Information asymmetry in the insurance market: A comparative study of conventional insurance and islamic insurance (Takaful) industry in Nigeria

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1. Issues in Business Management and Economics Vol .8 (1), pp. 1-11 February, 2020 Available online at https://www.journalissues.org/IBME/ https://doi.org/10.15739/IBME.20.001 Copyright © 2020 Author(s) retain the copyright of this article ISSN 2350-157X Original Research Article Information asymmetry in the insurance market: A comparative study of conventional insurance and islamic insurance (Takaful) industry in Nigeria Received 12 September, 2019 Usman Shettima* Central Bank of Nigeria, Plot 33, Abubakar Tafawa Balewa Way, Central Business District, Abuja, Nigeria. Author’s Email: ushettima@yahoo.com Revised 15 November, 2019 Accepted 26 November, 2019 Published 21 February, 2020 Information asymmetry is a source of incompleteness in the insurance market and often is viewed as a fundamental factor obstructing the efficient operations of insurance market. Moral hazard and adverse selection are the essences of the informational problem especially in the developing countries. This study investigates the role of information asymmetry towards consumer attitude and perception of both conventional insurance and Islamic insurance (Takaful) in Nigeria. A survey instrument, primarily based on the Survey of Attitudes Toward Statistics© (SATS-28©), is used to examine consumer attitude in four major components, namely value, affect, difficulty and cognitive competence. A total of 200 questionnaires were administered using the convenience sampling technique in three major cities of Abuja, Kano and Lagos state of Nigeria. Only 78 of the questionnaires were filled and returned. Data was analysed using frequency distribution and hypothesis for difference and relationship was tested using paired sample t-test and the chi square test respectively. The results show that consumers perceive the level of information asymmetry is relatively higher in the conventional insurance than Takaful, hence resulting in more negative attitude and perception towards the conventional insurance. Further, income level and education status are found to be associated with the general consumer attitude and perception. This study implicates on more positive note to encourage more efforts in the development of Takaful industry in Nigeria. The prerequisites are strong regulatory framework, high level of transparency and public education initiative on the importance of Takaful. Keywords: Islamic insurance, takaful, morality, information asymmetry. INTRODUCTION The insurance industry, in general, is characterized by informational problem between the insurer and the insured resulting in majority of insurance contracts to suffer from the information asymmetry problem (Murray, 2008). Due to moral hazard as well as adverse selection, information asymmetry problem is a source of incompleteness in the insurance market, and therefore, often viewed as fundamental factor obstructing efficient operations of insurance market (Cawley and Philipson, 1999). In recent years, the Takaful (Islamic insurance) industry is gaining worldwide acceptance. Among others, the Takaful is principally developed based on the concept of brotherhood and mutual agreement. A clear separation between the Takaful participants and the operator company suggests that the vested interest of any Takaful scheme lies within the participants themselves.
2. Issues Bus . Manage Econ. 2 Consequently, one could argue that the degree of moral hazard and adverse selection in the Takaful industry is relatively lower than its conventional counterpart. To what extent this is true is an empirical question. Investigating information asymmetry issue in the conventional insurance and Takaful industry within the backdrop of developing country is particularly interesting. One could argue that such a problem could have been relatively more severe, from the perspective of developing countries. For example, a study of the effect of insurance on the preventive attitude of respondents towards malaria disease in Ghana found that the ex-ante moral hazard behaviour is very much prevalent, especially when the cost and the level of efforts needed for prevention is high (Yilma et al., 2012). Our paper therefore investigates the role of information asymmetry towards consumer attitude and perception of both conventional insurance and Takaful in a developing country. Using data collected from survey questionnaires administered to a number of consumers in Nigeria – a developing country that the insurance industry is the smallest in Africa despite having the highest population. The remainder of this paper is structured as follows. The next section provides a background context of Nigeria. Section 3 provides a survey of literature underpinning the study before Section 4 details the research methods employed. Section 5 discusses the empirical findings and Section 6 concludes the paper. The Nigerian context The Nigerian economy is the largest in Africa and home to approximately 20% of people in sub-Saharan Africa. It had nearly 190 million citizens consisting of 51% male and 49% female, and a median age of 18.4 years. The country is sharply divided between majority Muslim north and predominantly Christian south. Its urban population is expanding at an annual rate of 4.3%, and