|Individuals seek security and limit the risk of losing their possessions through purchasing an insurance cover and paying an insurance premium in exchange for the risk protection. The insurance industry is diverse in its entirety and includes, but is not limited to, property insurance, fire insurance, social insurance and medical insurance. The diversity is not only limited to the types of insurance cover but extends to the perceptions of the policyholders regarding risk. As a result, insurers tend to misunderstand the perceptions of the policyholders and inevitably lose clients. In South Africa, very little research has investigated the perceptions and attitudes expressed by insurance policyholders. Therefore, to bridge this gap, the purpose of this research study is to analyse the factors that influence the risk perception of insurance policyholders in Gauteng.
This research adopted a quantitative research methodology approach to address the primary objective, theoretical objectives and empirical objectives. The theoretical objectives focused on contextualising risk perception, identifying the current landscape as well as determining the insurance policyholders’ behaviour towards risk through a contextualised theory from previous research studies. The target population is comprised of all South African insurance policyholders residing in Gauteng. Furthermore, this study followed a non-probability purposive method to meet the following criteria: living in Gauteng, older than 18 years, has an existing insurance policy and has some level of education.
Through this research journey, an exploratory factor analysis (EFA) statistical method was utilised to determine the factors for risk perception of insurance policyholders. Notably, endogenous factors relate to internal factors influencing the risk perception of insurance policyholders namely, demographics, risk tolerance, financial well-being and behavioural finance biases, while exogenous factors relate to external factors influencing the risk perception of insurance policyholders namely, political-legal, market fluctuations, crime and unemployment. However, demographics and risk tolerance were not incorporated as endogenous factors but, investigated separately due to their complexity. The results from this research study have indicated that risk perception is influenced by several factors. Interestingly, all the demographics, age, level of education, annual income, income variability, net worth,
household size, number of dependents, health status, financial knowledge, marital status, homeownership, employment status, type of policy and ethnicity except gender and religion were found to have an influence on the risk perception of the insurance policyholders.
Regarding risk tolerance, the majority of the participants indicated they would take average financial risks as most assets were covered but not comprehensively. Moreover, risk tolerance was influenced by the age and income level of the participants. Furthermore, endogenous and exogenous factors influence the risk perception of the insurance policyholders. The results showed a combination of both positive and negative relationships with risk perception. This study will further make a significant contribution to academia and the insurance industry by utilising empirical evidence to determine whether endogenous and exogenous factors influence the risk perception of insurance policyholders which many researchers have not incorporated in prior research studies. It will further provide deeper insight into policyholders’ perceptions which will assist insurance companies in expanding their horizons and providing insurance services of higher quality to their clients.
Considering that insurers are not fully aware of their clients’ risk perception, it causes a lack of commitment on the policyholders’ side when buying an insurance cover. In addition, previous research studies have mainly focused on one type of insurance, motor vehicle insurance. This study will therefore significantly contribute to the insurance industry because it incorporates more than one type of insurance which were previously not incorporated by other researchers. The empirical findings of this research study will, furthermore, be of benefit to the insurance industry as it provides an analysis of the factors influencing the risk perception of the insurance policyholders. This can assist insurers to tailor insurance products accordingly for each policyholder in order to maximise customer satisfaction, especially in unprecedented market conditions. In turn, this will help insurers retain clients and realise higher profits. Additionally, retaining customers is a challenge commonly faced by insurers and can put insurers out of business. This research study will assist insurers in retaining clients and ultimately realise higher profits in the future.
During this research endeavour, the researcher experienced some limitations and recommendations were provided. Future researchers can expand on the sample size although this study met the sample adequacy as recommended by previous researchers. This research study considered the influence of demographics, risk tolerance, endogenous and exogenous factors on risk perception. Accordingly, future researchers should consider including more
variables such as the demand for insurance. Moreover, this research was performed amid the COVID-19 pandemic. It was recommended for future researchers, to perform a test pre and post COVID-19 to analyse the change in the risk perception of the policyholders. Lastly, it was recommended to include participants from varying geographical locations as this study considered participants from Gauteng only.