Recent Researches in Urban Sustainability and Green Development

Consumer decision making in the area of

insurance products in the Czech Republic
compared with other countries
Petra Mareov, Josef Drahokoupil

Abstract - One of the basic prerequisites for competitiveness are

innovations and speed of businesses in innovation processes. This
also applies to all products in financial services and insurance. One
of the important pieces of knowledge, is the knowledge of customer
needs and their motives within the decision making process. This
paper aims to familiarize with consumer decisions within insurance
products in the Czech Republic and with selected studies of similar
interests abroad. Everything is analyzed with regard to the
availability of information on the supply side (insurance companies)
as well as on demand side (a client).

The factors determining the choice of most clients will be

specified, in both the Czech Republic and other countries.
Within the research project implemented in the Czech
Republic, it was investigated whether the elimination
of asymmetric information on the supply side leads to a
rational decision of consumer.
II. THEORETICAL BASES OF CONSUMER BEHAVIOUR AND
ASYMMETRIC INFORMATION

Key words insurance, consumer, decision, research.

Consumer decision making has long been of interest to

researchers. Beginning about 300 years ago early economists,
led by Nicholas Bernoulli, John von Neumann and Oskar
Morgenstern, started to examine the basis of consumer
decision making [9]. This early work approached the topic
from an economic perspective, and focused solely on the act of
purchase [7]. The most prevalent model from this perspective
is Utility Theory which proposes that consumers make
choices based on the expected outcomes of their decisions.
Consumers are viewed as rational decision makers who are
only concerned with self interest [10,13].
Where utility theory views the consumer as a rational
economic man [13], contemporary research on Consumer
Behaviour considers a wide range of factors influencing the
consumer, and acknowledges a broad range of consumption
activities beyond purchasing. These activities commonly
include; need recognition, information search, evaluation of
alternatives, the building of purchase intention, the act of
purchasing, consumption and finally disposal. This more
complete view of consumer behaviour has evolved through a
number of discernable stages over the past century in light of
new research methodologies and paradigmatic approaches
being adopted.
While this evolution has been continuous, it is only since the
1950s that the notion of consumer behaviour has responded to
the conception and growth of modern marketing to encompass
the more holistic range of activities that impact upon the
consumer decision [1]. This is evident in contemporary
definitions of consumer behaviour:
consumer behaviour is the study of the processes
involved when individuals or groups select, purchase, use or

I. INTRODUCTION
The high degree of globalization of markets, increasing
competition and asymmetric information, all means new
challenges for the participants of markets and the insurance
market is no exception. Insurance, as a specific type of
industry, consisting of providing and administration of
insurance, brings with it many specifics, compared to other
economic sectors. The basic principle of insurance is financial
risk elimination, when an entity exposed to some risk, transfer
this risk to another entity (the insurance company), which in
case the risk becomes a reality, provides insurance coverage,
generally financing, thereby it is financial elimination of the
risk. In the Czech Republic, the insurance market on supply
side is exposed to pressure from a lower margin calculated on
the product. On the demand side, demands for quality and
service level increase. With these new trends, to understand
the behaviour and decision-making of consumer is of growing
importance.
Many insurers in the creation and innovation are based on
the modernist mindset of the world, which assumes that the
autonomous systems behave according to rational economic
models. Rational people should behave effectively in order to
target, what they pursue at the time of choice. [12]. The
assumption of rational behaviour could be challenged on the
grounds of asymmetric information and advertising.
Furthermore, in connection with reference group, gender, age,
education and income group.
Given the aforementioned potential for distortion of rational
behaviour of clients deciding on insurance will be examined.

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dispose of products, services, ideas or experiences to satisfy

needs and desires.
[11].
In a further development of this issue, models of consumer
behaviour have been created. For example a model of rational,
sociological, or frame model.

