Savings and borrowing are important aspect of financial services that encourage household financial decision making. Firstly, saving is a source of working capital and is used during emergencies. The survey revealed that most of respondent derived their working capital form relative/family/friends and personal wages/labour representing 12% and 11.5 percent respectively. Almost half of households were self-employed and their working capitals were derived from family and personal saving through labor (salaried income from part time or permanent job). 4.5 percent of the respondent derived their income from bank/mfi/ngo institution.
Secondly, borrowing behavior is an important aspect since it provides an insight regarding demand for micro insurance. The households who engaged in regular borrowing and saving activities have better exposure to financial markets. There is evidence that use of one financial service provides an informational advantage to know more about additional services. The study indicates that borrowing from relatives and friends dominates; the survey reveals that 21% of households have taken at least one credit in the last 3 years. The most popular loan was from MFI (10%) and NGO (5%). The preferred mode of loan repayment is monthly payment. MFI in the form of SACCOs is widely used by group.
Figure 8.1: Household Use of Financial Services
Source Household Survey 2010
8.1.2 Knowledge of Insurance
The data indicates that households have a basic understanding of insurance; few respondents demonstrated a strong understanding of insurance. Strong understanding implies that the respondent had a clear definition of insurance, why insurance products are purchased and how it works, that is, payment of premiums and a conditional benefit if the insured event occurs. Basic understanding signifies a limited grasp without full knowledge of how insurance works for example types of insurance products and able to mention at least five insurance companies operating in Tanzania. No idea captures both misunderstanding as well as inability to define insurance.
The survey revealed that the lack of trust undermines successful micro insurance delivery. Only 11.8% trust insurers. As many as 34 % of households neither trust nor do not trust insurers. Any possible bad experience with insurance that might be easily spread by media or word of mouth can turn those neutral into distrustful, thus reducing the market size significantly. On the other hand, big number of neutral people is also an opportunity. This group would not reject a new product because of trust. If they have good experience significant market opportunities would open up. At least one or two individuals per group have heard of vehicle insurance but their knowledge of other types of insurance was limited and in some cases nonexistent. Apart from those with credit life insurance none of the participants had insurance (currently or previously). A few participants, however, indicated that they knew people who had insurance. This confirms the earlier findings by Churchill and Manje (2002) that a lack of awareness or impartial knowledge, as well as attitudes based on misconceptions undermine the insurance potential in the informal sector.
0 20 40 60 80 100 120
MFI Member Taken loan Prefer weekly Prefer monthly Prefer Quartely Prefer Annually Prefer other Prefer state Bank Prefer MFI Prefer NGO's Prefer Commer Bank Trust Banks Yes Trust Banks NO Trust Bank Hard to say
Frequency Percent
Figure 8.2: Households Insurance Knowledge
Source: Household Survey 2010
This highlights the need for effective and broad-based consumer financial education with regard to insurance. Analyzing the education levels of the household and insurance knowledge, the study finds insurance knowledge varies with educational level. While secondary school leavers and above have strong understanding of insurance concepts. Primary school levels who have strong understand either through credit life insurance education or they owns vehicles and motorbike were mandatory third party liability insurance is required.
Figure 8.3: Households Educational Level
Source: Household Survey 2010
0 50 100 150 200
No idea Basic Understanding Strong understanding Trust on insurance "yes"
Trust on insurance "No"
Hard to say
Percent Frequency
0 100 200 300 400 500
None Primary Secondary Vocational University
Percent Frequency
8.1.3 Perception of Insurance
The insurance perception seems to be poor; the study finds the relative frequencies for five categories of responses indicated in figure 8.4. Forty percent of the respondents did not indicate any perception because they were not sure they knew enough about insurance to express opinions on the subject. This suggest that majority of the respondents are open to education and insurance companies needed to market in their areas about their products and costs. Only eighteen percent expressed a favorable response regarding insurance without reservations. Those who were categorized under
―affordability reservations‖ mentioned that while they knew the benefits that stem from insurance would help them cope with risks, but insurance was beyond their means. Applicability reservations were slightly different as respondents indicated that they did not have anything that was worth insuring.
Figure 8.4: Households Insurance Perceptions
Source: Household Survey 2010
Negative perceptions40was reported and twenty percent of those respondents with a strong or limited understanding of insurance expressed strong negative views, either based on their own experience or through hearsay. Their perception of insurance is highly affected by media and insurance staffs.
There is evidence that negative perception was the results of company personnel had commuted fraud. The primary complaint was the length of time for claims to be paid. A few mentioned that insurance firms and brokers are not trustworthy. Even stronger negative perceptions emerged during the focus group discussions. There is general sense in FGD that people prefer to save or invest money is such a way that they can be certain and they are able to access it later. In sum, 52 percent of the respondents either think that insurance is not appropriate for them or have a negative view
40
0 50 100 150
Not sure or uncertain Negative perception Favourable but Applicability
issue
Favourable but affordability issue
Favourable without reservations
Percent Frequency
about insurance, while 40 percent do not have sufficient information to form an opinion. With full knowledge that they are vulnerable to risks, and that insurance is one way to protect against them, lack of exposure makes the majority of informal household feel that insurance is not applicable to them, they cannot afford it, or they have more pressing needs.
8.1.4 Product demand match
Figure 8.4 demonstrates that most respondents are satisfied with different product characteristics.
For the purpose of this analysis we have presented to respondents two generic micro insurance products with detailed information allowing household to declare if they are willing to purchase given specific product features. This exercise was aimed to find micro insurance demand perspectives. We presented life insurance product and health insurance because these products widely available in Tanzania and we adopted features of micro insurance products of ―First Micro insurance Agency (Life) and Community Health Funds41 (health insurance). Research identify that benefits, coverage and quality of provider commands the best-selling characteristics for health insurance while life insurance the opposite result was identified; the most prominent selling characteristics was proximity, coverage and benefit.
Figure 8.5: Households Most Preferred Product Characteristics
Source: Household Survey 2010
The cost of coverage was assessed in two ways: first, the concept of insurance was explained; then we ask participant if they are willing to pay given this type of insurance cover. The results give a lot of new insights on micro insurance perspectives. However, Churchill and Manje (2002) suggest that there are a number of hurdles to be overcome before willingness to use micro insurance will be put into action. Their findings indicated that people have an inclination to invest in financial services for which they get cash back, indicating a lack of understanding of the insurance value proposition.
Furthermore, the trade-off between ―peace of mind‖ and ―bread on the table‖ will always be particularly pronounced for the low-income market. All of this once again underlines the need for financial education. The reasons for not purchasing insurance, (lack of willingness to buy) can be
41
200 4060 10080 120140
Frequency Percent
explained by combination of bad experience, benefits, coverage and price of the product. In case of health insurance quality of the provider is the most important reason after benefits. The other important reason is knowledge gap in the form of dissatisfaction from the fact that there is no benefit while nothing happens.
Figure 8.6: Households willingness for Micro insurance Products
Source: Household Survey 2010
The amount that are currently spent for any risk exposure happened over last three years indicates that most of the household over 13 percent spends on average between $21 and $50 for one risk event. 10.2 percent spends from $50 to $100 while over 3 percent spends above $100 for one risk exposure. This gives important insurance pricing mechanisms.
Figure 8.7: Households Average Spending Per Risk Exposure
Source: Household Survey 2010
0 50 100 150 200
H- Willing H-Not Willing H- Don't Know L- Willing L-Not Willing L- Don't Know
Percent Frequency
0 20 40 60 80 100 120
Insurance cover
$0-$20 $21-$50 $51-$100 Above
$100
Frequency Percent