Chapter 1 Introduction
1.1 Overview
The current world that we live now is being strongly influenced by the high technology waves. This kind of waves are altering our operations in business sectors like finance, economic, accounting and as well as insurance. Internet and its connectivity are increasingly important as the role of connecting people all over the world in the most cheapest and efficiency way. It is now become a necessary in all the people’s lives. According to the research, there are around 9.3 million people in Malaysia age 15 and above using internet at home or work locations, each of them consuming average of 1,066 pages of content and spending 14 hours online in June, 2009 (Comscore,2009). Internet is a new distribution channel for businesses to market and promote their products and services in order to increase their revenues, profitability and customer’s loyalty. For successfully enter and adapt in the new evolution of technology and electronic, businesses had change their operation structures into technology-intensive based. Some businesses from shops to financial institutions even changed most of their products and services into E-based products or services.
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Generation Y also can be known as “Millennial Generation”. From its name, it obviously stated that this generation closely related to high technology and digital electronics. This generation mostly owned computer and have higher education. They frequently used high-technology products and services and they willing to be the innovator for using new E-product. Generation Y is an influential factor towards the future development in E-based services and products. Therefore, most businesses will focus their customer target on generation Y in the coming years.
We are now entering into new phase of technology and electronics. With trimness of electronics technology many electronic tools and gadgets have become increasingly personal and portable. It makes people can surf net whenever and wherever they are. The conveniences of communication and networking have stimulated the growth of E-commerce. E-commerce can be translated as any form of businesses that using information technology for transaction. In order to stay ahead in millennium age, most of the companies used E-commerce regardless of business to business (B2B) or business to customer (B2C) or even customer to customer (C2C) (Ahonen, 2004). Services sector like banking also promote internet banking or online banking to facilitate their efficiency in the banking transaction. Online banking can reduce some unnecessarily procedures and provides convenience to customers. Yet insurance industry has been lagging behind others services industries in adapting new technology era. In addition, there are many researches done for investigating the factors that affect adoption of internet among different sectors in Malaysia (Stevens, 2002; Soliman, 2003; Wirtz, 2001; Coltman, 2001), but empirical data for e-insurance was limited due to insurance industry has been slow respond to e-commerce compared to other financial services (Esters, 1997).
Insurance institutions have the direct competition with banking and financial institutions. It is the great time for insurance companies to utilize the convenience of communications and networking in establishing direct interface with customers. E-insurance is broadly defined as distribution of insurance services through information technology. The direct channel can eliminates the intermediaries, provides more efficiency, lower cost and more value added to the customers. Other than online purchases, E-insurance can offer varied types of services like online payments, register claims, review claims and renew insurance policy. Besides that, e-insurance also can reduce the level of management hierarchy and internal administration cost by automating all the business processes. There are some limitations of the regulatory for fully applied the e-commerce in certain countries. However, the insurance legislation world wide has been continuously updated and modified to fulfil e-insurance metrics (Ahonen, 2007).
This study examines the perception and expectation of generation Y towards E-insurance. It discusses about the existing e-commerce applied in insurance industry and the expectation of generation Y on the improvement in E-insurance in the future. The new high technology and electronic era started, it links the generation Y and the insurance industry together. It is important to examine the relationship between generation Y and E-insurance. Generation Y act as knowledgeable customers, they are pursuing simple, convenient, fast and efficiency services at lower prices. Therefore, it is the need for insurance companies to introduce E-insurance that satisfied the customer’s need.
1.2 Statement of problem
E-commerce had widespread all over the various business from education to real estate sector. It will continue to grow up unabatedly because information is now the lifeblood of successful business. The importance of e-commerce can be seen from the Ninth Malaysian Plan (2006-2010); Malaysian Government has allocated RM 12.9 billion for developing e-commerce. According to the survey conducted by Nielsen Company (2007), there are 70% of internet users in Malaysia purchased online at some point in past. So there are many potential opportunities in e-commerce nowadays. Internet and electronic communication enables companies exchange or transfer their information to the other part of the worlds without boundaries. E-commerce also provides a new distribution channel for businesses to deliver their products or services to customers more efficiency and fast. Meanwhile, companies can connect their customers worldwide in real time. It can establish long term relationship with their customers. Since there are many advantages in adopting e-commerce, yet, not all businesses can successfully fully applied e-commerce especially insurance industry. Insurance industry has been lagging behind in the adoption of e-commerce. There are some barriers on adoption of e-commerce in insurance industry.
