INSURANCE LITERACY AND RISK APPETITE: EVIDENCE FROM SELECTED SMALL AND MEDIUM-SIZED ENTERPRISES IN LAGOS, NIGERIA
Keywords:
insurance literacy, risk appetites, rational choice theory, SMEs, NigeriaAbstract
The economic loss that possibly occurred from the inactions of individuals may be resultant effects due to lack of insurance literacy in their personal financing decisions. However, insurance decisions that rest upon the level of risk acceptability of an individual SMEs is usually expressed in the course of attaining a high level of personal financial satisfaction. Therefore, this study examined the relationships between insurance literacy, and risk appetites, with specific reference to SME operators/owners in Lagos, Nigeria. The study adopted a cross-sectional survey research design. Thus, the single-stage cluster sampling method was adopted in the questionnaire distribution and collection processes. A structured questionnaire was employed for data gathering. A total of 386 copies of the questionnaire were distributed, of which 273 were found usable which represented a 71% response rate. The data procedural technique employed were simple frequency percentages and the multivariate regression method. The results show that all other determinants of insurance literacy except for insurance behaviour have positive relationships with SMEs’ risk appetites in Lagos, Nigeria. This study recommended that insurance education, as a field of study, should be taken as seriously as possible so that it can help develop the peoples’ minds psychologically and sociologically to get attracted to insurance in order to manage their future. More so, insurance providers in Nigeria should attempt to make the business of insurance lovable and affordable to SMEs’ operators/owners in a bid to shapen their behavioural risk attitudes.
References
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Al-Qubtan, T.R., Gan, P., Abd. Hadi, F.S., Abdul Jalil, N., & Rambeli, N. (2021). Practical risk management approaches among small and medium enterprises. TEM Journal, 10 (2), 996- 1004.
Aniete, R., Uba, T.L., & Odou, R.S.M. (2019). Insurance policy integration for curbing educational waste in public secondary schools in Rivers state. International Journal of Research and Innovation in Social Sciences, 3 (9), 51-55.
Ayyagari, M., Demirguc-Kunt, A., & Maksimovic, V. (2011). Small vs. young firm across the World: Contribution to employment, job creation and growth. Policy Research. Working Paper, 5631, World Bank: Washington, DC.
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Clarke, D.J. (2016). A theory of rational demand for index insurance. American Economic Journal: Microeconomics, 8 (1), 283-306.
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Dayour, F., Adongo, C.A., & Kimbu, A.N. (2020). Insurance uptake among small and medium- sized tourism and hospitality enterprises in a resource-scarce environment. Tourism Management Perspective, 34,1-13.
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Driver, T., Brimble, M., Freudenberg, B., & Hunt, K. (2018). Insurance literacy in Australia: Not knowing the value of personal insurance. Financial Planning Research Journal, 4, 53-73.
Du, X., Feng, H., & Hennessy, D.A. (2014). Rationality of choices in subsidised crop insurance markets. American Journal of Agricultural Economics, 99 (3), 732-756.
Epetimehin, F.M. (2013). Impact of risk appetite on the value of a firm. European Scientific Journal, 9 (22), 331-344.
Fairer Finance (2018). Misbuying insurance. Retrieved from https://www.fairerfinance.com
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Hudakova, M., Masar, M., Luskova, M., & Patak, M.R. (2018). The dependence of perceived business risks on the size of SMEs. Journal of Competitiveness, 10 (4), 54-69.
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Ibiwoye, A., Mojekwu, J., & Dansu, F. (2020). Enterprise risk management practices and survival of small and medium scale enterprises in Nigeria. Studies in Business and Economics, 15 (1), 68-82.
Insurance Europe (2017). Financial education in a digital age: Initiatives by the European insurance industry. Retrieved from https://www.insuranceeurope.eu
Joseph, O.A., & Joshua, A. (2011). Risk management in the Ghanaian insurance industry. Quantitative Research in Financial Market, 5 (1), 26-42.
Kelly, S., & Vu, Q.N. (2010). The economic cost of underinsurance for a typical family. Journal of Financial Value, 3 (3), 1-5
Kramer, M.M. (2016). Financial literacy, confidence and financial advice seeking. Journal of Economic Behaviour and Organization, 131, 198-217.
Kubitza, C., Hofmann, A., & Steinorth, P. (2019). Financial literacy and precautionary insurance. ICIR Working paper series, no 34/19, International Center for Insurance Regulation (ICIR), Goethe University, Frankfurt.
Kunreuther, H., & Pauly, M. (2005). Insurance decision-making and market behavior. Foundation and Trends in Microeconomics, 1(2), 63–127.
