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1.1     Background of the Study

In a consumer behavioural perspective, many different psychological models within different disciplines have been proposed to explain consumer’s attitudes, motivation and consumption of insurance. The most popular theoretical models applied in products and services consumption studies are the theory of reason action (TRA) and the theory of planned behaviour (TPB) (Fishbein & Ajzen, 1975, 1980; Ajzen, 1991), behavioural perspective models Foxall (1990; 1999), and classical attitude-behaviour models.

The main advantage of these models is the inclusion of all person-, product-, and related situation factors in explaining variations of insurance consumption frequency.

An attitude is a learned predisposition to respond to a given object or class of objects in a consistently favourable or unfavourable way. The widespread view is that attitudes are complex systems made up of three components. These are; cognitive component referring to the person’s thoughts, affective component referring to person’s feelings, and the conative component referring to the person’s behavioural tendencies (Ajzen and Fishbein, 1980). In marketing context, it is stated that consumers can develop attitudes to any kind of product or service, or indeed to any aspect of the marketing mix, and these attitudes will affect consumption indirectly through intention to consume .(Brassington and Pettitt, 2003).

In addition to attitudes, consumers confront complicated financial decisions (insurance inclusive) in today’s demanding financial environment, which require financial literacy to interpret. Financial literacy is the ability to process financial information and make informed decisions involving numeracy, time value of money, interest compounding, and money illusion and inflation aspects of personal finance (Shawn cole & Nilesh Fernando, 2008). Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex insurance policies.

Previous research has shown that both attitudes and financial literacy have significant impact on insurance consumption. However, the conclusions come mainly from the studies in developed countries and Western cultures, whereas preference and financial services choice insurance consumption being one of them is various across situations and cultures (Tajuden 2007). Lewis (1989) defines insurance consumption in terms of Insurance penetration, insurance density and insurance in force to GDP.

Literature reviewed has shown that insurance business has a high growth rate potential in Uganda (UIC, 2008). On the other hand, relatively low penetration of the sector (UIC, 2008) indicates that there is still a considerable unexploited potential. Despite this potential, Uganda is still lagging seriously behind in the African insurance market ranking.

Generally from previous research, insurance business is significantly determined by consumers’ behaviours, attitudes and financial literacy (Omar, 2005; Annamaria Lusardi, Olivia S. Mitchell & Vilsa Curto, 2009). Risk protection, saving, investment, accessibility Quality (convenience), trust and price are main constructs of cognitive and conative insurance attitudes, determining the consumption of insurance (Omar, 2005; Annamaria Lusardi 2009).

1.2     Statement of the Problem

Despite the growing population and economy, Nigeria is still lagging behind in the African insurance market consumption ranking. Nigeria occupies the fifth position in Africa, with USD 0.989 billion as market size and 0.86% as penetration percentage in the Nigerian insurance market and this penetration has stagnated for the past eight years (UIC and AIO, 2009). Given the existence of untapped potential in the Nigerian insurance market, this consumption level is worrying. The consumption level has been attributed to a number of factors (UIC, 2009) among them consumer behaviours, attitudes and financial illiteracy.

1.3     Purpose of the Study

The study sought to establish the structure of consumer behaviour, attitudes, level of financial literacy and degree of insurance business consumption and the relationship between consumer behaviour, attitudes and financial literacy, consumer attitudes and consumption intention and consumption and financial literacy and consumption intention and consumption of insurance business in Nigeria.

1.4     Research Objectives

i)       To examine the structure of consumer behaviours, attitudes towards insurance in Nigeria.

ii)      To examine the level of consumer financial literacy in Nigeria

iii)     To establish the degree of insurance consumption in Nigeria.

iv)     To establish the relationship between consumer behaviours, attitudes and financial literacy

v)      To establish the relationship between consumer behaviours, attitudes and consumption intention of insurance

vi)     To determine the relationship between consumer financial literacy and insurance business

1.5     Research Questions

i)       What is the structure of consumer behaviours and attitudes towards insurance in Nigeria?

ii)      What is the level of consumer financial literacy in Nigeria?

iii)     What is the degree of insurance consumption in Nigeria?

iv)     What is the relationship between consumer behaviours, attitudes and financial literacy?

v)      What is the relationship between consumer behaviours, attitudes and consumption intention of insurance?

1.6     Scope of Study

•        Subject scope: The study focused on consumer attitudes towards insurance, financial literacy, consumption intention and insurance consumption.

•        Geographical Scope: The study was carried out in Lagos, Nigeria. Lagos was chosen because it is the centre of most registered Insurance firms.

1.7     Significance of the study

The study shall make the following contributions:

(i)      The study shall contribute knowledge in the area of consumer behaviour for insurance firms to identify the nature of consumers’ attitudes towards insurance among non-users and their financial literacy so that appropriate marketing strategies can be developed.

(ii)     The study shall contribute to the existing wealth of knowledge in the area of psychological modelling for scholars and thus stimulate further research in consumer behaviour.

iii)     The study shall contribute knowledge in the area of consumption of insurance services for consumers by identifying predictors of consumption from a developing country context.

1.8     The Conceptual Framework

The conceptual framework is based on the theory of reasoned action and planned behaviour (TRA and TPB) and extensive review on existing literature on financial literacy and insurance consumption.

In the psychological perspective, many empirical studies have combined a number of interrelated factors to explain the behaviour towards financial services choice and consumption. In insurance context, the theories which are most frequently applied are theory of reasoned action and the theory of planned behavior (Omar, 2005; Norman & Conner, 2006; Tajuden, 2007; Verbeke and Vackier, 2005). In general, these applications all showed that choice and motivation towards insurance consumption are driven by attitude toward the service via intentions to purchase the service and financial literacy. This study is a quantitative research in psychological perspective, in which TRA & TPB are used as the basis for the conceptual framework.

The model explains the relationship between the variables under study. Consumption (behavioural) intention is a function of attitude toward the behaviour (consumption) and attitudes affect consumption indirectly through intentions. Financial literacy is also included in the model as an external factor in TPB to affect consumption directly. The dependent variable (insurance consumption) measured in terms of insurance Density, Insurance in Force to GDP and insurance penetration.

In insurance, three components influence on attitude and are affective, cognitive and conative and are often paid attention via perceived insurance benefits as such risk protection, saving, investment, accessibility, trust and price/cost (Omar, 2005).

Financial literacy is an integral and a fundamental aspect for consumer decision making in insurance consumption. Financial literacy affects financial decision-making from the cognitive capacity of basic but fundamental financial knowledge in numeracy, time value of money, interest compounding, money illusion and inflation (Lusardi, 2015).

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