decision making process of takaful consumer in jakarta 2010

8/12/2019 DECISION MAKING PROCESS OF TAKAFUL CONSUMER IN JAKARTA 2010

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DECISION MAKING PROCESS OF TAKAFUL CONSUMER IN JAKARTA 2010

Rhesa Yogaswara, S.Si1

To be presented in Global Islamic Marketing Conference (GIMC)Dubai, 2011

ABSTRACT

Insurance as one of the industry within the financial system, is one of the intermediary

institutions that have an important role in providing the stability and financial and economic

distribution in Indonesia. Insurance in Act No. 2 - 1992 about insurance companies.

The effort to increase Islamic life insurance market share has been carried out by

Indonesia Ulama Council (MUI). MUI has issued a fatwa on the prohibition of interest in

December 2003, and also fatwa from the National Sharia Board (DSN) No: 21/DSN-MUI/X/2001

containing about "General Guidelines for Islamic Insurance". The Islamic insurance industry isexperiencing significant growth market domination. The Cummulative Annual Growth Rate

(CAGR) of Islamic insurance policyholder is 10%. On the other side, conventional insurance

continues to growth, with estimated CAGR is about one percent.

However, there are other approaches that could be a solution for Islamic insurance

company to increase their market share. This approach represents an aspect of marketing, which

insurance company needs to know their consumer very well. The process to identify their

consumer, was part of a stage before doing marketing activities. The consumer behavior is

observed by doing the studies to know the factors that influence the purchase decision process.

This is expected help insurance company before doing marketing activities, in order to create the

demand of Islamic life insurance. Therefore, market driven approach can be used as an

alternative to increase the Islamic insurance market share.

Therefore, targeting market segments will be apropriate on the target when the playerperform a study to know and understand the consumer through consumer decision-making

behavior. Market segment which the decision-making behavior is well recognized, player can

perform marketing activities that fit in the pattern of decision-making process. Finally, the result

is expected to be a solution for player to do the marketing activities more efficiently, in order to

increase the Islamic life insurance market share.

According to the problem identification, there is a key question that is needed to be

answered through this study on "Decision Making Process". The question is, what are the factors

that is affecting the consumer, to make decision in purchasing Islamic insurance?

1Consultant of QASA Strategic Consulting, Indonesia

Chartered Islamic Finance Professional Candidate. INCEIF, Kuala Lumpur. Malaysia.

Master Candidate in Islamic Business and Finance. Paramadina Graduate School, Jakarta, Indonesia.

Email: [email protected]


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I. INTRODUCTION

I.1. Background

Insurance as one of the industry within the financial system, is one of the

intermediary institutions that has an important role in providing the stability and financial

and economic distribution in Indonesia. Insurance in Act No. 2 - 1992 about insurancecompanies say that insurance is an agreement between two or more parties, which the

insurer is binding to the insured, by accepting the insurance premium, to providereimbursement to the insured for loss, damage, or legal liability to third parties that may

be suffered by the insured, arising from an event that is uncertain, or provide a payment

based on death or life of an insured person.2

In Indonesia, Islamic insurance has began to be developed since 2001 which is

regulated in the General Sharia Insurance Code of Islamic National Council Fatwa No:

21/DSN-MUI/X/2001. By the definition, Islamic insurance is an effort to protect each

other and mutual help among a number of people / party through investment in assets and/ or tabarru 'which gives the pattern of return, to minimize the particular risk through the

contract (engagement) in accordance with sharia.The Islamic insurance products are not only launched by Islamic insurancecompany, but also the conventional insurance companies were allowed to offer Islamic

insurance products and marketed to consumers. According to the International Muamalah

Summit last 2008, Islamic insurance industry has increased by 10% from 2004 2007annually, based on number of policyholders.3

Compared to conventional life insurance, Islamic insurance market share is still

very small in terms of assets, claims, and premiums. The market share of Islamic

insurance is estimated to have almost 10% from total market of insurance (bothconventional and Islamic insurance).4

The effort to increase Islamic life insurance market share has been carried out by

Indonesia Ulama Council (MUI). MUI has issued a fatwa on the prohibition of interest inDecember 2003, and also fatwa from the National Sharia Board (DSN) No: 21/DSN-

MUI/X/2001 containing about "General Guidelines for Islamic Insurance". The Islamic

insurance industry is experiencing significant growth market domination. TheCummulative Annual Growth Rate (CAGR) of Islamic insurance policyholder is 10%.

