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Comparative Study Between Auto Takaful And Auto Insurance Purchasing Behavior Among

Malaysian Undergraduates




Asmak Ab Rahman*, Nor Aini Ali**, Azizi Che Seman***

& Wan Marhaini Wan Ahmad****


In 1984, the Malaysian insurance industry was liberalized to allow

for the introduction of Islamically accepted insurance products known

as takaful. Among the popular products was the Islamic auto

insurance more commonly known as Islamic auto takaful. Given a

choice of conventional and Islamic auto insurance the paper attempts

to look at the purchasing behaviour of Malaysian undergraduates

including the choice of takaful/insurance operator and the

purchasing decision-maker. To understand their choices, their

perception towards the determinants of selection is also investigated.

Undergraduates are chosen because the size and wealth of their

market provides excellent opportunities for takaful companies. Based

on a survey of 537 respondents in a local university, we found that

parents were primarily responsible for the premium payment and,

among those who pay themselves, the majority chose conventional

1 This article is based on a research conducted in 2006 and funded by the University

of Malaya (F0386/2005B).
* Senior Lecturer, Department of Shariah and Economics, Academy of Islamic Studies,

University of Malaya, [email protected]
** Lecturer, Department of Shariah and Economics, Academy of Islamic Studies,

University of Malaya, [email protected]
*** Senior Lecturer, Department of Shariah and Economics, Academy of Islamic Studies,

University of Malaya, [email protected]
**** Lecturer, Dept. of Finance and Banking, Faculty of Business and Accountancy,

University of Malaya, [email protected]

Jurnal Syariah Jil. 16, Bil 1 (2008) 75-88 Shariah Journal, Vol 16 No.1 (2008), 75-88

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auto insurance. Overall, the undergraduates are of the opinion that

auto insurance is better than auto takaful in all factors that influence

selection – services delivery, services provision, reputation, electronic

services and convenience. But, when religiosity was factored in, the

Muslim undergraduates ranked it as the top item that makes a

difference between auto takaful and insurance, thus showing their

possible shift to takaful in the future. Furthermore, this study also

shows that there is a tendency among the students to choose auto

takaful for their next renewal.

Keywords: Auto Takaful, Auto Insurance, Takaful Auto Purchasing



In 1984, the Malaysian financial system was liberalized to open the way for the

entrance of Islamic banking and Islamic insurance (takaful) companies. This was

said to be prompted by several factors. First, the anxiety among Muslims regard-

ing the inconsistency of conventional banking and insurance in compliance with

Islamic laws. Second is that in the 70s, the Muslims themselves started to con-

ceive ideas of breaking away from the conventional mould, politically and eco-

nomically, into one that embraces Islamic teachings in every aspect of their lives.

Being the largest component of the population in the country, the government was

compelled to initiate an Islamic financial system in Malaysia. These changes in

the Malaysian financial system have created a new dimension in the insurance

industry where customers now have the choice of typical insurance products as

well as Islamic ones.

In the Malaysian insurance industry, there are four main sectors in the direct

general insurance market, namely – marine, aviation and transit, fire and miscel-

laneous. The largest sector with the highest net premium contributions is the auto

insurance sector and likewise the auto takaful sector among the general takaful


Auto takaful/insurance is the main net contributor towards the general takaful/

insurance industry, averaging at 54 percent of the total net premium contributions

collected by the auto takaful/insurance industry between 1986 and 2004. For auto

takaful, there was a significant rise of auto contributions towards the whole gen-

eral takaful net premium contributions between 1988 and 1991 but, afterwards,

although it started to decline it still remains the highest contributor in volume

compared to other sectors. Comparing yearly net premium contributions made by

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Comparative Study Between Auto Takaful And Auto Insurance Purchasing Behavior Among

Malaysian Undergraduates

Apart from the above characteristics, the policies own characteristics also

play a significant role in determining the choice of insurance patronized. Policies

with different organizational characteristics, prices, methods of payment, and scope

of benefits will also control a buyer’s decision.6 Sherden, for example, examined

the effect of price, income and perceived risk on the demand for different auto

insurance covers. His findings were that the demand for the three main covers in

Massachusetts was generally inelastic with respect to price and income.7 Some

studies like Esho, Kirievsky, Ward & Zurbruegg also emphasized the effect of

legal rules and their enforcement since many general insurance products, includ-

ing the auto sector, is normally regulated and required by law.8

From these studies we identify a few variables that are important in any study

of auto insurance buyers, namely, the decision making, the choice of insurers and

the customers’ loyalty towards their current insurer. The decision making will be

about who made the decision and if the decision is an informed one or otherwise.

Since our respondents are undergraduates, we assume that the decision maker

can mainly either be themselves, their parents or if they are married, their spouse.

On the effect of price and income on selectivity, we choose not to examine them

since our samples are undergraduates who are not yet income-earners.

For the auto takaful selection determinants, we could not locate any related

studies, particularly for undergraduates. Therefore, we decided to test the bank-

ing selection framework compiled from studies on the determinants of bank se-

lection in order to find the determinants behind the choice of takaful/insurance

operator for the undergraduates. Our justification being that both are actually

financial services providers and the determinants used are applicable to both auto

takaful and insurance. In addition the bank selection framework has actually been

tested on Islamic banks and used for undergraduates.