Kwadwo, Y.A., & Kwasi, O.C. (2016). Effect of financial literacy on willingness to pay for micro- insurance by commercial market business operators in Ghana. MPRA paper no. 70135. Retrieved from https://mpra.ub.uni-muenchen.de/70135
Laury, S., Mcinnes, M., & Swarthout, J. (2009). Insurance decision for low probability losses. Springer Science Business Media, LLc.
Ledwin, C., & Watson, M. (2019). Risk attitude, risk perception, and risk management strategies adoption in Zimbabwean small and medium enterprises. Journal of Management and Economic Studies, 1 (2), 53-68.
Lee, K. (2012). Uncertain indemnity and the demand for insurance. Theory and decision, 73 (2), 249-265.
Lin, X., Bruhn, A., & William, J. (2019). Extending financial literacy to insurance literacy: A survey approach. Accounting and Finance, 59 (1), 685-713.
Lusardi, A., & Mitchell, O.S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52 (1), 5-44.
Mensah, S. (2004). A review of SMEs financing schemes. UNIDO Regional Workshop of Financing Small and Medium Scale Enterprise.
Phillippe, F., & Liliana, A. (2016). How to calibrate risk appetite, tolerance and limits: The issues at stake for capital allocation, ERM and business performance. Paris: EDHEC Business School.
Pullis, M. (2010). How can the industry simplify life insurance to make life insurance more attractive to consumers? Retrieved from https://test.fsc.org.au/downloads/file/abouts/MelaniePulis-stGearge.pdf
Refera, M.K., Dhaliwal, N.K., & Kaur, J. (2016). Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities. Journal of African Studies and Development, 8 (1), 1-12.
Richter, A., Schiller, J., & Schlesinger, H. (2014). Behavioural insurance: Theory and experiments, Journal of Risk and Uncertainty, 48, 85-96.
Sanjeewa, W.S., & Hongbing, O. (2019). Consumer insurance literacy: Literature review, conceptual definition, and approach for a measurement instrument. European Journal of Business and Management, 11 (26), 49-65.
Sanjeewa, W.S., Hongbing, O., & Lin, Y.G. (2019). Decision making in personal insurance: Impact of insurance literacy. Sustainability, 11, 1-24.
Scott, J. (2000). Rational choice theory. In G. Browning, A. Halcli, & F. Webster (Eds.), Understanding contemporary society: Theories of the present (pp. 126-138). London: Sage Publications.
Taherdoost, H. (2016). Sampling methods in research methodology: How to choose a sampling technique for research. International Journal of Academic Research in Management, 5 (2), 18-27.
Tennyson, S. (2011a). Challenges and approaches to consumer protection in the insurance industry. Working paper, 1-24.
Tennyson, S. (2011b). Consumers’ insurance literacy: Evidence from survey data. Financial Services Review, 20, 165-179.
Teraveinen-Goff, A. (2019). Literacy and financial capability: An evidence review. National Literacy Trust Research Report. Retrieved from http://www.literacytrust.org.uk
Thamaka, R., Dickason, Z., & Ferreira-Schenk, S. (2021). Analysing the risk management perception of small, micro, and medium enterprises. Acta Universitatis Danubius, 17 (3), 209-228.
Wilson, J. (2014). Essential of business research: A guide to doing your research project. 2nd ed. London: Sage Publication Limited.
Zoghi, F.S. (2017). Risk management practice and SMEs: An empirical study on Turkish SMEs. International Journal of Trade, Economics and Finance, 8 (2), 123-127.
Adeyele, J.S., & Omorokunwa, O.G. (2017). Risk appetites and empirical survival pattern of small and medium enterprises in Nigeria. The Journal of Entrepreneurial Finance, 18 (2), 1-22.
Adeyele, J.S., & Osemene, O.F. (2018). Small and medium enterprises’ risk exposure and mitigation approaches in Nigeria. The Journal of Entrepreneurial Finance, 20 (1), 21-42.
Aduloju, S.A., & Ajemunigbohun, S.S. (2017). Reinsurance and performance of the ceding companies: The Nigerian insurance industry experience. Economics and Business, 31 (August), 19-29.
Ajemunigbohun, S.S., & Adeoye, A.O. (2018). Insurance awareness and acceptance: Empirical evidence among small and medium-sized enterprises in Lagos State, Nigeria. Trends Economics and Management, 32 (2), 9-20.
Ajemunigbohun, S.S., Isimoya, O.A., & Elegunde, A.F. (2020). Risk attitude, insurance patronage, and SMEs performance: Empirical evidence from Lagos, Nigeria. Annals of ‘Dunarea de Jos’ University of Galati, 26 (2), 70-78.