On the other side, conventional insurance continues to growth, with estimated CAGR is

about one percent.5

The fatwa that has been issued is an approach that can be expected to increase themarket share of Islamic insurance, through the encouragement of government

(government driven). However, there are other approaches that could be a solution for

Islamic insurance company to increase their market share. This approach represents anaspect of marketing, which insurance company needs to know their consumer very well.

2http://id.wikipedia.org/wiki/Asuransi (Accessed on 21 June 2009)

3Rachmatawarta, Isa. The Growth of Sharia Insurance Business. International Muamalah Summit. Jakarta.

2008.4Ibid.

5http://syakirsula.com/index.php?option=com_content&view=article&id=62:fatwa-mui-tak-pengaruhi-

industri-asuransi-syariah&catid=1:berita-syakir-terkini&Itemid=54 (Accessed on 30 Desember 2010)


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The process to identify their consumer, was part of a stage before doing marketing

activities. The consumer behavior is observed by doing the studies to know the factorsthat influence the purchase decision process. This is expected to help insurance company

before doing marketing activities, in order to create the demand of Islamic life insurance.

Therefore, market driven approach can be used as an alternative to increase the Islamic

insurance market share.

I.2. Problem IdentificationTo increase the Islamic life insurance market share, the players need to conduct

marketing activities efficiently. Marketing could be said to be efficient if it can target the

right market segment.6 Attempts to identify the appropriate market segment, it is a

challenge for them especially for insurance company that offer conventional life

insurance products.

Therefore, targeting market segments will be apropriate on the target when the

player perform a study to know and understand the consumer through consumer decision-making behavior. Market segment which the decision-making behavior is well

recognized, player can perform marketing activities that fit in the pattern of decision-making process. Finally, the result is expected to be a solution for player to do themarketing activities more efficiently, in order to increase the Islamic life insurance

market share.

According to the problem identification, there is a key question that needed to beanswered through this study on "Decision Making Process". The question is, what are the

factors to the consumer, to make decision in purchasing Islamic insurance?

I.3. Research CoverageThe scope of the study is limited in terms of objects, place, time, and parameter

studies. In terms of the object, this research is limited to the policyholders from one of

Multinational insurance company. From the type of insurance, this study only cover thelife insurance market.

In terms of place, the scope of this study is limited only to policyholders who live

in the Greater Jakarta. In terms of time, it is limited only for 2010. The parameters of thestudy, which examined a consumer behavior is a behavior that closely related to the

factors that influence the purchase decision making process. However it is not include the

variable of consumer personality.

I.4. Research Purpose

There is a main objective of this research. It was to determine the factors that

influence consumer decision-making process to purchase Islamic Insurance. Benefits ofthis research is to provide an overview for Prudential to identify consumer behavior in

making purchasing decisions, before targeting a specific market segment. In addition, this

study will be useful for marketing activities carried out can be done with a more efficientmanner.

Benefits from this research are, to describe and identify the consumer behavior in

in terms of purchasing decisions-making process. In addition, this study will be useful forplayer that their marketing activities will be done more efficient. It is because, they can

6Royan, Frans M. Smart Launching New Product. PT. Elex media Komputindo. Jakarta, 2004. Pg.60


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target a specific market segment before doing sales and marketing activities. In addition,

this research can provide life insurance companies understand the market very well inorder to increase its market share.