in 2016 it constituted over 50% of the total population (NBS, 2017). Over 60% of the populations are engaged in agriculture as a means of livelihood, thereby contributing on average approximately 20.06% to real GDP. Nonetheless the oil industry contributes over 83% of the country’s foreign exchange. The total GDP was estimated at US$375bn in 2017 with finance and insurance contributing only 3.00% of real GDP (NBS, 2017, pp.16). Nigeria is placed in the last 10 countries in the world, with total premiums to GDP of about 0.3%, well below the 10.1% average for the top 20 countries in the world. On a per capita basis, Nigeria is the smallest market in Africa, with total premiums per capita of barely US$8.9, in comparison to an African average of US$146. South Africa remains the largest market in the continent, with premiums per head of US$596 (Cenfri, 2018). One can see that the Nigerian insurance market is a small, tightly concentrated and a slow growth one. Insurance penetration as a percentage of GDP is low in regional and global terms and given the size of the economy. The uptake of insurance products is very limited, reaching less than 2% of adults. However, this indicates substantial scope for growth of the insurance industry. Given that the country is recovering from a recent economic recession, which has created a strong impetus for economic diversification. Effective risk transfer is important to stimulate productivity and investment in the economy (Table 1). Insurance Sector Regulatory Framework The National Insurance Commission (NAICOM) regulates the insurance industry. The insurance sector regulatory framework is comprised of the Insurance Act and multiple guidelines relating to amongst others market conduct and prudential standards. Recent insurance market regulatory developments include Bancassurance and Microinsurance Guidelines issued in 2017 and 2018, respectively. Relevant regulation issued outside of NAICOM include legislation pertaining to compulsory insurance, local content development in the oil and gas sector and national health insurance. In spite of the regulatory development, the insurance market continues to face a great deal of challenges. There is a large tail-end of insurers with small balance sheets and often weak business fundamentals. For many insurers, expense ratios are high and claims ratios are either too low to provide consumer value or too high to maintain profitability. Ultimately, this spills over into solvency concerns, which have been witnessed for a number of operators. To date, NAICOM has used capital requirement increases to consolidate the market, with new Tier-Based Minimum Solvency Capital requirements introduced in 2018 (Cenfri, 2018). Consumer protection regulations are also put in place by NAICOM to protect consumers in situations of information asymmetry and low financial literacy. Like product regulation, it is contained in one of the other areas, notably prudential or intermediation regulation (Cenfri, 2018). However, even with these regulations, lack of awareness of how insurance works and low trust in insurers arising from moral hazard and adverse selection hampers the development of the Industry. Equally the local economy is unable to generate sufficient skills to serve the market appropriately. There is a particular shortage of general insurance business skills, underwriting skills and actuarial skills. Islamic Insurance (Takaful) The National Insurance Commission of Nigeria (NAICOM) issued Takaful Operational Guidelines in 2013, defining the concept of takaful insurance as “a form of [mutual] insurance that is compatible with the principle of the Sharia (Islamic Law).” Takaful insurance business is restricted to limited liability companies or subsidiaries of insurance companies and all takaful operators require a licence from NAICOM. This was followed by Noor Takaful being established and fully licensed in 2016 and Jaiz Takaful
3. Shettima 3 Table 1 . Outline Summary indicators of Nigeria Demographics Macroeconomic Financial Inclusion Insurance uptake Size of the Insurance market Value and performance Population Population Urbanized GDP per capita Oil and Gas % of total exports Inflation rate Banked population Insurance uptake Insurance market penetration Number of life insurers Number of general insurers Number of Takaful operators Number of local reinsurers Assets  Life insurance  General Insurance  Takaful  Reinsurer Life insurance: average claim ratio Life insurance: average profit margin General Insurance: average claims ratio General insurance average profit margin 189 million 90 million USD1,994.2 83% (2017) 15.7% 38% of Adults 1.9% of Adult population 0.3% of GDP 27 (13 composite) 41 (13 composite) 2 2 USD1.32 billion USD1.43 billion USD1.5 million USD0.14 billion 60% -4% 30% 3% Source: Cenfri (2018). Insurance starting operations in 2017. Both specialist takaful insurers provide life and general insurance. The Insurance Act 2004 does not provide any specific guidelines relating to Takaful operation. This could be the principal reason for the lack of awareness of Takaful among the predominant Muslim population. Such a gap motivates us to investigate the consumer’s attitude and perception of Takaful coming as an alternative to solve and to restore confidence of the nascent insurance industry that has been overshadowed by the asymmetric informational problem such as moral hazard and