Effect of Demographical factors in consumer buying behavior:
A study with specific reference to Indian Life Insurance Industry


Amit Shrivastava
Astt. Professor
Bhuwan Shrivastava
Astt. Professor
Ravikant Agrawal
Shivalik Institute of Management Education & Research
Durg, Chhattisgarh

This article examines the effect of demographical element in consumer buying behavior. The sector chosen for the purpose is Indian life Insurance Industry. Indian life Insurance industry being in nascent stage has been found very sensitive to myriads of issue particularly when we talk of buying pattern. Consumer choice of one product over other products has been the issue of concern for many of the researcher and for the organization, who has already putted lot of hard work in developing the product. Earlier research studies have shown the effect of various factors on the purchase decision. The important amongst them is the demographic element. This study tries to bring out this importance on the purchase pattern in the life Insurance product.


Insurance has got its origin from the concept of Indemnity. Indemnity against the loss, which has occurred due to some unavoidable circumstances. To some, the concept of insurance has got its origin related to the uncertainty in the life. Uncertainty has been the integral part of everyone's life, be the uncertainty in terms of money, uncertainty in terms of life etc. Through out the tenure every other individual's effort is directed towards avoiding this uncertainty. The concept of insurance has got its origin from this very effort of avoiding the uncertainty. Though it is not possible to avoid the uncertainty, it is highly possible to compensate the loss, which has occurred due to happening of this uncertainty. This compensation of unavoidable circumstances (uncertainty), which has occurred, is known as Insurance. It is the pooling of funds by many to compensate the loss of few, whereby many individuals pool themselves together to create a fund in order to compensate the loss that has occurred to the few.

Insurance as we know today can be traced to the Great Fire of London which, in 1666 AD, destroyed 13200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office", to insure brick and frame homes. Gradually the concept of insurance came to be understood as a contract that offered the purchaser protection against the financial loss due to specific incident. Since the risk of financial loss was to be spread amongst the large group of people, the extent of financial loss, In the event of mishap occurred, became less devastating to the individual.

Though the concept of insurance is old as history of mankind, back to some 6000 years, it got its presence registered in India somewhere in 1818 with opening up of Oriental Life Insurance Company in Calcutta by Europeans. During those years Indians were considered as substandard and they were forced to give high premium on account of their low profile. However with the continuous effort of few eminent people Indians were later considered as of equal status and they were charged the normal rate, at par with the Europeans. This was majorly due to the establishment of first Indian life Insurance company, Bombay Mutual Life Assurance society in the year 1870. Later on the development of Indian life insurance industry was more fired by the patriotic sentiments and gave rise to number of Indian life insurance companies viz. United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were amongst those company which was formed to treat the Indian populace at par. With increase in the pressure from Indian intellect, to give the Indian Insurance industry a organized structure, Government of India was forced to pass Life insurance Companies act, 1912 and Provident Fund act. But this was not the end to the suffering of Indian populace that even this act recognized the demarcation between the Europeans and Indian while charging the premium. Then came the act of 1938 which not only governed the Life Insurance Industry but also had its spread to the Non life Insurance Industry. With the increase in atrocities from all these companies, the demand to amend the prevailing act of 1938 assumed velocity. Thus in the year 1956 the act was passed as Life Insurance Corporation act, 1956 on 19th June, 1956 which called for nationalization of all the Insurance company working in India under one name as Life insurance corporation of India (hereafter LIC). Thus LIC was formed on 1st September 1956, with an objective to spread life insurance especially in rural areas as a mean to provide the protection cover to the life of Indian populace and as tool to help them in the time of financial need at a reasonable cost. Till 1999 LIC was the only life insurance player in Indian Life Insurance field, when government of India decided to amend the then prevailing act prohibiting the private life insurance player to enter the Indian market. It was Insurance Regulatory Authority, 1999 (IRA) that gave the freedom the private players to play in the field. But the basic motive for introducing such an act was not fulfilled as the amended act was meant for only regulation purpose only and not as a development tool and hence the act was further modified to add the element of development to the concept and thus came the current prevailing act i.e. Insurance Regulatory and Development Authority (IRDA), 1999. It was further amended to incorporate the element of competitiveness. Thus Government of India via IRDA permitted the private Life Insurance player also to enter the Indian field; and made some provision for foreign insurance companies that if they want to enter the Indian market they can do so but to the extent of 26 % of share only with any of Indian partner.

Today almost 15 private life insurance companies are working India, some in wholly owned format and some as a joint venture with foreign company or with Indian company. Together they hold the market share of approx. 24 % in life insurance market. Still LIC holds the kingship with almost 76 % of market share. That's the good news for the LIC people on one part but on another aspect if we deal that shows the pace at which the private life insurance companies are moving, they are defiantly going to give the tough fight to LIC.

The leadership lies not in getting the maximum out of market share but it is there somewhere in understanding the reason for the choice of one product over another one.

The Purchase Decision

The purchase decision in general is prompt by number of factors viz. Psycho graphical, Economical, Social, Politico legal and Demographical. The list is not exhaustive but it is sufficient to have the deep understanding of the factors influencing the decision.

Psycho graphical Factors are those factors that includes the behavioral aspect of the individual viz. lifestyle, living standard. Here purchase decision in influenced by those issues that affect the lifestyle of the consumer or in the other that reflects the status. For e.g.: purchase decision related to buying of car and that to Mercedes Benz. Talking specifically to the insurance sector, here customer will buy only that policy that has got high premium or that type of policy which company is promoting to limited high-income level group only. For e.g. "Classic Life premier" policy of Birla Sun life insurance is meant for only those individual who can pay at least Rs. 25000/- per annum.

