It has been revealed that a person’s level of knowledge about insurance plays a critical role in a consumer’s decision to purchase an insurance policy. Since insurance products tend to be more complex than usual financial products, a person’s level of knowledge about the product cannot be effortlessly understated. Similarly, consumers’ knowledge of insurance mimics their level of understanding of their risk exposures, risks consequences, policy benefits, and policy features that influenced their purchase of insurance policy.
Trust in the insurer has been identified as one of the critical factors influencing a consumer’s purchase of an insurance policy. Trust becomes very important, especially when a person does not have a full or cannot predict the outcome of a phenomenon. Since one cannot simply tell the outcome of an insurance policy, consumer trust in the insurer becomes a critical factor that shapes the customer’s mind. Accordingly, it has been observed that consumers’ high level of trust in an insurer substantially influences their purchase of insurance policy.
Since the unknown always characterizes the insurance contract, trust plays a significant role in minimizing consumers’ anxiety towards the unknown, especially regarding the insurer’s ability to meet his side of the policy promise. Accordingly, trust becomes a significant assurance in contract signing, especially those with less knowledge or awareness of the issues at stake. This suggests that a consumer’s ability to trust in the insurance company’s promise within the insurance industry is most likely to shape their decision to purchase an insurance policy.
However, it is not at all times that trust has been found to influence a person’s purchase of an insurance policy. For example, it has been revealed in other contexts that individuals who have low confidence in an insurance company may still purchase their policy offerings, especially when they are offered some discounts. It has also been revealed that policyholders were still willing to purchase their policy from an unknown insurer, primarily when the insurer provided them with some freebies such as discounted premiums and fuel coupons.
Another factor identified as a significant determinant of consumer purchase of an insurance policy is their risk perception and the severity of the risk. For instance, it was discovered that consumers who had high awareness about a risk occurrence and had a complete understanding of the severity of their risk exposures were more willing to insure themselves than those who held a contrary view. Consumers with high-risk perceptions showed a high willingness to purchase an insurance policy. Nonetheless, consumers who are not risk-averse are more hesitant when buying insurance policies.
In my field experience as an insurer, at all times, individuals who tend to have prior knowledge about the relevance and benefits of an insurance policy tend to show more willingness when it comes to purchasing the insurance policy. For instance, close to my ten years of experience in the insurance industry, people who appreciate their vulnerability to risk and the indemnity insurance provides them are more willing to purchase the insurance policy, primarily when the benefits are explained. Interestingly, this is not the case when interacting with people with low cognitive capabilities.
In my years of experience in the field, policyholders who hardly experience road accidents are often hesitant to renew their motor policy. Specifically, in my ten years of experience in the insurance industry, I had recognized that comprehensive motor policyholders were more likely to change to a much lower coverage (i.e., third party policy) when they realized that their past driving experience had not exposed them to any severe damages or road accidents.
In my experience as an insurance officer, I have observed that consumers who do not see themselves to be highly susceptible to road accidents care less about motor insurance.
Categorically, knowledge significantly influenced a consumer’s decision to buy an insurance policy. Behavioural factors that constituted a person’s level of knowledge on an insurance policy, perceived trust in the insurance company, perception of risk, severity of risk, social influence, and the likelihood of a risk occurrence influence a person’s decision to purchase an insurance policy. This suggests that a person who has adequate knowledge of the benefits of insurance and the risk of non-insurance is more likely to insure their risk.
Bismark is an associate and chartered insurance professional (ACII) with the Chartered Insurance Institute, UK, and an Associate Member of the Chartered Insurance Institute, Ghana.
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