National culture and life insurance consumption

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<ul><li><p>National culture and life insurance</p><p>consumption</p><p>Andy CW Chui1 andChuck CY Kwok2</p><p>1School of Accounting and Finance, Hong KongPolytechnic University; 2University of South</p><p>Carolina, Columbia, USA</p><p>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</p><p>Received: 31 May 2005Revised: 29 December 2006Accepted: 24 June 2007Online publication date: 13 September 2007</p><p>AbstractThis cross-disciplinary study examines the way national culture affectsconsumption patterns of life insurance across countries. Life insurance is a</p><p>service that is abstract, complex, and focused on unsure future benefits.</p><p>Because of the uncertainty and ambiguity inherent in the life insuranceproduct, consumers are more likely to respond according to their cultural</p><p>prescriptions. Our research hypotheses are tested empirically using Hofstedes</p><p>cultural dimensions, and data from 19762001 across 41 countries. Thefindings show that individualism indeed has a significant, positive effect on life</p><p>insurance consumption, whereas power distance and masculinity/femininity</p><p>have significant, negative effects. The results are robust, even after controlling</p><p>for economic, institutional and demographic determinants.Journal of International Business Studies (2008) 39, 88101.doi:10.1057/palgrave.jibs.8400316</p><p>Keywords: national culture; insurance; insurance consumption; Hofstede</p><p>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.</p><p>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, &amp; Worthy, 1987), businessperformance (Newman &amp; Nollen, 1996), cross-border acquisitionperformance (Morosini, Shane, &amp; Singh, 1998), investor stocktrading decisions (Grinblatt &amp; Keloharju, 2001), and corporatecapital structures (Chui, Lloyd, &amp; Kwok, 2002).</p><p>In the marketing area, extant research in consumer behaviorsuggests that culture influences the cognitive processes underlyingconsumer judgments and decisions (e.g., see Briley, Morris, &amp;Simonson, 2000; Johar, Maheswaran, &amp; Peracchio, 2006; Mandel,2003; Steenkamp, ter Hofstede, &amp; Wedel, 1999). Indeed, afterreviewing the consumer research literature from the past 15 years,</p><p>Journal of International Business Studies (2008) 39, 88101&amp; 2008 Academy of International Business All rights reserved 0047-2506 $30.00</p><p>www.jibs.net</p></li><li><p>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.</p><p>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.</p><p>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</p><p>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.</p><p>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&amp; 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 &amp; Webb, 2003; Browne &amp; Kim, 1993; Out-reville, 1996). The current research aims to fill thisgap. In addition to examining whether national</p><p>National culture and life insurance consumption Andy CW Chui and Chuck CY Kwok89</p><p>Journal of International Business Studies</p></li><li><p>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?</p><p>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.</p><p>NATIONAL CULTURE AND LIFE INSURANCECONSUMPTION</p><p>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-dependence (i.e., tasks related to communion andaffiliation). Cultures in which the first process isprimary are said to foster an independent construalof self, whereas cultures in which the secondprocess is dominant are said to foster an inter-dependent construal of self. The independentconstrual of self is more often seen in NorthAmerican and Western European cultures, whereasthe interdependent construal of self is often foundin Asian cultures (Heine &amp; Lehman, 1995). In thisstudy, we relate these self concepts to life insuranceconsumption, contending that people with anindependent construal of self tend to rely moreon market life insurance and less on social networksecurity (financial help offered by fellow kinsmento ones dependants upon ones death) than peoplewith an interdependent construal of self. We shallpresent our arguments under two aspects: the</p><p>availability and the desirability of social networksecurity.</p><p>People with an interdependent construal of selfare constantly aware of others, and focusing ontheir needs, desires and goals. The assumption isthat, while promoting the goals of other people,ones own goals will be attended to by the personwith whom one is interdependent. Obviously,interdependent selves cannot and do not attendto the needs and goals of all others. Their attentionis usually confined to members of a social groupwith whom they share a common fate (Markus &amp;Kitayama, 1991). This group is likely to extendbeyond ones immediate family to close friends andrelatives. Should one member die early, others areexpected to and will probably provide financialhelp to that members dependants. With socialnetwork security in place, one has less need ofmarket life insurance. In fact, insurance purchasemay be considered redundant, because it incursunnecessary expenditure. By contrast, people withan independent construal of self strive to asserttheir individuality and stress their separatenessfrom the social world (Heine &amp; Lehman, 1995).They do not focus on others needs, desires andgoals. Their social group of relevant others isusually small, often confined to members of thenuclear family. Should one die early, one cannotcount on fellow kinsmen to provide financialsupport for ones dependants. In fact, it is unrea-sonable to count on relatives help, as it is quitelikely that one did not extend such help to otherrelatives either. As social network security isunavailable, one needs to resort to market-basedlife insurance to safeguard the welfare of onesdependants.</p><p>Putting the availability issue aside, an indepen-dent self may also consider the social networksecurity less desirable than market life insurance.Empirical studies have repeatedly shown thatpeople with an independent construal of self tendto exhibit self-enhancement biases, whereas thosewith an interdependent construal of self do nothave such a tendency (Gelfand et al., 2002; Heine &amp;Lehman, 1995). By engaging in self-enhancementbiases, they view themselves in unrealisticallypositive terms. They tend to draw satisfaction fromthe belief that they can exercise inner attributes toovercome the environment. Reliance on othershelp may be viewed as a sign of weakness.Consequently, to an independent self, a socialnetwork security system is less desirable than amarket-based insurance system. By contrast, people</p><p>National culture and life insurance consumption Andy CW Chui and Chuck CY Kwok90</p><p>Journal of International Business Studies</p></li><li><p>with an interdependent construal of self do notexhibit self-enhancement biases. To them, themarket insurance system is not necessarily moredesirable than social network security.</p><p>Since we cannot readily measure the degree ofindependent/interdependent construal of selfacross cultures, we need an empirical proxy forthese self concepts. In the present study, we use theindividualism index developed by Hofstede (1983,2001) as our proxy.1 We use Hofstedes culturaldimensions because they are the most widely usedcultural indices in the international business litera-ture and contain a relatively large number ofcountry observations.2 In explaining his conceptof individualism, Hofstede (2001: 210) notes thatthe central element in our mental programminginvolved in this case is the self-concept. Hence,according to Hofstede (2001), individualism per-tains to the degree to which people in a countrytend to have an independent rather than aninterdependent self-construal; the reverse is thecase for collectivism. Following this line of reason-ing, we put forward the following hypothesis:</p><p>Hypothesis 1: The life insurance consumption ofa country is positively related to its level ofindividualism.</p><p>The Effect of Other National Cultural DimensionsOf the four dimensions suggested by Hofstede, theindividualism/collectivism dimension is consideredthe most significant cultural difference amongcultures (Triandis, 2001: 907). However, Kirkman,Lowe, and Gibson (2006) recommend thatresearchers should not consider only one dimen-sion in their study. They review 64 studies ofculture using Hofstedes dimensions at the indivi-dual level of analysis, and find that 54 of thesestudies examine only the individualism/collecti-vism dimension. The remaining 12 studies, whichinclude cultural dimensions in addition to indivi-dualism/collect...</p></li></ul>

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