Within consumer decision-making, what information is

available for them is crucial. This area counts that on the
supply and demand sides is influencing the decision, due to the
so-called asymmetric information".
The asymmetric information represents a situation where
economic entities on one side of the market, have better
information than entities on the other side. The entities can use
or abuse the better information, which may cause damage to
other market participants. Thanks to this, the so-called market
failures occur, when in theory, an effective market mechanism
will behave inefficiently, distorted prices and other market
parameters will occur. Thanks to the above-mentioned work
with the risk, in insurances the asymmetric information has a
significant impact on the functioning of the insurance market.
On one hand, it is obvious that entities having an interest in
concluding insurance are better aware of their situation than an
insurance company and might even intentionally place false
information on the situation, on the other hand, the insurance
company may have better information thanks to the large
number of clients and claims which they deal with. Also, the
insurance company usually has better information about the
self-constructed product.
The advantage of the demand side is the advantage of the
client of the insurance company. The advantage lies in the fact
that nobody knows their own situation, health condition,
technical condition of assets, financial situation, etc. better
than the clients themselves who want to be insured. Such a
client should therefore logically conclude insurance whenever
they think its worthy, i.e. the rate of their future benefit will be
higher than if they did not conclude insurance. The client uses
their dominance in the information, assuming that the
insurance company will pay them more than they pay to
insurance company.
Analogy of an individual economic decision-making entity,
whether to get insured or not, is the decision-making of the
insurance company regarding the insurance premium.
However, while for an individual economic entity, as it has
been said, this is a subjective matter, in the case of insurance
company, given the large number of clients and claims, it is
rather a mathematical problem solving through exploration of
the collective phenomena. In this, an informational advantage
can be seen on the insurance company side, when the
insurance company may in its deliberations use the historic
statistical ensemble of clients, insurance claims and events and
from that, they can guess the future development of currently
concluded insurances. Due to the size of the statistical
ensemble, it is obvious and possible to use the law of averages
for the mutual balancing of risks, as well as other work with
risk. Insurance companies on the basis of historical data and
other obtained information, create a calculating model of
insurance premium, which they adjust at the time. According
to Dahel [3], thanks to the above-mentioned, there is clear
information prevalence on the insurance company side.

A. Rational models
These models look at consumer especially as at a rationally
considering being, acting on the basis of economic advantage.
Consumer behaviour is interpreted as a result of consumer
rational consideration. Nevertheless some preconditions must
be kept, e.g.: consumer is wholly informed about all options
parameters and is able to make decision-making algorithm that
he deliberately complies. Bindings among income, prices,
facilities, budget limit, marginal behoof, cross-elasticity,
indifferent curves and others are controlled.
Creating of consumer behaviour rational model from
questionnaire survey results with a view to indifferent curves is
also a goal of a specific research.
For consumer decision-making analysis is not the behoof
measurability necessary. Sufficient precondition is consumer
ability to compare behoof of different goods combination. In
this case indifferent analysis is used to deduce demand curve.
Consumer chooses from various combinations of consumed
goods and is able to compare these combinations behoof. The
base for indifference analysis is indifference set. Indifference
set is a set of consumer combinations, every of which has the
same behoof and no set element is preferred to others.
Everything can be graphically demonstrated per indifferent
curve.
For every pair of goods can be drawn a run of indifferent
curves. Individual indifferent curves differ from each other by
combinations of both goods that bring different behoof to
consumer. Indifferent curves with increasing behoof depart
from axis zero and do not cross each other [5].
B. Sociological models
Sociologic approaches to consumer behaviour study how
consumer behaviour is influenced by social aspects and social
groups. One of central ideas that has already been expressed at
the beginning of the twentieth century by sociologist and
economist T. Velen is: People have got, on usual terms, very
strong tendency to follow social standards. Fashion influence
is a very obvious example.
C. General view of consumer behaviour
Concrete form of purchase decision-making process is
conditioned by every consumer individuality, his consumer
predisposition. The binding of predisposition and decisionmaking takes place inside every human, it is about internal
processes and in a manner it expresses consumer blackbox.
Consumer blackbox is more or less some kind of consumer
behaviour predisposition and purchase decision-making
interaction [5].

