national culture and life insurance consumption

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  • National culture and life insurance

    consumption

    Andy CW Chui1 andChuck CY Kwok2

    1School of Accounting and Finance, Hong KongPolytechnic University; 2University of South

    Carolina, Columbia, USA

    Correspondence:Chuck CY Kwok, Moore School of Business,University of South Carolina, 1705 CollegeStreet, Columbia, SC 29208, USA.Tel: 1 803 777 3606;Fax: 1 803 777 3609;E-mail: ckwok@moore.sc.edu

    Received: 31 May 2005Revised: 29 December 2006Accepted: 24 June 2007Online publication date: 13 September 2007

    AbstractThis cross-disciplinary study examines the way national culture affectsconsumption patterns of life insurance across countries. Life insurance is a

    service that is abstract, complex, and focused on unsure future benefits.

    Because of the uncertainty and ambiguity inherent in the life insuranceproduct, consumers are more likely to respond according to their cultural

    prescriptions. Our research hypotheses are tested empirically using Hofstedes

    cultural dimensions, and data from 19762001 across 41 countries. Thefindings show that individualism indeed has a significant, positive effect on life

    insurance consumption, whereas power distance and masculinity/femininity

    have significant, negative effects. The results are robust, even after controlling

    for economic, institutional and demographic determinants.Journal of International Business Studies (2008) 39, 88101.doi:10.1057/palgrave.jibs.8400316

    Keywords: national culture; insurance; insurance consumption; Hofstede

    INTRODUCTIONThis cross-disciplinary study examines the way differences incultures across countries affect national consumption patterns oflife insurance. It is a topic related to cross-cultural consumerbehavior. The study also fills an important gap in the insuranceliterature, in which there is at present little discussion on the effectof national culture on insurance consumption.

    Hofstede and Bond (1988) define culture as the collectiveprogramming of the mind that distinguishes the members of onecategory of people from those of another. Culture is composed ofcertain values, which shape behavior as well as ones perception ofthe world. Studies have been conducted to investigate the effectsof culture on various business practices. These include the study ofmanagerial attitudes (Kelley, Whatley, & Worthy, 1987), businessperformance (Newman & Nollen, 1996), cross-border acquisitionperformance (Morosini, Shane, & Singh, 1998), investor stocktrading decisions (Grinblatt & Keloharju, 2001), and corporatecapital structures (Chui, Lloyd, & Kwok, 2002).

    In the marketing area, extant research in consumer behaviorsuggests that culture influences the cognitive processes underlyingconsumer judgments and decisions (e.g., see Briley, Morris, &Simonson, 2000; Johar, Maheswaran, & Peracchio, 2006; Mandel,2003; Steenkamp, ter Hofstede, & Wedel, 1999). Indeed, afterreviewing the consumer research literature from the past 15 years,

    Journal of International Business Studies (2008) 39, 88101& 2008 Academy of International Business All rights reserved 0047-2506 $30.00

    www.jibs.net

  • Johar et al. (2006) conclude that it is time forresearchers to take a broader look at consumers ofdifferent cultural backgrounds in order to under-stand how differences in cultural beliefs (such asindividualism) may affect consumption. Asreviewed in Hofstede (2001), De Mooij (1998a, b,2001) correlates Hofstedes cultural dimensionswith data from consumer surveys across Europeancountries by market research agencies, and gener-ates some interesting preliminary findings. Forinstance, De Mooij finds that, relative to people incollectivistic countries, people in individualisticcountries are more likely to engage in do-it-yourselfactivities: painting walls and woodwork, homecarpentry, and plumbing. They tend to live indetached houses instead of apartments or flats, andare more likely to have a private garden. Thesefindings suggest a lifestyle in which the person triesto be self-sufficient. In the consumption of bev-erages and food, De Mooj finds that people fromsocieties with high uncertainty avoidance index(UAI) tend to use more mineral water, buy morefresh fruit, and consume less ice cream or frozenfood. These findings indicate a search for simplicityand purity in food consumption.