adverse selection. Literature review Information asymmetry in the insurance market Information asymmetry deals with insufficient information available in any given transactional process (Mishkin, 1998). This, however, creates opportunities for strategic behaviour based on the resultant asymmetry in risk assessment in the insurance market (Zekri et al., 2010). The informed party in an insurance contract maintains two important private information, namely (i) hidden information leading to adverse selection, and (ii) hidden action representing moral hazard (Salanié, 2005). The assumption under adverse selection stipulates that highrisk party tends to choose more coverage than the low risk party under concealed private information of their level of risk (Rothschild and Stiglitz, 1976). On the other hand, moral hazard deals with changing behaviours by parties concerned after a contract (Arnott and Stiglitz, 1988). Empirically testing the presence of either or both problems under the asymmetric informational framework has proved challenging, and the evidences available is rather mixed. For example, earlier study by Ettner (1997) uses data of 8,561 elderly respondents from the 1991 Medicare Current Beneficiary Survey in investigating adverse selection in the supplementary private insurance market in the USA. A multi-nominal logit model gives modest but mixed proof of self-selected observable health status. Later study by Daifeng (2011) examines the evidence of dynamic adverse selection in the life insurance market of USA using health and retirement study dataset over the periods of 1996 to 2004. The probit model was adopted to estimate the variant models of lapse, lapse mortality correlation and lapse amount. The evidence supports the dynamic adverse selection in life insurance market in which it was found that individuals with lower mortality risk are more likely to lapse a contract as well as to lapse a greater contract face value. In contrast, Chiappori and Bernard (2000) find no evidence of asymmetric information in the French automobile insurance industry. Using non-parametric approach, they examine conditional relationship between the level of insurance coverage and the likelihood of accident occurrence. The results of Kolmogorov-Smirnov testing suggest that the asymmetric information seems to be at most negligible when there is no correlation between the unobservable riskiness and the choice of insurance contract. However, the generalisability of the finding is somewhat restricted due to the focus of the study on young drivers. The extent of information asymmetry in the insurance market of developing countries has also been investigated.
4. Issues Bus . Manage Econ. 4 Yilma et al. (2012) examine the existence of ex-ante moral hazard behaviour with reference to malaria disease prevention in Ghana. Using a panel data of 400 homes surveyed and resurveyed in 2007 and 2009, respectively, they investigate the relationship between the enrolment in the National Health Insurance Scheme and the use of insecticide-treated bed nets. The results show significant negative relationship between the insured status and the use of bed nets suggesting the presence of ex-ante moral hazard behaviour. Empirical evidence from the Nigerian insurance industry A considerable number of literatures exist in the Nigerian insurance industry. However, most of the literatures are either descriptive or normative in nature. Little or no specific literature exists about information asymmetry in the Nigerian insurance market. Recent study by Yusuf (2010) examines how insurance brokers control opportunism at the post-contractual stage of a contract in the Nigerian insurance market. The study uses semistructured interviews of 32 insurance broking executives and documentary analysis of information flow between insurer-broker-client. The analysis was presented using three-phase (six steps) coding method and data analysis. The findings suggest that involvement of insurance broker from claim notification, auditing, settlement and dispute mediation stages controls customer opportunistic tendencies and also brokers professional way of handling client claim might control insurance opportunism and improve information flow. Using the same method, Yusuf (2011) examines broker’s financial incentives in the Nigerian insurance market and how it affects the opportunism of customers. The findings suggest that the industry operates a high tariff incentive system that hinders brokers in bridging information asymmetries to control customer opportunism in the industry. Mojekwu et al. (2011) examines the impact of insurance contribution to economic growth in Nigeria for the period of 1981 to 2008 using a dynamic factor model to measure the co-movement of different time series. The technique was designed to analyze unobservable random quantities called factor loading which indicates common trend in the time series. The result shows an underlying common trend between real gross domestic product and insurance contribution. The trend however, is positively correlated as increase in insurance contribution means increase in economic growth and vice versa. With a view of determining the factors responsible for lack of insurance culture in Nigeria, Olaleye and Adegoke (2009) study the perception of homeowners towards property insurance in Lagos state. Questionnaires were administered using systematic random sampling