All the business sectors included financial services sectors have been revolved to new e-commerce era because of the domino effect of globalization and liberalization around the world since 1990s (Piercy, 1999). New entrants of e-retailers of financial services sectors lead to intense competition among financial services providers. There is a need to improve service quality of their service in order to survive in the global market place. Yet, consumers are less likely to purchase online than expected in despite of the huge investments in online banking (Sarel & Marmorstein, 2003; Wang, 2003). Better understanding of factors that affect customers’ acceptance on using internet banking is prerequisite of obtaining success in conducting e-commerce. However, lack of research on perception of consumers toward e-insurance in Malaysia.
Another important issue is consumers feel unreliable towards security and privacy of e-commerce website (Järvinen, 2001). Insurance policy requires exchanges of huge amounts information between the parties. Electronic exchange data or information that needed in insurance policy is an ideal way because Internet enables transfer data over worldwide. Yet the only concern is the private confidential of the data when it is being transfer through internet or any other electronic method. Because of the anonymous nature in internet, insured unable to ensure the data is transferred to the right person. In electronic environment, there is no guarantee of the data or information that being transferred is sealed and did not review by others. In addition, electronic exchange data can cause security problems like customer database may be hacked by someone who has negative intention. Furthermore, electronic documents without physical signatures are easily being pirated. According to Forrester research 2001, the main reason (59%) of young consumers not purchase online is concern about the use of credit cards online and the second reason (47%) is concern about the privacy of the data they sent out to website. Besides, about 75% of US consumers of the Boston Consulting Group’s survey are concerned about the degree of security and privacy provided in electronic environment (Goldman, 2001). There is a need for insurance companies to solve this problem by review other banks in gaining consumers’ trust towards online services (Mattila, 2003).
In Malaysia, government had encouraged the development of E-insurance since January 2005. Persatuan Insurans Am Malaysia (PIAM) released the news of motorists will be the main beneficiary of the JPJ’s e-Insurance Project with effect from 1st January 2005. On 5th October 2004, Minister of Transport was launched an IT-based service with the full support of the JPJ, general insurers and takaful operators. The e-Insurance enables insurance companies to enter their policyholders’ motor insurance details and transmit them electronically to JPJ’s computer database for processing. With full implementation of e-Insurance, it minimizes the problems like long queues at the JPJ counters, shortening waiting times at the JPJ counters, reducing the need for repetitive capture of data will also ensure accuracy and consistency of data in JPJ’s database and eliminating physical motor cover notes will help resolve the problems of forged cover notes as well as reduce document inventory (PIAM, 2005). E-insurance has brought to us many benefits but it still uncommon in Malaysia.
E-commerce has brought a lot of questions. Is insurance industry suitable to apply e-commerce? How E-insurance ensured security and privacy of insured’s information and data? What are the expectations of generation Y towards future E-insurance? How generation Y perceived adoption of E-insurance? Is adoption e-commerce an advantage or disadvantage for insurance industry? This study wants to lift up the veil of E-insurance.
1.3 Research objective
The general objective of my study is to investigate the perception of generation Y towards E-insurance. The other objectives are:
1.) To study awareness and expectation of generation Y towards E-insurance.
From this study, we want to know the high education generation Y perceived E-insurance. E-insurance is important for insurance industry in step out the first step of pursuing low cost customer services. Generation Y are their priority target of E-insurance’s product because generation Y have much of knowledge in computer. Generation Y treated as the future talented human capital of a country. They are high education and expertise in using computer. Therefore, their expectations and future requirements about E-insurance are important success factors of insurance industry.