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III. THE CURRENT SITUATION IN THE FIELD OF CONSUMER

BEHAVIOUR, FOCUSING ON THE INSURANCE MARKET

modern looking equipments, bank understand the specific

needs of customer, banks frontline employees are neat
appearing. On an average if the modern looking buildings and
amenities change by 1 unit, there will be 0.135 units increase
in the overall behavioral intention when other variables are
kept constant. Moreover the result of the t-test confirms that
the calculated partial regression coefficient such as (0.135),
(.288), (.170), (.147) and (.100) are highly significant at 1
percent level and 5 percent level. Similarly the multiple R of
0.665 shows there exist a relationship of 66.5 percent between
variables of service quality aspects and overall behavioral
Intention. The R Square value of 0.443, exhibits that the
variables of service quality explained a variation of 44.3
percent in overall behavioral intention. Finally, the result of Ftest signifies that the explained variation by the above said
variables in the SERVQUAL was highly significant at one
percent level. From the above analysis it is concluded that the
variables of service quality namely Modern looking
equipments and employees understands customers specific
needs were the dominant variables that increase the overall
behavior intention among customers of public retail banks [4].
A similar analysis of consumer behaviour, focusing on
financial services, has been implemented in Portugal. There
have also been investigated and identified the factors
determining the choice of a product.
Portuguese users reveal higher repurchase intention,
propensity to complain and a higher sensibility at price. It was
not possible to achieve a significant statistically relationship
between the SST (self-service Technologies) use and
satisfaction, propensity to change of bank and positive wordof-mouth. From the six formulated hypothesis, solely, two are
confirmed and remained obvious:
1) the relationship between the SST use and the higher
sensibility of consumer at price,
2) the SST use is not sufficient to satisfy and keep clients,
in order, to originate a positive word-ofmouth effect.
The research also shows a positive relationship among the
word-of-mouth and the intention to repurchase and a negative
relationship between the word-of-mouth and the sensibility at
price and the propensity to change of bank (p<0,01). A
negative correlation was found between the intention to
repurchase and sensibility at price and the propensity to
change of bank (p<0,01), the opposite (positive relationship) is
verified between the intention to repurchase and the propensity
to complain (p<0,05). The research, shows a positive
relationship between the sensibility at price and the propensity
to change of bank, in other words, clients more price sensitive
display a higher propensity to change of bank (p<0,01).
Finally, the results corroborate part of the study proposal, i.e.,
SST users reveal a higher propensity to repurchase (p<0,05)
and a higher propensity to complain, when something does not
run well (p<0,05). Relatively to the positive word-of-mouth
and the satisfaction, the results of the study are consistent with
the proposal, that associates the SST users to a positive wordof-mouth and a higher satisfaction, i.e., the correlation
coefficient has the correct signal, however, it is not statistically

In the decision-making field, a large number of studies have

been implemented. These include, for example, consumer
behaviour in the selection of banking products in Pakistan.
Table 5 shows the results of research objective two and three
with the help of Marginal effect of sensitivity analysis. The
seven influencing factors are rank from the factor analysis and
the logistic regression model is ranked as follows:
TABLE 1.
MARGINAL EFFECTS OF CUSTOMERS SWITCHING BEHAVIOUR
Ranking Factors Name
Marginal effect
1 Price
0.16398341
2 Distance
0.10936621
3 Switching Cost
-0.10567336
4 Service Quality
0.07095342
5 Reputation
0.06339969
6 Involuntary Switching
-0.05280674
7 Effective Advertising
0.04025589
Competition
Source: [4]
The marginal effects table illustrates that price factor
making the maximum impact on customers bank switching
behaviour in retail banking of Pakistan. The results show that a
unit increase in price results 16.4% probability that a customer
will switch banks. Price has the second highest impact maker
on customers bank switching behaviour. A unit increase in the
Distance factor (e.g. branch close) results in 10.93%
probability of customers switching banks. 10.56% is
probability of customer switching in retail banking industry of
Karachi, if one unit of Switching Cost decreases. Similarly,
Service Quality, Reputation, Involuntary Switching and
Effective Advertising Competition are the fourth, fifth, sixth
and seventh important factors that impact customers retail
bank switching behaviour of Pakistan (see Table 1).
Further research in the field of banking analyzed the
decision-making of clients with regard to the quality of
services provided (see Table 2).
TABLE 2.
CONTRIBUTION OF BEST SET OF SERVICE QUALITY VARIABLES

TOWARDS CUSTOMERS OVERALL BEHAVIOUR INTENTION

Source: [6]
The above equation shows the impact of the variables of
service quality aspects such as convenient operating hours,

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significant (p<0,05). Results reveal the existence of a positive

correlation, but not statistically significant between the SST
use and the propensity to change of bank. In other words, this
study shows that the SST use is not sufficient for getting
satisfied and loyal clients, which therefore, can express
positive word-of-mouth. Conversely to Mols (1998), this
investigation shows that the Portuguese SST users are more
price sensitive (p<0,01). The highest sensibility of the
Portuguese consumer at price may be related to the biggest
difficult of banks in differentiating their services, given that
currently, every banks place at disposal SST, which in
consequence, is not anymore a differentiating source, has
happened before [8].

offer of one insurer and the consumer had a choice of

three possible variants of this offer. Price does not have
any effect in the case of rational behaviour).
4) voted for the option C, which offered the widest range
of insurance coverage,
5) would not vote for option B, which offered twice of the
performance compared to variant C, since the scope of
insurance coverage would be significantly reduced and
insurance would not fulfil its intended fiction.

IV. CONSUMER DECISION-MAKING IN THE FIELD OF INSURANCE

PRODUCTS IN THE CZECH REPUBLIC
In 2010, at the University of Hradec Kralove a research was
conducted, focusing on the issue of consumer decision-making
in life insurance. The research was conducted in collaboration
with one of the most important entities in the Czech insurance
market. The aim of the research project was to explore
consumer behaviour if there is offer of one type of insurance
coverage (insurance in the event of death) in three variants.
Life insurance was selected because for most insurers in the
product portfolio it is one of the key insurance coverage. The
main issue on which the research sought an answer, is whether
in the absence of asymmetric information, the consumer
behaves rationally or not, and what factors have a significant
influence on their decisions. It was backed up from the rational
model of consumer behaviour.
Within the researched project were defined circumstances
by co-insurance, defining rational and irrational behaviour of
consumers in their choice of the three options offered. It
implies that consumer in the transfer of risks to the insurer may
consider the offer by three parameters:
1) the extent of insurance coverage (for what is insured
and what not = exclusions from insurance),
2) the amount of insurance coverage (the maximum
monetary amount provided by the insurer when the insured
event),
3) price (the amount of cash given by consumer to insurer
to create insurance technical reserves).