Economical factors affect the purchase decision by influencing the issues pertaining to money and income level of the individual. Consumer will buy only that product which will not have any negative effect on his pocket. For e.g. decision to buy an insurance policy is influenced by the deepness in the pocket.

Social factor affect the purchase decision by influencing the issues pertaining to social beliefs and morals.

Politico legal is the macro level environment. It effects in a way, say IRDA has restricted the sale of Key Man Insurance policy through Term Plan only.

Demographical factor is that factor which has got the maximum of its effect in the purchase decision of the product and specially if that product is life insurance product. It is so because these factors incorporate other above said factors and includes those factors that can influence the buying decision to maximum extent viz. Occupational factor (service/business), Age factor, Gender, Marital status factor and Income level etc. It cannot be denied that buying decision of the individual who is unmarried and is into business, having the income level of the range Rs. 2.4 lakh per annum, is into the age group of say 25 years will have the entirely different approach towards purchase of the life insurance policy with the individual who is into service and is married, is into the age group of, say 35, and is earning Rs. 30000/- per month.

Keeping the above phenomena under consideration a study was conducted to know exactly to what extent Demographical factor has got its influence in purchase decision of the life insurance product. 

The Study

This study, which was conducted in the city of Bhilai (Chhattisgarh), covered almost 1000 individual of different strata. The duration of the study was almost 7 months. The method which we used to collect the information was through questionnaire and personnel interview.

The data so collected was grouped according to the company of the consumer's choice from where they have purchased the product and further it was analysed that what was the demographic profile of that consumer and result was thus generalized.

The study covered 1000 individuals, of which 51.3 % were found insured and 48.7 % uninsured. Of the total insured 58% were from 21-40 age group and 34 % were from age group 41-60. It was 78 % of the male who was there in the total insured and rest 22% were female. Occupation wise 50 % of the total insured were into service and 25 % into business. Thus the overall penetration of companies in to the psyche of consumer buying preference (based on the customer's purchase of a company's life insurance policy) is given in the graph as under: 

From the above graph it is clear that when it comes to preference of the life insurance policy of particular company it is LIC, which has got the maximum preference over other products, as per the respondents. But the picture may take the different shape if we analyze it from the different perspective, i.e. demographical perspective. This is to be note that out of total surveyed (1000), 51.3% were found insured and out of this 51.3%, 72.9% were from LIC, 4.09% were from HDFC, 3.9% were from SBI, 4.48% Bajaj Allianz, 7.79% ICICI Prudential, 2.53 % Birla Sun life, 0.58% Om Kotak Mahindra, 1.56% Max New York, 0.78 ING Vyasya. 1.36% Tata AIG. 

Consider the graphs below: (figures given in percentage)

Figure [a]: Preference of MALE towards company
Figure [b]: Preference of FEMALE towards company
Figure [c]: Preference of SERVICE class people towards the company
Figure [d] : Preference of BUSINESS class people towards the company
Figure [e]: Preference of MARRIED towards the company  

To study the demographical pattern of customers in the insurance industry the most important thing which is to be considered here is that customer try to segregate the life insurance companies not on the basis of brand of the company (in most of the case it has been found), but they demarcate it on the basis of ownership of the company, whether it is government owned or privately owned company.

Considering Figure [a], which is for the preference of male for any of the company, it was found that 75% of the male has got the preference for LIC rather than any other life insurance company; whereas is we consider Figure [b] the preference graph is showing the different trend as here only 66% of female is only interested in LIC.

Taking Figure [c] and Figure [d] under consideration where the graph is showing the preference on the basis of occupation customers are into. Figure [c] is for those customers who were found to be in service and Figure [d] is for those who had their own business. The data revealed by the study was telling some different story, as the percentage of LIC preference in business class was much lower than the figure for service class. Former had 75% preference for LIC whereas later had 80% preference for LIC.

Let us now consider Figure [e], which is for those customers who are married. Here LIC has got the maximum preference with 75 % of total insured.

Undoubdtly demographical factor has major effect in the purchase decision as it was found during the collection of data, people who were into service are those kind of customer who don't want to carry any risk while investing and thus had there preference for the LIC because according to them LIC is more secured then any company because of its government owned condition. Even if in certain type of life insurance policy they may not be getting the same high return which they would have got while investing in other "private" companies they are much happier and satisfied while investing in LIC as it gives them peace of mind. Where as reverse was the case with customer who had their own business, according to them it doesn't matter who is the owner of the company, what they want at the end is return and good service. And same was the case with the person who were married, they all demanded the security for the money and according to them no company can give better security then LIC as it is government owned.


Thus this study reveals that the demographical factor has the major effect in the purchase decision of the customer. The leadership lies not in getting the maximum policy sold but in understanding the demography of the customer and targeting them in their way. It has been found that LIC is market leader in insurance sector and market of insurance is still open for heavy competition. it is recommended that companies dealing in insurance should give emphasis on demographic elements to grab opportunity available in this sector.

Amit Shrivastava
Astt. Professor
Bhuwan Shrivastava
Astt. Professor
Ravikant Agrawal
Shivalik Institute of Management Education & Research
Durg, Chhattisgarh

Source: E-mail July 4, 2007


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