    National cultures not only affect the consump-tion of physical goods; they also affect purchase inthe service industries. A higher percentage ofpeople from masculine societies agree with thestatement that I often enjoy advertising on TV.De Mooijs (1998b) interpretation is that theskepticism of feminine cultures toward advertisingis due to the perception that their markets havebeen swamped by advertising reflecting Americanmasculine values. In the area of investment andfinancial services, De Mooij finds that people fromhigh-UAI countries tend to invest less in stocks andmore in precious metals and gems. Consistent withDe Mooijs results, Kwok and Tadesse (2006) findthat high-UAI societies such as Japan and Germanytend to adopt a bank-based financial system, whereaslow-UAI societies such as the US and UK tend toadopt a market-based financial system. Bank depositsprovide high-UAI investors with stable returnsbecause the payoff is contractually fixed, and usuallyguaranteed by deposit insurance. By contrast, low-UAI investors prefer to invest in stock markets, whichyield higher but more volatile returns.

    Closely related to the finance and investmentindustry is the insurance industry. While peopleinvest to reap returns from their investment, manyof them also purchase life insurance to safeguardtheir family members welfare in the case of

    accidental death. We believe that national cultureshould play a significant role in explaining thedifferences of life insurance consumption patternsacross countries. The reason for this stems fromsome recent findings in the consumer behaviorliterature, which indicate that cultural effects onthe consumer decision process depend on theparticular product. For instance, Briley et al.(2000) propose that culture is influential whenthe decision task requires the consumer to providereasons for their consumption. This is because,when people search for reasons, they will accessdecision rules (existing norms) that, to a largeextent, differ cross-culturally. Leung, Bhagat,Buchan, Erez, and Gibson (2005), in their reviewof studies in culture and international business,highlight a stream of research that indicates thatculture tends to have a strong impact on individualbehavior under conditions of uncertainty andambiguity. The above findings suggest that cultureis likely to have a significant impact on decision-making when consumers need to provide reasonsfor their consumption, and this cultural impacton behavior is amplified by uncertainty andambiguity.

    It is well known that life insurance is a servicethat is very abstract, complex, and focused onunsure future benefits; it is a service difficult forconsumers to evaluate even after purchase (Crosby& Stephens, 1987). In other words, inherentuncertainty and ambiguity are involved in theconsumption of life insurance. Furthermore, tofind a life insurance policy that can best suit theneeds of the beneficiaries, consumers will usuallyconsider the proposals, the agent, and the image ofthe company. They will search for reasons that areprobably based on culturally conferred decisionrules to justify their choices of insurance proposals.Indeed, Crosby and Stephens (1987), in their studyof consumer behavior in the life insurance industry,conclude that it is naive to assume that peoplebuy the agent and the company without tryingto verify their performance in delivering theservice. Because of the unique nature of lifeinsurance, culture is expected to be a criticaldeterminant underlying the systematic differencesin consumption of life insurance across countries.Previous studies in life insurance consumption,however, have not yet investigated the relationshipbetween national culture and life insurance (e.g.,Beck & Webb, 2003; Browne & Kim, 1993; Out-reville, 1996). The current research aims to fill thisgap. In addition to examining whether national

    National culture and life insurance consumption Andy CW Chui and Chuck CY Kwok89

    Journal of International Business Studies

  • culture affects life insurance consumption, it is alsointeresting to explore whether the same set ofnational-culture dimensions that affect the invest-ment industry also affect the insurance industry.Furthermore, are the effects of national culturesufficiently significant, economically speaking, towarrant the attention of practitioners in the lifeinsurance industry?

    The remainder of this paper is organized asfollows. In the second section, we hypothesizethe relationships between national culture andlife insurance consumption. In the third section, wedescribe the data and methodology. The results arereported in the fourth section. The fifth sectiondiscusses the theoretical and practical implicationsof the findings. The paper ends with a summaryand conclusions section.

    NATIONAL CULTURE AND LIFE INSURANCECONSUMPTION

    The Effect of IndividualismBased on the literature of cross-cultural psychology,the primary focus of this study is on how indivi-dualism, a common dimension of national culture,may affect national consumption patterns of lifeinsurance. Markus and Kitayama (1991) provide anintegrative model based on the concept of self tosummarize much of the cross-cultural research ofpsychology. The model has gained widespreadsupport among social psychologists. Markus andKitayama contend that the various cultures of theworld place differing emphasis on two aspects oftasks relevant to everyday life: independence (i.e.,tasks related to agency and autonomy) and inter-depende

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