A. insurance against accidental death (In the event that an insured

event occurs due to an accident, the insurer shall pay indemnity.)
B. insurance against accidental death with double performance in
the event of a traffic accident and insurance against sudden
death (heart attack, stroke). (In case the insured event (death)
occurs due to accident, the insurer shall pay indemnity, if the
insured event (death) occurs in a traffic accident, the insurer
pays twice more. In case the insured event (death) occurs on the
leading causes of death, therefore heart attack and stroke, the
insurer pays the agreed amount.)
C. insurance against death ( In case the insured event (death)
occurs from any cause, the insurer pays the agreed amount.)
Fig. 1 Client's decision on the choice of options

The amount of offered insurance coverage and the cost of

various options were calculated by actuaries of the cooperating organization for age groups and gender. The graph
shows that regardless of any further breakdown of clients,
answer C predominates, which is insurance against death from
any cause. This option is specified as a rational choice. We can
say that in the first stage of the decision-making process, most
clients behaved rationally. Irrational choices, i.e. option A and
B, were voted by 240 respondents, which isnt a negligible
number. Also examined were the factors influencing the choice
of insurance.

Rationally behaving consumer:

1) chooses a bid which ensures the transfer of full range
risk to insurer, i.e. the extent of insurance coverage closely
resembles a surety against risk. Option C provides 100%
coverage range for both men and women. Option B offers
a range of 34% coverage for men and 17% for women.
Option A offers a range of 32% coverage for men and 15%
for women,
2) chooses a level of insurance performance, which is
sufficient to eliminate results from the realized risk,
3) takes into account cost factors for comparison of the
advantages of offers from various insurers. (In this
research, which offered insurance against death, it was the
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Recent Researches in Urban Sustainability and Green Development

the service. Within the research conducted in the Czech

Republic it was found, that in the specific choice on product,
the price did not play a dominant role, but the dominant role
had the actual knowledge of content of the products. The
research was conducted under conditions of the provision
complete information on the product. However, despite the
provision of complete information, a relatively large number
of clients decided irrationally, namely that in product
selection, the supply side would implement higher gains at the
expense of the client. Among these clients for supply, the
possibility is opened to attract new customers, not actually due
to a better product, but also through the right utilization of
marketing devices.

Fig. 2 Decisive factor in the choice of insurance due to the selected

variant.

Report arose within specific research following grant project

GAR Decision making in autonomous systems No.
402/09/0662
REFERENCES

The question about the factor affecting the choice of

insurance is shown in the chart. Clients, who have opted for
insurance only against accidental death, took the prize as the
main criteria. Clients requiring a double payment in the event
of an accident (option B) took a substantial range of insurance,
just as those who want to insure against death from any cause
(option C). At the same time the amount of insurance coverage
was the most important for those who voted for twice of the
performance in case of an accident (option B). Therefore it can
be concluded that option C, which is regarded as the best for
clients, was voted most often with regard to the scope of
insurance. Clients in most cases were able to utilize the full
information provided to them for making the right decision.
Within the researched project, other circumstances that could
affect the selection (age, gender, education level, income
group, etc.) were investigated in detail. This is mainly because
there were also a large number of the clients with irrational
choice. There is the space for the offering institution to use this
knowledge and pull the clients to their side through for
example, a better offer than that of the competition.

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V. CONCLUSION
For today's business environment characteristic is increasing
competition, which globalization and the associated expansion
of the free market contributes to. The life cycle of products
and services shortens, thereby, the demands on the ability of
firms to adapt to the increasingly rapid changes in the
competitive environment are increasing. One of the
prerequisites for competitiveness is innovation and speed of
businesses in innovation processes. This also applies to
products in the field of financial services. Knowledge is
becoming the most important form of capital, the knowledge
needs of organizations grow, become an indispensable
strategic resource to achieve success.
One of the most important forms of knowledge is the
knowledge of customer needs and their motives in the decision
making process. Factors influencing the choice of financial
product were the subject of this analysis.
In terms of foreign studies, devoted to the issue of consumer
decision making in the field of financial products, clearly the
leading factor is price and the entity behaviour, which provides
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