technique and data were analysed using frequency distribution mean and standard deviation measure. Hypothesis was tested using independent chi-square test. The result, however, shows that 62% of the respondents agree that property insurance is important, but only 40% of the respondents have insured their property. It is also found that homeowners’ perception of insurance is significantly associated with the educational level, level of income, level of awareness and family size. Further finding reveals that poor service culture of insurance companies and high perception of fraud related activities in the industry greatly influence the homeowner’s attitude. In the light of fraud, Ojikutu et al. (2011) examine the attitude and the perceptions towards insurance fraud in Lagos state using Pearson correlation analysis. The 47 variables generated in the questionnaire instrument were further subjected to factor analysis to derive the principal components. It is found that about 60.2% of the respondents do not trust insurance companies and such respondents’ perception towards insurance fraud correlates with their educational level. The regression model further shows that attitude towards insurance fraud is a function of six predictor variables, namely demographic, gender, household income, property ownership, integrity of respondent and government attitude towards insurance fraud. However, it is also observed that possession of insurance policy by respondents correlates with the respondents’ attitude and perception towards fraud in general. Similarly, Yusuf and Babalola (2009) investigate the level of fraud control exerted in the Nigerian insurance industry by interviewing 32 executives of various insurance companies in 2008. The finding reveals a threefold problem which is closely interlinked in shaping customer perception. These are the lack of proper awareness of the relevance and importance of insurance to modern economy and individual life. Secondly, the corny attitude of insurance companies where most insurers substitute risky underwriting with aggressive aim for profit associated with large volume of sales. This creates the belief that insurance cost associated with fraud is transferred to the clients through high premiums. Thirdly, the lack of bite and clearcut sanctions by regulatory authority sends a negative message to the public. The study concludes that the present statute regulating the industry is severely weak in terms of inadequate sanctions and deterrence policies. Prohibition of conventional insurance and the roles of Takaful The basic principle of any commercial transaction in Islam is “permissibility” which means all act of transactions are considered permissible unless there is an explicit ruling of prohibition (Kamali, 2008). The three important prohibitions in Islam are interest or usury (riba), uncertainty (gharar) and gambling (maysir). These prohibitions are meant to bring about fair dealings and good measure at the contract level (Kamali, 2008). Thus, while ethical transaction in Islam means avoiding prohibited act, they also include fulfilling legal obligations and stipulations (Arabi, 1997). From the Shariah perspective, the conventional insurance contract is
5. Issues Bus . Manage Econ. considered as a contract of exchange (aqd al-muwadah). However, the ruling of Islamic Fiqh Academy (1985) identifies the presence of all the Shariah prohibitions in the conventional insurance contract. Moreover, the conventional insurance contract also deals with moral hazard behaviour since it promotes the mindset for laying claims at the expense of the insurer. Ayub (2007) reiterates that conventional insurance contains an element of cheating and temptation and is a mismatch with natural and ethical process of earning money. Most Islamic scholars have declared conventional insurance unlawful under Islamic jurisprudence. Ahmad (2010) viewed these prohibitions based on two considerations: firstly, the object of insurance cannot be sold in classical Islamic jurisprudence, therefore the insured-insurer relationship is similar to gambling, where the insured pays premium as price, but may not receive the object of sale. Secondly, conventional Insurance companies tend to invest in interest-based assets and instrument such as bonds. On the other hand, Takaful is an alternative version of conventional insurance scheme that is grounded on Islamic ethical foundations. It is mainly set to solve problems of fraud, injustice and adjust the nature of participation in conventional insurance to give extra right to the participants. According to the Shariah, any contract that lacks transparency or that which involves hiding information from other party is prohibited in Islam (ElDiwany, 2010). This supports the view that the level of information asymmetry in the Takaful contracts is relatively lower than its conventional counterpart. Empirical evidence of Takaful Empirical research within the Takaful industry is largely underdeveloped despite its existence for many years. Studies have been focusing on issues related to the efficiency, riskiness and profitability of Takaful operators as well as consumers’ decisions to participate in the Takaful contract. A cross-comparative study with the conventional counterpart is also the essence of research in this area. For instance, Saad et al. (2006) examine the efficiency of Malaysian life insurance industry in the periods 