The studies of the determinants of bank selection show that in selecting which

bank to patronise, customers will look at several criteria, namely, its convenience,

reputation and image (that may invoke secure feelings for customers), service

delivery, service provision, electronic services, and other external influences. Each

of these factors is identified through specific questions answered by the respon-

dents. Table 2 below summarizes some of the questions used by the bank selec-

tion studies to convey the above factors. It is worth noting that the selection

6 Moustafa A T, Hopkins C E & Klein B (1971), “Determinants of Choice and Change of

Health Insurance Plan“, in Medical Care, Jan-Feb. vol. 9 (1), pp. 32-41.
7 Sherden W A (1984), “An Analysis of the Determinants of the Demand for Automotive

Insurance“, in Journal of Risk and Insurance, vol. 51(1), pp. 49-62.
8 Esho N, Kirievsky A, Ward D & Zurbruegg R (2004), “Law and the Determinants of

Property-Casualty Insurance“, in Journal of Risk and Insurance, vol. 71 (2) (June),

pp 265-83.

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Jurnal Syariah, Jil. 16:1 (2008) 75-88

determinants used in the studies for Islamic banks are similar to the ones used for

their conventional counterparts.

Data and Methodology

In the first stage of the research, 309 questionnaires were returned by under-

graduates at the University of Malaya. It was found that only 164 students actu-

ally owned and/or used motorcycles, cars, or MPV/SUVs. Based on this prelimi-

nary study, we formed our sampling of 550 respondents who either owned and/or

used an auto vehicle, taking into account the distribution of students in the 16

faculties at the university, their races and genders. The preliminary study was

also used to identify the selection determinants that were ranked highly by the

undergraduates. As these were consistent with the banking selection determi-

nants, it confirmed the justification for adopting them for the study.

The sample represents the proportion of undergraduates in all the faculties in

the university, their races and genders. Questionnaires were completed at the

university and at home, and responses were collected by trained numerators who

waited while the questionnaires were completed, thus generating a hundred per-

cent rate of response. Of these, there were 537 usable questionnaires. The ques-

tionnaires were in the Malay language.

The questionnaire was divided into four sections. Section 1 dealt with the under-

graduates’ profile. Section 2 examined the choice of operator – whether Islamic

or not, the types of cover for their vehicles, and the policy purchaser.

Section 3 was used to examine the students’ perception regarding the deter-

minants of the auto takaful/insurance selection. The determinants tested were

the determinants identified from the banking selection studies with an additional

one, which we termed as religiosity. We believe that religious affiliation matters

because it has an impact on the perceived cost and benefits of various decisions

regarding one’s life including the choice of auto policy.

The religious items that we investigated concern the Muslim respondents’

understanding about the religious aspects of takaful or insurance. We presumed

that being Muslim they should at least be aware that elements of riba and gharar
pervade insurance, thereby making it prohibited.

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Comparative Study Between Auto Takaful And Auto Insurance Purchasing Behavior Among

Malaysian Undergraduates

ined. Though they believed that takaful is better Islamically, nevertheless, they

still regarded auto insurance as being superior in all other aspects. In short, the

awareness that Islamically, auto takaful should be the choice among the Muslim

undergraduates was there, but the belief that operation-wise auto insurance was

still superior outweighed it.

In this respect, the findings are useful for takaful operators as they provide

information regarding their future customers; as the undergraduates will probably

own a vehicle in the near future and be the one who has full decision making

responsibility concerning the choice of auto insurer. It is, therefore, essential for

takaful operators to start seeing them as a good target market and tailor their

marketing strategies to cater for the undergraduates’ satisfaction, for example,

by matching the needs of the undergraduates and the product that they offer. The

findings also indicate that the efforts of takaful operators to attract young cus-

tomers should not simply focus on its Islamicity but other factors including – the

compensation and returns received, comprehensiveness of the product, as well

as its price competitiveness.


Almossawi M., (2001), “Bank Selection Criteria Employed by College Students

in Bahrain: An Empirical Analysis”, International Journal of Bank Mar-

keting, vol. 19 (13), pp.115-125.

Bond A & Stone M (2004), “How the Automotive Insurance Claims Experience

Affects Customer Retention”, Journal of Financial Services Marketing,

vol.9,(2), pp.160-171.

Childers T L & Ferrel O C (1981), “Husband-Wife Decision Making in Purchas-

ing and Renewing Auto Insurance”, Journal of Risk and Insurance, vol.

48 (3), pp. 482-493.

Esho N, Kirievsky A, Ward D and Zurbruegg R (2004), “Law and the Determi-

nants of Property-Casualty Insurance”, Journal of Risk and Insurance,

vol. 71 (2) (June) 265-83.

Gerrard P. and Cunningham J.B. (1997), “Islamic banking: A Study in Singapore”,

International Journal of Bank Marketing, vol.15 (6), pp.204-216.

Gerrard P. and Cunningham J.B. (2001), “Singapore’s Undergraduates: How They

Choose Which Bank to Patronize”, International Journal of Bank Mar-

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Haron S, Ahmad N and Planisek S L (1994), “Bank Patronage Factors of Mus-

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Jurnal Syariah, Jil. 16:1 (2008) 75-88

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Markowitz M A, Gold M and Rice T (1991), “Determinants of Health Insurance

Status Among Young Adults”, Medical Care, Jan. 29 (1), pp. 6-19.

Moustafa A T, Hopkins C E and Klein B (1971), “Determinants of Choice and

Change of Health Insurance Plan”, Medical Care, Jan-Feb. vol. 9 (1), pp.


Sherden W A (1984), “An Analysis of the Determinants of the Demand for Auto-

motive Insurance”, Journal of Risk and Insurance, vol. 51(1), pp. 49-62.

Stafford, Stafford and Wells (1998), “Determinants of Service Quality and Satis-

faction in the Auto Casualty Claims Process”, The Journal of Services

Marketing, vol. 12(6), pp. 426-40.

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