2.) To examine the adoption of e-insurance in Malaysia
E-insurance has not fully implemented in Malaysia. It is crucial to examine the current situation of adoption on e-insurance in Malaysia.
3.) To investigate the factors that can influence the perception of generation Y towards E-insurance and the adoption of e-insurance
To establish long term relationship with customers, it is critical to investigate all the possible factors that may affect the views of the potential customers towards E-insurance. A good service is able to satisfy all the customers’ need.
1.4 Significance of study
Insurance is essential for everyone. It provides a sense of security and peace of mind to us. It also provides financial stability to individual and businesses if insured risk occurs such as flooding, fires, accident or ill health. Insurance is a major component of financial sector. Nowadays, the adoption of e-commerce in financial sector has become obvious. Yet, the insurance sectors are lagging behind. This is mainly due to the complicated transaction involved in insurance industry. This study is aim to investigate the perception and expectation on generation Y on electronic insurance services as well as their willingness to accept E-insurance.
Insurance industry in Malaysia have not fully implement e-insurance yet. Most of the consumers feel uncertainty towards this new e-commerce and some even do not aware about this. We are able to know the degree of awareness of generation Y towards e-insurance from the research. Generation Y are potential customers for e-insurance, their awareness of e-insurance is important to the development on insurance industry. According to previous research, it also showed that younger and high educated males with high level of income have higher probability to use internet banking services (Devlin & Yeung, 2003). E-insurance also can be categorised as one kind of internet banking services, so perception of younger internet users towards e-insurance is important.
The effect of liberalization and globalization around the world influenced the business sectors in Malaysia significantly. Liberalization allowed business transactions can be conducted cross over the boundaries of countries freely. E-commerce should be developed in Malaysia in order to gain the global competitiveness. Compared to other developing countries, Malaysia is lagging behind. In order to compete with other countries, Malaysia government need to support organization in adapting the changes in term of technological. E-commerce provides a new distribution channel for products and services which able to help companies deliver their products and services to customers efficiently all around the world. Although e-commerce provides many competitive advantages for business sector, however, insurance industry in Malaysia still have not implement the electronic insurance completely. It is necessary for government to generate effective strategy for establishing e-insurance in Malaysia. The antecedent of effective strategy is to obtain a clear understanding of perception of customer towards e-insurance. This study benefits government in term of more understand the customers’ need towards e-insurance, so government and business sector can complement with each other for establishing e-insurance in Malaysia successfully.
Service itself is considered as interactive process whereby customers involved in the production process. Insurance is one kind of this service. Since insurance is an interactive process, customers’ viewpoint on the new electronic insurance must be paid with full attention. This study focuses on generation Y’s response on the development of new electronic insurance because most internet users are generation Y now. With the generation Y’s future wishes for electronic insurance, a user friendly and suitable E-insurance concept can be developed. This study also benefits insurance companies in developing the electronic insurance service which can satisfy customers’ need. A well-developed e-insurance service can meet customers’ requirement and increase their satisfaction. The speed of adoption on e-insurance in Malaysia will be improved.
Society also benefited from the study because adoption in e-insurance enables them to access the insurance services through internet whenever and wherever they are. The success of establish e-insurance in Malaysia will bring many advantages to customers. E-insurance provides longer operation time, convenience, less transaction cost needed, and less processing time to customers. E-service has changed the way of people organize their lives. It enables people to make comparisons among the products or services through internet. The study also examines the customers’ concern towards security and privacy of e-insurance. Hence, after completed the study, the security and privacy of e-insurance systems can be enhanced according to the concern of society.
This study investigate the relationship between generation Y and E-insurance and their expectation and perception on E-insurance in order to better establish a new era electronic insurance and to maintain long term relationship with customers.
1.5 Organization of study
In chapter 1, the research begins with brief introduction to the topic “perception and expectation of generation Y towards E-insurance”. In the introduction, it briefly explained the term of e-insurance and generation Y and the relationship between them. After we have some basic ideas about the topic, problem statements of the study developed. The issues of e-insurance were addressed in the study. Objectives of the study are stated down and followed by explaining significant of study.