2002 to 2005. Applying a non-parametric approach of Data Envelopment Analysis (DEA) on 12 conventional insurance companies and 1 Takaful operator, they found that the level of efficiency is positively related to the company size. The Takaful operator has been found less efficient which is understandable given its smaller size. In a similar vein, Ismail et al. (2011) examine the relationship between efficiency and organisational form of Malaysian dual insurance industry using a sample of 7 Takaful operators and 11 insurance companies over the periods 2004-2009. The selection of input (Management expenses, labor cost and investment income) and output (gross income and investment income) are based on flow approach. The study applies the Variable Return to Scale (VRC) and the Constant Return to Scale (CRS) measures to distinguish between two forms of efficiency, namely technical and scale efficiency. 5 The findings indicate that the Takaful industry has lower technical and scale efficiency (75% and 88%) than conventional insurance with (89% and 96%) respectively. The finding however, posits that the technical efficiency revealed by Takaful operators in this sample stems from wastage of inputs, and therefore, confirms that the organisational form has direct implication on the level of efficiency. On profitability of Takaful operators, Abdul Rahman and Daud (2010) investigate the participation behaviour and claims pattern of medical and health-related Takaful and conventional insurance contracts in Malaysia. Data of 150 participants and 150 claimants for the periods of 2003 to 2004 were used and overall claims data for the year 2002 from 11 insurance companies were analysed. It was found that the claim ratios for conventional insurance are between 65.8% to 91% compared to 37% to 40% for the Takaful. This would suggest that Takaful is relatively more profitable as well as the degree of moral hazard (as proxied by claims ratio) is also relatively lower. It further found that prudent underwriting practices put in place by takaful companies help curb information asymmetry. Abdou et al (2014) reached similar conclusion in a comparative study of takaful and conventional insurance in Malaysia. On another perspective, Ahmad et al. (2012) survey the relationship between ability to participate in the Takaful with other related predictors in Malaysia. Using an ordinal logistic regression model, they found that both salary and risk levels are positively related with the unit number of participations in the Takaful’s educational plan, while number of children in the family, job status, educational level and age are negatively related. Ayuba (2014) discovered non-economic factors determining Takaful consumption in Kano Metropolis by measuring the effect of public awareness; public perception and public trust and confidence reposed on Takaful Operators. Similarly, Maiyaki A and Ayuba, H (2015) examine the factors that influence the consumers’ attitude toward Takaful services patronage in Kano Metropolis using a structured questionnaire in collecting the data. A multiple- regression analysis was conducted, and the result reveals that awareness, perception, trust and confidence are significantly related to the consumers’ attitude toward Takaful services patronage. At the centre of all the literatures, information asymmetry remains the greatest challenge confronting consumers patronage and growth of Takaful business Nigeria. Awareness of consumers over a given insurance/takaful product or services, is presumed to play an important role in shaping their attitude towards any form of insurance. RESEARCH METHODS Research hypotheses Perception and attitude are always based on the
6. Issues Bus . Manage Econ. 6 information the consumer receives. Regardless of what type of information he/she uses, the fact that consumer’s attitude and perceptions are formed as a direct result of received information, predisposition is helpful when planning and analyzing the factors affecting perceptions and attitude (Uusitalo, 1993). Rookes and Willson (2000) describe perception as a process which involves the recognition and interpretation of stimuli which register on our senses. In other words, perception relates to how we make sense of our environment. However, our modern world is very complex, and so is the business world. This has led us to our first hypothesis, stated in its null form: H1: There is no significant difference on the influence of information asymmetry towards consumer attitude and perceptions of conventional insurance and Takaful. There are many things that influence the attitude and perceptions of the consumer. The influences can be level of education, level of income, gender, age and religion (Erlenkamp, 2006). A study undertaken by Olaleye and Adegoke (2009) found that education plays an important factor in determining consumer attitude, perception and level of awareness. The result using chi-square test by Olaleye and Adegoke (2009) shows that homeowner’s attitude towards insurance is significantly associated with their level of educational qualification, suggesting that the higher the level of educational qualification, the more likelihood of insuring their properties. This therefore leads to our second hypothesis, stated in its null form; H2: There is no significant relationship between educational level of qualification and consumer attitude and perception towards