I.5. Research Framework

Nowadays, the small of Islamic life insurance market share has become thegovernment's attention. Some regulations have been issued by the government with the

aim to improve the life Islamic insurance market. However, the market share is notexperiencing significant growth. There is another approach that could be a solution. It is

the approach through the marketing area, which player need to know the consumers very

well.The consumer identification process is one of the stage prior doing the marketing

activities. Consumer behavior is observed through examining the factors that influence

the purchase decision-making process. The result can provide a solution for player before

conducting the marketing activities efficiently. It is expected can increase the demand forIslamic insurance. Therefore, the market driven approach can be used as an alternative to

increase the Islamic insurance market share.The following chart is a research framework in order to study "Analysis ofConsumer Decision-Making Process of Islamic Life Insurance in Greater Jakarta in

2010

Chart I.5.1.Framework of Research Background

According to (Leon: 1997) in his book, which is entitled Consumer Behavior.Simple model in a decision-making process consists of three stages which are different

however it is interconnected. The three stages are consist of input, process and output

stages.


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Chart I.5.2.Decision-Making Process Framework

Input stages consist of the marketing mix of the insurance product as well as the

environment around the consumer as an individual. External influences that affectconsumer communication are delivered from promotional activities. The second external

influence is the socio-cultural of the consumer as an external factors that drive consumersbehave before making a decision. Daily cultures of the consumers environment from the

family (father, mother, husband/wife, brother/sister, etc.), social environment, work or

business environment, social class, are going to be the external factors that influence thedecision-making process .

The second stage of consumer decision-making process is psychological factors

such as consumers' motivation to purchase the product, the perception in consumersminds about a product, learning process and the involvement of consumers towards a

product, as well as individual attitudes. All of those psychological factors will greatly

affect the consumer in making the purchase decision.Consumer decision consists of three stages. The first, "Introduction Process",

second is "Checking and validating the information before make a purchase decision",

and the last is "Evaluation Process". Relying on these consumer stages, we will be able to

know the compatibility between the communication activities that have been conductedwith the perception received by the targeted market segments.

The third stage is how consumers behave after consumers make decisions, where

this stage will greatly affect their next decision. The consumer decision-making is closelyrelated with evaluation after they purchase and the attitude of the consumers after they

have the experience.

There are two possibilities when the consumers purchase a product. The first

possibility is the purchase which is categorized as a trial purchase. The second possibilityis classified as purchases made in the second time or as an additional purchases. At this

stage, there is the possibility of influence process as a factor for consumers in making

decisions, after consumers have had experience with the Islamic insurance product.


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I.6. Research Methodology

I.6.1. Data Collection MethodologyThe research is conducted by using a primary data. Primary data will be obtained

though random sampling methods by distributing the questionnaires to the policyholders

of Islamic insurance product. The respondents were met through sales agents that had

been met randomly in each Branch Office in Greater Jakarta.

I.6.2. Data Analysis MethodologyThis study will use several patterns analysis. First, the analysis process can be

done by doing cross-tabulation of frequencies. It can provide the domination and the

trend factors that had influenced the purchase decision-making.There are some patterns of analysis in this study. There are Segmentation

Analysis, Hierarchy of Human Needs according to Maslow's theory, Mapping Perception,

Attitude Tri-component Model, Group Dynamics, and then will be analyzed through a

model of decision-making behavior.

I.6.3. Research FlowchartThe analysis that will be proceed to answer the research questions is illustratedthrough the following chart:

Chart I.6.3.Research Flowchart


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II. Result and Analysis

II.1. PerseptionThe consumer in Indonesia has awared about the Islamic insurance products.

However, they will have different perceptions on their minds. There is 58% from total

respondents (n=90) has perceived that Islamic insurance product has been comply with

the Sharia rules.

Graph II.1. Perseption

This perception had been a general perception when they heard about Islamic

insurance product in the first time. By using the perception mapping technique, we can

draw three variables to measure the perception in the consumers mind. (Kennedy,

Riquier & Sharp, 1995)7

First is the perception of conformity with the Sharia (the graph is described in the

y variable). If the variable positive, then the consumer perception is that the products

comply with Sharia rules.Second is the perception in terms of price (the x variable), where the premium is

perceived as cheap products if the variable is positive. The third is about the universality

variable (the z variable). If the obtained value is positive, then the product will beperceived as a product that can be used for anyone. In this context, it means that the

product can be used for any religion.