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Chapter 2: Literature review
2.1 Services and Goods
Goods can be defined as physical products that being produced and sold to the market (Winsor, Sheth & Manolis, 2004). In addition, goods also considered as something physical and tangible in nature that customers can feel, smell, taste or hear it prior purchase or make consumption (Rathmell, 1966; Shostack, 1977; Zeithaml, 1985). On the other hands, services are totally opposite to the characteristics of goods. Services normally are classified under intangible characteristics which cannot be touched, smelled, tasted, hear by customer before purchase and make consumption. Furthermore, services also can be classified as a product, a process involves of many activities and can be produced and consumed at the same time, and to some extent customers may participate in the service production process (Grönroos, 2000). One of the researchers defines service as something can be bought and sold but which you cannot drop on your feet, this definition points out intangible characteristics of service (Gummesson, 1987). Besides that, service also defines as an act that offered by other party (Lovelock and Wright, 2002).
There are four main attributes that help in distinguishing between goods and services namely, tangible or intangible (the degree of physical feature), separability or inseparability (the degree of linkage between the product or service and providers and customers), variability or invariability (the degree consistency of the products or services attributes) and perishability (the degree of capacity for being stocked) (Berry, 1980; Fisk, 1993; Gronroos, 1998; Kotler, 1994; Shostack, 1977; Zeithaml, 1985). From the four main attributes, it clearly states that the things that classified as services only when it fulfilled the four main characteristics of intangibility, inseparability, variability and perishability. For example, hair cut service, it does not provide any tangible product to its customer but only intangible service, throughout the hair cut service, it need participation of customer, the hair cut services are inconsistency in quality and it cannot be stocked.
Furthermore, among the four attributes of differentiating the goods and services, the intangible characteristic is the best definitive for services (Bateson, 1977; Bebko, 2000; Berry, 1980; Levitt, 1981; McDougall & Snetsinger, 1990). Various definitions that used to define services stated above are prefers to include the intangibility features into the statements. Hence, intangibility characteristic of service is the most representative attribute for services in order to distinguish goods and services. However, the tangibility feature is becoming less useful and less definitive for distinguishing between goods and services in digital environment (Rust & Oliver, 1999). This is due to digitized goods are consists of both tangible and intangible characteristics. For examples, online purchase DVD is intangible in nature because customers cannot touch or feel the product before the actual tangible product received. The development of electronic environment has blurred the clear distinction between goods and services by using intangibility attributes.
In order to fill up the inadequacy of tangibility criterion, another framework which used four types of utilities to differentiate goods and services has been developed (Winsor, Sheth & Manolis, 2004). The four types of utilities are time, place, form and possession. All retailers will provide time and place utilities to customers, the only differences can be make between goods and services is in term of form and possession (Rathmell, 1966; Hsieh & Chu, 1992). Physical goods will only contributing little form utility for customers compared to service whereas the permanent of transfer of possession utility only completed when customers are purchased physical products rather than services (Clemes, 2000). According to this framework, insurance is classified as hybrid retailing or a mixture of goods and services because it provides a moderate degree of form and possession utilities.
2.2 E-service
The new era of e-service has begun since the development of internet being introduced in 1994 (Ahonen, 2004). There are three phases of internet according to the previous research (Kalakota & Robinson, 2001). The beginning phase (1994-1997) is home pages and website of every company available. The following phase (1997-2000) is taking part into e-commerce in business. The last phase (2000-) which means the current situation is to satisfy online consumers and try to take advantages of internet. However, the development of e-service of our country is lagging behind when compared to other foreign country.