Al-Qubtan, T.R., Gan, P., Abd. Hadi, F.S., Abdul Jalil, N., & Rambeli, N. (2021). Practical risk management approaches among small and medium enterprises. TEM Journal, 10 (2), 996- 1004.
Aniete, R., Uba, T.L., & Odou, R.S.M. (2019). Insurance policy integration for curbing educational waste in public secondary schools in Rivers state. International Journal of Research and Innovation in Social Sciences, 3 (9), 51-55.
Ayyagari, M., Demirguc-Kunt, A., & Maksimovic, V. (2011). Small vs. young firm across the World: Contribution to employment, job creation and growth. Policy Research. Working Paper, 5631, World Bank: Washington, DC.
Bauhoff, S., Carman, K.G., & Wuppermann, A. (2013). Financial literacy consumer choice of health insurance: Evidence from low-income population in the United State. Working paper no. 1013, Rand labour and population
Beck, J.J., & Garris, R.O. (2019). Managing personal financial literacy in the United States: A case study. Education Sciences, 9 (129), 1-11.
Capuno, A., & Ramsey, I. (2011b). Financial literacy and financial behaviour: Financial literacy protects. Melbourne Law School, The University of Melbourne, Australia. Accessed from https://cc/sr.law.unimelb.eduun/go/centreactivities/research/financial.literacy.project/inm dex.cfm
Chodokufa, K. (2016). Risk management practices and the purchase of insurance by SMEs. Risk Governance & Control: Financial Markets & Institutions, 6 (3), 100-104.
Clarke, D.J. (2016). A theory of rational demand for index insurance. American Economic Journal: Microeconomics, 8 (1), 283-306.
Cooper, D.R. & Schindler, P.S. (2014). Business research methods. 12th ed. New York: McGraw-Hill Irwin.
Core data (2014). The life insurance literacy gap. Sydney: Zurich Financial Services Australia and Financial Planning Association of Australia, Zurich.
Creswell, J.W. & Creswell, D.J. (2018). Research design: Qualitative, quantitative, and mixed methods approaches. 5th ed. New Delhi: Sage Publications India Pvt Limited.
Dayour, F., Adongo, C.A., & Kimbu, A.N. (2020). Insurance uptake among small and medium- sized tourism and hospitality enterprises in a resource-scarce environment. Tourism Management Perspective, 34,1-13.
Doherty, N.A., & Eckles, D.L. (2011). Punitive damages and the demand for insurance. Insurance and Risk Management, 79 (1), 31-42.
Dorfman, M.S., Ferguson, W.L., & Ferguson, T.D. (2006). Curriculum design in risk management and insurance education. Journal of Insurance Issues, 29 (2), 158-178.
Driver, T., Brimble, M., Freudenberg, B., & Hunt, K. (2018). Insurance literacy in Australia: Not knowing the value of personal insurance. Financial Planning Research Journal, 4, 53-73.
Du, X., Feng, H., & Hennessy, D.A. (2014). Rationality of choices in subsidised crop insurance markets. American Journal of Agricultural Economics, 99 (3), 732-756.
Epetimehin, F.M. (2013). Impact of risk appetite on the value of a firm. European Scientific Journal, 9 (22), 331-344.
Fairer Finance (2018). Misbuying insurance. Retrieved from https://www.fairerfinance.com
Feinman, J.M. (2010). Delay, deny, defend: Why insurance companies don’t pay claims and what you can do about it. Penguin Group.
Hudakova, M., Masar, M., Luskova, M., & Patak, M.R. (2018). The dependence of perceived business risks on the size of SMEs. Journal of Competitiveness, 10 (4), 54-69.
Ibiwoye, A., Mojekwu, J., & Dansu, F. (2020). Enterprise risk management practices and survival of small and medium scale enterprises in Nigeria. Studies in Business and Economics, 15 (1), 68-82.
Ibiwoye, A., Mojekwu, J., & Dansu, F. (2020). Enterprise risk management practices and survival of small and medium scale enterprises in Nigeria. Studies in Business and Economics, 15 (1), 68-82.
Insurance Europe (2017). Financial education in a digital age: Initiatives by the European insurance industry. Retrieved from https://www.insuranceeurope.eu
Joseph, O.A., & Joshua, A. (2011). Risk management in the Ghanaian insurance industry. Quantitative Research in Financial Market, 5 (1), 26-42.
Kelly, S., & Vu, Q.N. (2010). The economic cost of underinsurance for a typical family. Journal of Financial Value, 3 (3), 1-5
Kramer, M.M. (2016). Financial literacy, confidence and financial advice seeking. Journal of Economic Behaviour and Organization, 131, 198-217.