The result obtained from the data collection process, perception mappingdescribes that the products are comply with the Sharia rules, with +40 y value. Themapping is followed by a +8 value for the x variable in terms of cheap premiums. The

last is a z variable that show -5, which means that Islamic insurance is perceived as a

product that is only reserved for Muslims only, not for non-Muslim.

7Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg. 164


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Graph II.1.2. Mapping Perception8

Perceptions that have been established in the minds of consumers is a result of thecompanies by delivering information through various media, then accepted by

consumers. At the end, the promotion and branding activities have created the perception

that Islamic insurances are the products that comply with Shariah rules". In terms of product image from consumers perception, there has been a relation

between perception and motivation of consumers who have chosen Islamic insurance

product. Generally, Islamic insurance is a congruent product with the consumers self-

image, where the consumers tend to have a motivation in having a product that isperceived accordance with they want.

These findings are good for player to have the right product positioning, in order

to target the market with the suitable communication message. The message couldaccentuate that the products have been comply with the Shariah rules. In addition, this

positioning communication will be effective by targeting the market segment accurately.

II.2. Consumer NeedsFrom those who are interested with Islamic insurance, there are several reasons

that make them purchase the product. The most reason (21 respondents) is because of the

Sharia compliance. And the second is the attractive investments as the main reason,which are 12 respondents, have this reason. The next 10 respondents did trial and error as

their motivation.

8Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg 164


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Graph II.2.1.Their Main Reason which are interested immediately

Thus, the unmet needs are satisfied after the Islamic insurance products are

available in the market. The need of Islamic insurance that comply with Sharia, is apsychological needs of the consumers. Psychological need can be viewed from variousaspects, such as self-actualization, protection and affection.

It means that Islamic insurance is a solution for consumers who have a need for

self actualization. When the consumers have Islamic insurance product, they will feel that

they have comply with the Shariah rules. The second is a social need, which means thatconsumers have the investment as affection to their heirs.

The third is the security needs that had been fulfilled that the protection has been

provided to the policyholders or the heirs. Their motivation was to protect their income tofulfill the expenses when the policyholder got the disaster.

According to the data, there are indications that not all Muslims have a motivation

"Comply with Shariah Rules as their main reason. The wordly aspect like investmentgain is still dominating their reason for having Islamic insurance. Here is a Hierarchy ofPolicyholderss Needs Maslow theory diagram.

Graph II.2.2. Hierarchy of Human Needs(Maslow)9

9Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Hal 106


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Graph II.3.1.2.Second Influencer in Decision-Making Process

The family runs a social function in the consumers level, which means that

families socialize the product naturally and it can motivatie the spouse (husband/wife) topurchase insurance. Not only as a social function, spouse (husband/wife) also contributes

to socialize the products for long term period, where have the potential to influence thenext generation to have the same product.

In the dynamic group, there is still another social class factors which influence

them to make decisions. In this study, it was found that the class of "White Collar"

(employee), with income is less than 50 million rupiahs a year; have a tendency to givepositive influence.

Graph II.3.1.3.Consumer Referece Groups10



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II.3.2. Loyalty and Brand Equity

Level of loyalty and brand equity is another benefit that the Islamic insuranceproduct can become a high value product from consumers perspective. Loyalty level of

policyholders can be measured by considering the level of policyholders new

acquisition, as well as in terms of premiums value. The response of policyholders after

their experiences, will be expected to increase market share than its competitors.However in this study, loyalty and brand equity are only measured the new acquisition of

policyholders. The premium value was not covered in this research.The increasing of policyholders is closely related to the satisfaction level. Hence,

the experiences of the policyholder become one of the variable that need to be analized.

The result from this study is 72% of respondents stated that they are happy with theproduct. While the rest, said that they do not have any particular experience that makes

them feel satisfied.