Takaful. Olaleye and Adegoke (2009) also found that homeowners’ attitude towards insurance of their property are significantly associated with their level of income. The result shows that a greater percent of low-income homeowners did not insure their proper, whereas a substantial number of high-income earners have insured their property. However, this study is perceived ineffective as it considers homeowners only who are financially stable. Hence, the third hypothesis comes in its null form. H3: There is no significant relationship between income level and consumer attitude and perception towards Takaful. Research design and instrument We adopt the Survey of Attitudes Toward Statistics© (SATS-28©) instrument developed by Schau et al. (1995) and Schau et al. (1999). The instrument serves as a tool for analysing consumers’ attitude in four different components, namely  Difficulty: Perceived difficulty associated with insurance market.  Value: Apparent level of approval of the relevance or use of insurance market to individual.  Cognitive Competence: Individuals perceived level of confidence and skill to apply in the insurance market.  Affect: Perceived feelings (positive or negative) towards insurance market. The survey questionnaires are designed to contain 43 closed ended questions and grouped into 3 sections as follows:  Section A: includes questions relating to demographic information of respondent.  Section B: seeks to determine the respondent attitude and perception towards conventional insurance.  Section C: seeks to determine the respondent attitude and perception towards Takaful. The survey questionnaires have been piloted to a small sample of students and staff at the University of Salford to test its reliability and suitability before proceeding to fullscale survey. The questionnaires use two types of response format namely, ranking of alternatives and a five-point Likert scale. Likert scale assumes that the respondent intensity of experience/strength is linear (i.e., ranging from “strongly agree” to “strongly disagree” which makes presumption that attitude can be measured). Sampling and survey administration A total of 200 questionnaires were distributed using convenience sampling technique. The technique is appropriate for this research in the absence of more recognised sampling frame where a probabilistic sampling method could be based upon. The questionnaires were distributed in three major cities of Nigeria, namely Abuja, Kano and Lagos. They were selected based on the commercial (Kano and Lagos) and administrative (Abuja) nature of the cities. The questionnaires were distributed to individuals with low and high levels of education and also randomly spread across various income levels. Respondents include bankers, insurance brokers, civil servants, lecturers, students and the general public. These individuals were selected randomly from their various fields respectively. The questionnaires were administered in two forms. First, it involves face to face distribution of questionnaires in hard copy to the general public. Second, it involves electronic mail distribution to some staff of regulatory and supervisory agencies such as the Central Bank of Nigeria. Apart from our effort in improving the response rate, the electronic mail procedure was also adopted because many organisations prefer electronic survey due to ease of access and efficiency. In total, 78 questionnaires were filled and returned representing a response rate of 39%. Data analysis approach H1 is tested using the paired-sample t-test procedure. The
7. Shettima 7 Table 2 . Sample Structure Characteristics Gender Male Female Age Below 30 years 31-45 years Above 45 years Religion Islam Christian Educational level No schooling Primary school Secondary school Tertiary institution Annual income level Below N18,000 per month N18,001-N150,000 per month N150,001-N300,00 per month Above N300,000 per month Frequency Percentage 60 18 77% 23% 35 31 12 45% 40% 15% 67 11 86% 14% 12 7 6 53 15% 9% 8% 68% 10 29 27 12 13% 37% 35% 15% test compares the means of two different variables for a single group. It computes the disparity between values of the two differing variables for each case and test if the average significantly differs from 0. H2 and H3 are tested using the chi-square (2) test. It is mostly used in test involving nominal data but can be extended to higher scales. The test is used for two categorical variables from a known single population. It is used to decide whether there is a significant relationship between the two categorical variables. RESULTS AND DISCUSSIONS Respondents characteristics Table 2 summarises the characteristics of the respondents. In general, the respondents are dominated by male, aged below 45, Islam in religion, educated at tertiary institution and middle-to-high income earner. Hypothesis 1: Information asymmetry and consumer attitude Table 3 presents the results of paired-sample t-test in examining H1 on whether there is a significant difference between attitude and perception towards conventional insurance and Takaful. Similar set of questions were separately asked on Takaful and conventional insurance (two samples) and responses were collected from the same individual. Information asymmetry questions under moral hazard and adverse selection were embedded in the questionnaires. The assumptions under the paired sample t-test are: (i) the responses are