conducted by Huihui Wang (2010) and Festus M. Epetimehin (2011).



5.1 Conclusion

Findings showed that majority female respondents have more intention to owning Life insurance (70%) other than male respondents (30%), mostly aged less than 25 years old who are single respondents which it can be concluded that most of them are young entrepreneurs. The study also found education level of respondents is a one of important factor that can influence the ownership of Life Insurance among respondents. With regards to contentious issues that intention of owning Life Insurance, importance of product characteristics and company loyalty reveals higher mean scores among other factors. This indicates that entrepreneurs will choose the best insurance company to cover and provides them with the best coverage. Findings from previous study by Huihui Wang, Factors Influencing Consumers' Life Insurance Purchasing Decisions In China is related to demographic, knowledge and trust, consumer profile and investment preferences and importance of product attributes. Although it is relevant to the study, there are also other variables are not been explored to explain this issue. From this study, it is evident that all the factors that have been identified are important but they have been rated differently. The factor considered most important is company loyalty. Regression analysis of this study found that there is significant relationship between company loyalty and satisfaction level with entrepreneur's intention of owning Life Insurance. This study can be a great help to providers (insurance company) and consumers. Providers can improve upon the quality of its products and services to attract more customers. This study also can be a great help to the consumers as it was aimed at finding the important factors that were preferred by the customers. For any organization to succeed in this competitive world it is necessary to know what its customers need from it and to fulfill their expectation in best possible manner.

5.2 Recommendations

Based on the results of this study, any Insurance Company can create their offerings in many ways as to attract customers and provide them with the best product and services. Insurance Company will also have to planned and implement proactive strategies that are primarily aimed at educating customers and encouraging used of Life Insurance. Marketing objectives of Insurance Company should be based on creating awareness, inform of the benefits inherent in Life Insurance and to influence the purchasing decision. The study can also help to evaluate the offerings of the provider's service to the customers.