Graph II.3.2.1. The Experience of Policyholders

The period of being the member has been grouped that 35% are in 3-years,

followed by 1 year, which reached 30% of the total respondents. This indicates that untilthe 3 years being a member, the satisfaction and the experience are still well maintained.

The results indicate that 25 of the 50 respondents who expressed happy, feel that Islamic

insurance has been proved comply with Sharia rules.


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Graph II.3.2.2. The Things that Make the Policyholders Happy

From this result obtained, there are the indications that the Islamic insurance

products have high satisfaction level. It affect that the 90% of respondent (n=50) willrecommend the Islamic insurance to their family, friends, etc

Graph II.3.3.3. Recommendation Response

There are several reasons that the respondents will recommend the product in

their first priority. There are 26 respondents (n=45) said they would refer a Shariah

Compliance reason, and then it was followed by a trusted agency, the attractive

investment and protection.


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Graph II.3.3.4. Reason behind the Recommendation

With a detailed explanation of the policyholders behavior above, we can see a

decision-making process model in Islamic insurance. The process is described in a model,which according to Leon Schiffman, the model is a simple model of consumer decision-

making process.


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Graph II.3.3.5. Decision Making Process Model11


External Influence

Input

Consumer Decision Making

Procces

Consumer Behavior

After Make a Decision

Output

Marketing Mix1. Product: Tabarru Contract

2. Promotion: Universal Message

3. Price: MinRp.250,000 per months

4. Place: Insurance Agency

Socio-Culture1. Family: Husband/Wife

2. Social Class: White Collar

3. Income: < Rp.50 million/year

4. Education: Bachelor

5. Religion: Islam

Initial Response:Interested

immediately

Information Validation: Asking

Friend

Product Alternative Evaluation:

Compare with similar product

Psychological

1. Motivation: Find Shariah Compliance2. Perception: Comply with Syariah

3. Learning: Friends Recommendation

4. Sikap: Consistent between perception,

experience, action

Experience

Purchase (it is not under research scope)1. Trial and Error

2. Increase the premium amount

Feeling: Happy


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III. Conclusion and Recommendation

Before the policyholder makes a decision to purchase Islamic insurance, thepolicyholders can be categorized as a consumer economic model as well as a consumer

cognitive models. They can be assumed as a cognitive model because the policyholders

have decided to purchase the products through the long thinking process. Policyholders

have an active role to find the information about their products before they purchase. Acognitive component in this case, can be concluded as a belief and understanding of

policyholders that the Islamic life insurance is a product that meets the Shariah Rules.12

Policyholders can be categorized into economic models because of their rational

thinking who consider the price factor. This is very reasonable because the insurance is a

product that will affect their monthly cash flow for a long time period. Thus, thedecision-making model can be categorized as a limited problem-solving model, which is

limited according to the basic criteria of their perception; which is related to the Shariah

compliance.

In the future, this research can be expanded by considering the personality factorthat has a possibility to influence the decision-making process. In addition, the study can

be more accurate and specific by focusing the research scope is only implemented forparticular Insurance companies.

IV. References

Hawkins, Del and Kenneth A Coney, Roger J Best. Consumer Behavior: Implications for

marketing strategy. Business Publications, Inc. 198.

http://id.wikipedia.org/wiki/Asuransi (Accessed on 21 June 2009)http://syakirsula.com/index.php?option=com_content&view=article&id=62:fatwa-mui-

tak-pengaruhi-industri-asuransi-syariah&catid=1:berita-syakir-terkini&Itemid=54

(Accessed on 30 Desember 2010)Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997.

Rachmatawarta, Isa. The Growth of Sharia Insurance Business. International Muamalah

Summit. Jakarta. 2008.Royan, Frans M. Smart Launching New Product. PT. Elex media Komputindo. Jakarta,

2004.

12Hawkins, Del and Kenneth A Coney, Roger J Best. Consumer Behavior: Implications for marketing

strategy. Business Publications, Inc. 198. Pg 333

decision making process of takaful consumer in jakarta 2010

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