Although many researchers have defined e-service before, but there is no an exceptional definition for e-service. E-service can be known as a service that conducts through electronic method such as internet (Rust & Kannan, 2002). There is a difference between technology based service and e-service concept, the latter concept need to be carried out through online method whereas technology based services can be an ATM service. Both of the concepts are benefited from development of information technology (Järvinen & Lehtinen, 2003). In an electronic environment, the service concept is important because the nature of the services is abstract and where the relationships between partners and customers are virtual (Grönroos, 2000). Since electronic insurance services are perceived as complex and difficult to use, therefore clear and well defined service concept should be emphasized (Järvinen 2001; Ahonen & Salonen 2005).
There are four chosen characteristics, namely, intangibility, process nature, inseparability and interaction that used to test some selected e-services in previous research (Järvinen & Lehtinen, 2004). All e-services are intangibility in nature and remain intangibility if the consumers only search for information of particular product or service through online. There are only few services consists purely intangible characteristic. For example, previous studies stated that even financial services also aided tangible by their documents like loan agreement (Järvinen & Lehtinen, 2004). The characteristics of process nature also universal for all studied e-services which means that the customers need to be follow the specific procedures in order to get the services. Inseparability and interaction characteristics are deviated among different e-services (Järvinen & Lehtinen, 2004). Some characteristics of services in electronic environment have to be considered in order to shift the service concept to (Ahonen, 2004). For e-service, it seldom needs personal interaction when compared to telephone based services (Lovelock, 2002). However, the argument is human factor plays an important role in service recovery when technical problems happened (Järvinen & Lehtinen, 2004).
In addition, E-services can bring considerable profit for companies if they able to manage the e-service effectively. However, not all the products and services are suitable for online trading because internet as a marketing channel only able to realistically fulfill two out of five senses of customers which are sight and sound. Therefore, only products and services that fully utilize the two senses are suitable to sell online for example, CD (Stern, 1995). According to other researcher, Peterson (1997) suggested that the suitability of the products and services to be sold online based on three dimensions:
(1) cost outlay and frequency of purchase;
(2) value proposition;
(3) degree of differentiation
Based on the study, products and services that have low cost, high frequency in purchase, intangible value proposition and high degree of differentiation are more suitable to market through internet (Phau & Poon, 2000). Is insurance suitable to sell online? Regarding to the three dimensions above, insurance has fulfilled two dimensions which are intangible value proposition and high degree of differentiation because insurance is considered as a customization service. Hence, insurance is considered suitable for marketing through internet.
For successfully implement e-service, it not only depends of the suitability of the products and services but also depends on the customer’s perception towards e-service. Based on previous studies, the overall satisfaction of customer towards e-service can be improved through various factors which included convenience, saving time and money, ease of use, financial security and web site designed to be fun (Szymanski & Hise, 2000; Meuter, 2000). Customers’ satisfaction is important determinant of successful e-service (Parasuraman & Grewal, 2000). In order to successfully implement e-insurance in Malaysia, those factors also included in this study to determine adoption of e-insurance.
2.3 Insurance
Insurance is defined as the evenhanded transfer of the risk of a potential loss, from one entity to another, in exchange for a premium and duty of care (Wikipedia, 2005). Insurer is the company that sells the insurance, and the insured is the party who buy the insurance. Insurance rate is the amount charged for a certain value of insurance. Insurance sold to consumers directly is known as direct insurance (Skipper, 1998). Meanwhile, direct insurance also can be defined as a service with particular terms and conditions agreed in an insurance policy. On the other hands, one of the researchers stated that part of the insurance service is to maintain a long term relationship between customers and insurance company rather than only holding legal responsibility with customers (Järvinen, 1996).
Intangibility, inseparability, perishability, heterogeneity and lack of ownership are characteristics of services (Cowell 1988; Zeithaml & Bitner 1996). However, all these characteristics do not followed by insurance service. The tangibility of insurance services achieves through a physical paper of an insurance policy including a promise to pay compensation if a certain unforeseen event takes place. The insurance policy symbolizes the only evidence of that promise until losses occur (Majaro, 1982; 1985). In fact, no policyholder would prefer to have any losses, and thus we can conclude that consumers only purchase merely security or protection for their safety instead of compensation of losses. So, as a result it is in force to cause consumers consume insurance whole period that is a continuous consumption, but production is cross-sectional and dependent of the interaction of the consumer and the insurance company. Therefore, insurance service only partially fulfilled the characteristic of inseparability.