independent from each other, (ii) interval scale is used to measure the dependent variables, and (iii) the differences are usually distributed within the population. The results are further classified into four attitude components following Schau et al. (1999). The results from the 19 variables grouped under the four instruments of measuring attitude (Difficulty, Affect, Values and Cognitive competence) have p-values of less than 5% significant level. The variables involving moral hazard and adverse selection have p-values of p<0.001 and slightly negligible correlation of -1. This shows that there is a highly significant difference on the influence of information asymmetry towards participant’s attitude and perceptions. There is also evidence that a significant difference in means exist between the two samples. The mean numbers of the 19 takaful variables remains greater compared to the 19 variables of conventional Insurance suggesting a positive attitude by participants towards takaful than conventional insurance. Therefore, the null hypothesis stating no significant difference on the influence of information asymmetry towards consumer attitude and perceptions of conventional and takaful was rejected. The data provides statistically significant evidence that participants agree that conventional insurance system involves moral hazard and adverse selection compared to Islamic insurance. The standard deviations of all the paired samples remain positive, that is, conventional insurance variables have higher standard deviation as against Islamic insurance variables. Our results are similar with the findings of Abdul Rahman and Daud (2010) and Abdou et al (2014) who argue that takaful operators in Malaysia have lower information asymmetry compared to their conventional insurance counterpart. This is as a result of prudent underwriting practices that positively shapes consumer
8. Issues Bus . Manage Econ. 8 Table 3. Paired-sample t-test results Perception Statement1 1.Problems in the insurance system 2.Lack of transparency 3. Insurance system too complex and deceptive 4. Insurance companies cheat 5. Insurance is worthless and irrelevant 6.Insurance does not make the industry better 7.Improves transparency 8.Improves one’s protection against risk 9.Investment opportunity 10.Difficult to understand the operation 11.No idea about the insurance system because of one’s faith 12.Can understand the concept of insurance 13.Insurance companies select clients with due diligence 14.Insurance is ethical 15.Feel secure with insurance cover 16.Feel scared of insurance 17.Premium charge is not reasonable 18.Insurance companies pay claims 19.Insurance influences the number of false claims to make Mean Diff2 Std. Deviation Std. 95% CI Error Lower Upper Mean Attitude component: Difficulty -1.02 2.162 0.245 -1.513 -0.538 -0.987 2.310 0.262 -1.508 -0.466 T Df Two-tailed probability -4.190*** -3.774*** 77 77 .000 .000 -2.103 -1.815 -14.564*** 77 .000 1.392 0.158 -2.211 Attitude component: Value -1.641 1.537 0.174 -1.988 -1.584 -12.039*** 77 .000 -1.294 -9.428*** 77 .000 -1.385 -1.074 -8.867*** 77 .000 -9.070*** -7.513*** -12.694*** 77 77 77 .000 .000 .000 -4.233*** 77 .000 1.275 0.144 -2.390 -1.897 1.379 0.156 -1.696 -1.487 1.448 0.164 -1.814 -1.161 -1.372 1.613 0.183 -1.735 -1.008 -2.038 1.418 0.161 -2.358 -1.719 Attitude component: Cognitive Competence -0.692 1.444 0.164 -1.018 -0.367 -1.474 1.657 0.188 -1.848 -1.101 -7.858*** 77 .000 -1.218 1.465 0.166 -1.548 -0.888 -7.342*** 77 .000 -7.69 2.279 0.258 -1.283 -0.255 -2.981*** 77 .004 Attitude component: Affect 2.273 0.257 -1.859 1.513 0.171 -2.713 1.348 0.153 -2.304 1.393 0.158 -1.827 1.338 0.152 -1.661 -0.834 -2.031 -1.696 -1.199 -1.057 -5.232*** -13.847*** -13.100*** -9.589*** -8.967*** 77 77 77 77 77 .000 .000 .000 .000 .000 -0.780 -8.013*** 77 .000 -1.346 -2.372 -2.000 -1.513 -1.359 -1.038 1.145 0.130 -1.297 H1: There is no significant difference on the influence of information asymmetry towards consumer attitude and perceptions of conventional insurance and Takaful 1. Each perception statement was asked twice to the respondent; first on the Takaful and second on the conventional insurance. 2. Mean is calculated based on the five-point Likert scale scores being 1 Strongly Disagree, 2 Disagree, 3 Neither Agree nor Disagree, 4 Agree and 5 Strongly Agree. ***, ** and * indicate statistical significance at 1%, 5% and 10% levels, respectively (2-tail test). perception. There is however a dearth in literature testing consumer perceptions toward takaful in Nigeria, the closest findings to back this research was conducted by Maiyaki and Ayuba (2015) who found that lower information asymmetry proxied by consumer awareness creates favourable attitude and perception towards takaful business. Hypotheses 2 and 3: Education and income levels on consumer attitude towards Takaful We further investigate whether educational qualification and income levels influence consumer attitude towards Takaful. This is rather important as we would like to establish evidence whether Takaful should be promoted as alternative to conventional insurance in the Nigerian insurance market. Table 4 presents the results of chi-square tests. Table 4 reports summary of the Pearson chi square test. It sought to find out the relationship between participant’s educational level with his\her attitude and perceptions towards takaful. From the 19 variables measuring participant’s attitude and perceptions towards takaful, 16 variables were less than 0.05 significant levels. The remaining 3 variables were above 0.05 significant levels. However, 2 out of the 3 variables are not significant because 19.2% and 80.8% of the total respondent agree and strongly agree with the survey question and majority of the respondent (56.4%) are those with tertiary education. This is connected to the fact that higher educational attainment in most cases translates to higher income. In this case, our null hypothesis is accepted. Overall, the null hypothesis H2 stating that there is no relationship between participant’s educational level with
