Abstract
The research expounds the use of Discrete Choice Experiment (DCE) approach and Random Utility Theory (RUT) in analyzing alternative motor insurance policy choice behaviour for drivers in Sunyani municipality in Brong-Ahafo, Ghana. We design a DCE to identify the factors (premium cost, claims settlement, customer satisfaction, and proximity) that influences an individual choice for insuring with a particular insurance company given the existence of an alternative. Probit model was used in estimating the parameters of the consideration sets of the DCE. The research sampled 100 respondents comprising mainly of private and commercial drivers. The magnitude of estimates from both probit model and estimated marginal effects indicates respondents highly value insurers with the attribute of paying claims promptly, charging moderate premium, and closer in terms of proximity. However, customer satisfaction will result in a disutility of choice of insurer. Also, the levels of customer satisfaction can be traded off for other attributes.
Highlights
Security is widely sought after by individuals
Gujarati [13] studied the demand for insurance by bearing in mind three different variables which are variables encouraging demand as a result of the efforts of the insurer, variables affecting household saving choice, and variables determining the ability to pay which is similar to the concept of no premium no cover in the Ghanaian insurance industry
We seek to identify the main factors that influence individuals’ choice of motor insurance policy from a particular insurer and use a Discrete Choice Experiment (DCE) and Discrete Choice Modeling (DCM) which is embedded in Random Utility Theory (RUT) to estimate the effect of these factors
Summary
Security is widely sought after by individuals. After food, clothing, and shelter a sense of security is the subsequent basic goal. To be able to manage the risks posed by the road transport industry, motor insurance is key as it serves as the means to improve upon the damages arising from accidents and other catastrophes. The authors through indepth interviews with experts in the insurance industry were able to identify four pressing factors that affect the demand for motor insurance in Ghana. We seek to identify the main factors that influence individuals’ choice of motor insurance policy from a particular insurer and use a Discrete Choice Experiment (DCE) and Discrete Choice Modeling (DCM) which is embedded in Random Utility Theory (RUT) to estimate the effect of these factors
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