Kubitza, C., Hofmann, A., & Steinorth, P. (2019). Financial literacy and precautionary insurance. ICIR Working paper series, no 34/19, International Center for Insurance Regulation (ICIR), Goethe University, Frankfurt.
Kunreuther, H., & Pauly, M. (2005). Insurance decision-making and market behavior. Foundation and Trends in Microeconomics, 1(2), 63–127.
Kwadwo, Y.A., & Kwasi, O.C. (2016). Effect of financial literacy on willingness to pay for micro- insurance by commercial market business operators in Ghana. MPRA paper no. 70135. Retrieved from https://mpra.ub.uni-muenchen.de/70135
Laury, S., Mcinnes, M., & Swarthout, J. (2009). Insurance decision for low probability losses. Springer Science Business Media, LLc.
Ledwin, C., & Watson, M. (2019). Risk attitude, risk perception, and risk management strategies adoption in Zimbabwean small and medium enterprises. Journal of Management and Economic Studies, 1 (2), 53-68.
Lee, K. (2012). Uncertain indemnity and the demand for insurance. Theory and decision, 73 (2), 249-265.
Lin, X., Bruhn, A., & William, J. (2019). Extending financial literacy to insurance literacy: A survey approach. Accounting and Finance, 59 (1), 685-713.
Lusardi, A., & Mitchell, O.S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52 (1), 5-44.
Mensah, S. (2004). A review of SMEs financing schemes. UNIDO Regional Workshop of Financing Small and Medium Scale Enterprise.
Phillippe, F., & Liliana, A. (2016). How to calibrate risk appetite, tolerance and limits: The issues at stake for capital allocation, ERM and business performance. Paris: EDHEC Business School.
Pullis, M. (2010). How can the industry simplify life insurance to make life insurance more attractive to consumers? Retrieved from https://test.fsc.org.au/downloads/file/abouts/MelaniePulis-stGearge.pdf
Refera, M.K., Dhaliwal, N.K., & Kaur, J. (2016). Financial literacy for developing countries in Africa: A review of concept, significance and research opportunities. Journal of African Studies and Development, 8 (1), 1-12.
Richter, A., Schiller, J., & Schlesinger, H. (2014). Behavioural insurance: Theory and experiments, Journal of Risk and Uncertainty, 48, 85-96.
Sanjeewa, W.S., & Hongbing, O. (2019). Consumer insurance literacy: Literature review, conceptual definition, and approach for a measurement instrument. European Journal of Business and Management, 11 (26), 49-65.
Sanjeewa, W.S., Hongbing, O., & Lin, Y.G. (2019). Decision making in personal insurance: Impact of insurance literacy. Sustainability, 11, 1-24.
Scott, J. (2000). Rational choice theory. In G. Browning, A. Halcli, & F. Webster (Eds.), Understanding contemporary society: Theories of the present (pp. 126-138). London: Sage Publications.
Taherdoost, H. (2016). Sampling methods in research methodology: How to choose a sampling technique for research. International Journal of Academic Research in Management, 5 (2), 18-27.
Tennyson, S. (2011a). Challenges and approaches to consumer protection in the insurance industry. Working paper, 1-24.
Tennyson, S. (2011b). Consumers’ insurance literacy: Evidence from survey data. Financial Services Review, 20, 165-179.
Teraveinen-Goff, A. (2019). Literacy and financial capability: An evidence review. National Literacy Trust Research Report. Retrieved from http://www.literacytrust.org.uk
Thamaka, R., Dickason, Z., & Ferreira-Schenk, S. (2021). Analysing the risk management perception of small, micro, and medium enterprises. Acta Universitatis Danubius, 17 (3), 209-228.
Wilson, J. (2014). Essential of business research: A guide to doing your research project. 2nd ed. London: Sage Publication Limited.
Zoghi, F.S. (2017). Risk management practice and SMEs: An empirical study on Turkish SMEs. International Journal of Trade, Economics and Finance, 8 (2), 123-127.
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2022-10-31
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Ajemunigbohun, S. S., BANJO, . K. A., & SAKA, . T. S. (2022). INSURANCE LITERACY AND RISK APPETITE: EVIDENCE FROM SELECTED SMALL AND MEDIUM-SIZED ENTERPRISES IN LAGOS, NIGERIA: Array. Acta Universitatis Danubius. Œconomica, 18(5). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1620
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Copyright (c) 2022 Dr. Ajemunigbohun Sunday Stephen, Dr. BANJO, Kudirat Adeola, Toyin Shafau SAKA
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