9. Shettima 9 Table 4 . Chi-square test results Perception Statement 1.Problems in the Takaful system 2.Lack of transparency 3. Takaful is too complex and deceptive 4. Takaful operators cheat 5.Takaful is worthless and irrelevant 6.Takaful does not make the industry better 7.Improves transparency 8.Improves one’s protection against risk 9.Investment opportunity 10.Difficult to understand the operation 11.No idea about the Takaful because of one’s faith 12.Can understand the concept of Takaful 13.Takaful operators select clients with due diligence 14.Takaful is ethical 15.Feel secure with Takaful cover 16.Feel scared of Takaful 17.Premium charge is not reasonable 18.Takaful operators pay claims 19.Takaful influences the number of false claims to make Chi-square Education Income 42.065*** 77.570*** 34.412*** 92.917*** 32.106*** 23.330*** 22.945*** 46.001*** 18.412*** 22.840*** Likelihood Ratio Education Income 34.625*** 81.331*** 41.682*** 86.925*** 24.703*** 19.277** 16.042** 32.022*** 14.070** 18.290*** Linear-by-linear Association Education Income 4.871** 5.506** 2.478 37.654*** 13.171*** 9.460*** 1.909 16.003*** 7.213*** 9.167*** 1.472 5.893 2.375 6.595 1.216 0.852 17.671** 13.160** 5.754 28.248*** 36.260*** 21.065*** 7.569* 42.678*** 22.446*** 16.959*** 6.264* 31.463*** 42.799*** 27.513*** 9.212** 42.163*** 8.017*** 0.262 0.095 0.502 0.002 0.400 5.071** 18.365*** 35.568*** 74.415*** 33.171*** 59.724*** 13.173*** 0.165 27.268*** 44.660*** 25.207*** 43.202*** 4.331** 1.125 34.541*** 49.881*** 34.592*** 48.574*** 0.690 1.971 41.173*** 30.444*** 20.201*** 10.580 15.199** 41.875*** 45.217*** 12.879** 22.869*** 12.169* 30.066*** 29.244*** 14.997** 14.151 19.241*** 50.030*** 44.710*** 17.945*** 27.259*** 17.347*** 0.332 0.056 0.310 1.708 5.465** 1.092 3.554* 7.254*** 0.033 0.048 50.962*** 62.856*** 33.347*** 50.277*** 0.159 13.722*** H2: There is no significant relationship between educational level of qualification and consumer attitude and perception towards Takaful H3: There is no significant relationship between income level and consumer attitude and perception towards Takaful ***, ** and * indicate statistical significance at 1%, 5% and 10% levels, respectively (2-tail test). respondents’ attitude and perception towards takaful was rejected. With the 19 variables measuring attitude and perception, 16 variables have significant value of less than 0.05 while the remaining 3 variables have a p-value above 5% cut off point. However, majority (68) of participants have gone through tertiary institutions. This result is in line with Olaleye and Adegoke (2009) studies that found educational level as a great factor that influences attitude and perception towards housing insurance in Nigeria. Olaleye and Adegoke (2009) assert that level of awareness among highly educated people contributes in determining their attitude and perception. The study further examined the relationship between level of income and perceptions towards takaful. The result found significant relationship in 16 variables which serves as evidence that there is an association between income level with participant’s attitude and perceptions towards Islamic insurance in Nigeria. This result corresponds with the findings of Olaleye and Adegoke (2009) and Ojikutu (2011), that consumer perception of insurance in Nigeria is significantly associated with their level of income. Respondent earning below N18, 000 have negative and perceptions towards takaful. Reason being that Nigerians with lower income may have pressing need of food and shelter than subscribing for takaful policy. In contrast, those that earn above N300,000 mostly pass through tertiary institutions and neutral towards takaful. SUMMARY AND CONCLUSION This study has investigated the attitude and the perception towards Takaful, relative to its conventional counterpart, in Nigeria. It was assumed from the inception that information asymmetry could have some roles in influencing such attitude and perception. Based on the findings of this study, the following conclusions are drawn:  Consumers have more positive attitude and perceptions towards Takaful than conventional insurance.  Negative attitude and perceptions towards conventional insurance were mainly contributed by the problem of information asymmetry and lack of transparency.  Educational qualification and income levels greatly influence the attitude and perceptions of Nigerians towards Takaful. From the foregoing, it is expected that Takaful can restore consumer confidence in the Nigerian insurance industry and improving transparency in such a market would reflect positively on consumer’s attitude and perception. Given the evidence of strong influence of educational level on
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