One of the unique natures of each service is heterogeneity on its part. There are various alternatives of insurance for consumers to choose which insurance policy is suitable for them but the terms and cover of most of the insurance is standardized (Järvinen, 1998). In case of e-insurance, the heterogeneity part of the personal service forms the only unique part of insurance is eliminated. The back-office resources in insurance that used to balance the capacity can avoid perishability. As a result, large part of activities in E-insurance can be carried out without consumers’ existence and participation. Lastly, as regards to ownership, insurance holders actually own the partial ownership of the service because they reserve the right for claims settlements that will be paid from the reserves in the balance sheet of an insurance company by paying premium (Järvinen, 2000). This means that insured consumers ‘own’ their part of reserves, and that principle is based in Insurance Act. Consequently, we can conclude that the insurance service is quite specific from other services because it only fulfilled partially of the common service characteristics.
One of the financial services is insurance, it seems to have different user frequency when compared to other bank services (Järvinen, 2003). Specifically, consumers may have bank transactions weekly, but in case of insurance issues, such as risk analysis and insurance cover or claims applications, occur quite infrequently and with low frequency (Ahjos, 1999). Hence, there may be only one occurrence within few years, and that is premium payment. Thus, insurance deviates from bank services and in the case of Internet which means that consumers may never get used to e-insurance, because their actions are needed too rarely. Low frequency and infrequency may also be reasons that obstruct the consumers’ engagement, which may become the crucial point in developing e-insurance.
Generally, insurance services is quite different from others banking services. Insurance companies have to take care of every step in implementing e-insurance successfully. This study is tries to unveil the mystery of insurance services in Malaysia.
2.4 Insurance in Malaysia
The beginning of insurance launched in Malaysia can be traced to 18th and 19th centuries which transformed from the agency houses that acted as representative of insurance companies in United Kingdom. Hence, the insurance industry has been strongly influenced by the British insurance system and continued until today. At that time, almost all the insurance companies were established by foreign insurer. Domestic insurance companies were only being introduced in Malaysia after Independence Day. However, domestic insurance companies have faced failure and wound up due to inadequate technical and sound operation in the early 1960. To solve this problem, Malaysian government enacted insurance Act 1963 to regulate insurance industry which functioning under Ministry of Finance. The Insurance Act 1996 has replaced the Insurance Act 1963 on 1st January 1997 in order to supervise and regulate insurance industry more effectively (Ahmad & Sungip, 2008).
Basically, there are three types of insurance industry in Malaysia which included life insurance industry, general insurance industry and Takaful insurance industry (Aini & Tee, 2003). Life insurance is insurance policy that covers variety of contingencies event occurred on human life whereas general insurance is all types of insurance policy except for life insurance. On the other hands, Takaful is insurance which based on Islamic principles (EconomicWatch, 2009). There are five main statutory insurance associations in Malaysia namely, Persatuan Insuran Am Malaysia (PIAM), Life Insurance Association of Malaysia (LIAM), Persatuan Insuran Kebangsaan Malaysia (NIAM), Insurance Brokers Association of Malaysia (IBAM) and Association of Malaysian Loss Adjuster (AMLA) (PIAM, 2009). Each statutory insurance association has different function. PIAM is an association of general (non-life) insurers, LIAM is an association of life insurers, NIAM is represents locally incorporated insurer with more than 51% Malaysian equity, IBAM is an association of insurance brokers, AMLA is an association of insurance brokers.
Insurance companies in Malaysia were only started to conduct e-commerce in 1999 which was much slower when compared to other developed countries. During that period, Bank Negara Malaysia has allowed some of the insurance companies to establish Malaysia first interactive insurance website which enabled insured can make online payment and renewal of motor vehicles’ insurance policy. Till April 2000, Bank Negara Malaysia allowed a full range of life, general an
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