A Study Of The Causes And The Countermeasures Against The Insufficient Demand Of Insurance Market In China

The latent demand of the insurance market in China is huge, but theactual demand is insufficient . Our population takes 25 percentage of theworld's population, but our insurance market only accounted for 1.61% of thetotal amount in global insurance market by 2004.In the western developedcountries, the average premium per person reaches as high as 3000 dollars, andeven more, but this number only gets 40.2 dollars in China. It even falls behindsome countries and areas in Asia, such as 1410.3 dollars in Korea, 1909 dollarsin Taiwan, 256.5 dollars in Malaysia , and 92.1 dollars in Thailand. This showsthat the main factor which restricts the development of the insurance businessat present is the insufficien t demand. It is an important issue to study andresolve the problem that relates to the healthy, sustained development of theinsurance industry in China.The former study on the insurance demand is based on the economicanalysis frame of utility maximization under the uncertain condition s. But inrecent years there are a number of facts which indicated that a lot of decisionmakingis not fit the standard theory predictions in the realistic life. Theconsumers can not help being influenced by psychological factors such ascognition, emotion and will during making decisions. Consequently, in orderto make the study closer to the reality , this thesis takes a brandnewperspective : behavioral finance. It analyzes and discusses the causes and thecountermeasure s against insufficient demand of the insurance in China from the individual behavior and the psychological motiv ation. So the latentdemand transforming to the actual demand can be accelerate d.The thesis is mainly divided into the following three chapters:Chapter 1 is the analysis of the insufficient demand of insurance marketin China.Section 1 explains the concept of the insurance demand. First, we beginfrom the introduction of the insurance demand conception? define theinsurance demand in economic way? give the definition of insurance demand:the volume of insurance products that the consumers are willing to and havethe ability to purchase, in a certain period of time, to a certain level of rates(the rate is the price of insurance products), and then analyze two forms of theinsurance demand: the tangible and intangible economic security. Secondly,discriminate the relevant conceptions, and point out that the insurance demandin this thesis is a reality, effective insufficient demand, including microandmacroinsurance demand.Section 2 is the analysis of the insufficient insurance demand in China.First, we elaborate the indexes that weight insurance demand: the total amountof premium, the greater the premium reaches, the greater the insurancedemand is? insurance density and insurance depth, the greater the value is, thatgreater the insurance demand is? the valid amount of insurance. Secondly, weelaborate the performance of the insufficient insurance demand from fouraspects : total premium income has a deep gap with the developed countries ,insurance density and insurance depth are much lower than the world'saverage level, the insurance industry plays a weakening part in the system ofsocial security and the ratio of premium to the household deposits is low, so it shows that compared to huge latent demand, our effective insurance demand isseriously insufficient.Section 3 analyzes the harm which the insufficient insurance demandbrings for insurance industry in China. First, the lack of insurance can notprovide service to the overall interests of national economic and social security.Secondly, the wrong impressio n of insurance products in public can do harmto the competiti on for insurance industry in the financial industry . Finally, theinsurance funds are not sufficient and not good for insurance industry tospread the risks.Chapter 2 is not only a core part, but also the innovation. We analyze thereason why insurance demand in China is insufficient from the view ofbehavioral finance.Section 1 summarize s the principles of behavioral finance.Section 2 explains the causes to insufficient demand by using theHeuristic Bias theory. First, we introduce the meaning of Heuristic Bias.Secondly, we analyze the two situations of the insufficient demand caused byHeuristic Bias. They are Representative Heuristic and Availability Heuristic .After given the two conceptions, we analyze the consequences of their ownfurther. The consequences of Representative Heuristic are: lead to excessiveselfconfidence?purchase improperly because of the name similarity, purchaseimproperly because of strong professional terms of the insurance, increasingprobability of surrender. The consequences of Availability Heuristic are:consumers purchase insurance products which are not suitable for themselvesas a result of the examples availability. Section 3 explains the causes to insufficient demand by using the prospecttheory. First, we introduce the origin of the prospect theory. Secondly, wedemonstrate the value function and reference point in the prospect theory, andpoint out that the risk preferences will change with reference point changes.Finally, the conclusions are: the expected price of the insurance products canaffect buying behavior? the size of franchise can affect buying behavior.Section 4 explains the causes to insufficient demand by using the LossAversion theory. First, we elaborate the meaning of the Loss Aversion .Secondly, point out that the decisionmakingis asymmetry. People tend to riskaversion while facing acquisition ? they tend to risk seeking while facing losses,even if some minor losses will be extremely repulsive. Finally, point out thatthe insufficient demand is related to the risk attitude.Section 5 explains the causes to insufficient demand by using the MentalAccounting theory. First, elaborate the meaning of Mental Accounting.Secondly, there come to conclusions: people tend to buy the insurance that hasdividends ? there is "insurance accounting" in mind of consumers ? the wrongpositioning of the insurance product result in insufficient demand.Section 6 explains the causes to insufficient demand by using the HerdEffect theory. First, elaborate the meaning of Herd Effect. Secondly, thecauses to Herd Effect are: the investors'information is asymmetric andincomplete? the need to get off responsibility and the need to reduce fear.Finally, analyze the impact on insufficient demand by Herd Behavior.Chapter 3 put forward countermeasures and suggestions to theinsufficient insurance market through the above analysis.Section 1 we should speed up the insurance product innovation , and meet the insurance demand constantly . First, carry out popularization andstandardization of the insurance clause? Secondly, innovate the insuranceproducts actively, design insurance products suit the consumers? finally,accelerate the insurance products to protection .Section 2 we should improve the insurance awareness, and stimulateinsurance demand. First, advocate the risk awareness in public, and popularizethe insurance knowledge? secondly, focus on the security demand ofconsumers, emphasize the protection function? finally, increase the width anddepth of publicity , and prevent misleading or the illegal propaganda.Section 3 we should work out corresponding insurance marketingstrategies, and enhance their own management consciousness, thus to increasethe effective demand.Section 4 we should strengthen the faith construction, and expand theinsurance demand. First, it is necessary to regulate the behavior of theinsurance applicant, through formatted provision and so on mechanisms toreduce the possibility that the consumers purchase insurance blindly? secondly,it is necessary to regulate the behavior of the insurer, insurance honestly andpay honestly? finally, the supervision agencies should increase the supervisionto the insurance agents. There are some suggestions: improve the trainingsystem? raise the business level of the agents? make the agents'interests safe,stabili ze the team of agents? strengthen the credit services, and enhance theprofessional and ethical standards.Through these countermeasures , the latent demand transforming to theactual demand can be accelerate d, and the problem that the demand of theinsurance market in China is insufficient can be solved.