THE ROMANIANS PREFERENCES FOR LIFE INSURANCE AND OPTIONAL PRIVATE PENSION PRODUCTS.

A REGIONAL ANALYSIS
Ingrid Mihaela Dragota*, Bogdan-Vasile Ileanu

Ingrid Mihaela Dragota Bucharest Academy of Economic Studies Department of Finance Calea Dorobantilor 15-17, District 1, Bucharest, Postal Code 010572, Romania Email: mihaela.dragota@fin.ase.ro * Corresponding author Bogdan-Vasile Ileanu Bucharest Academy of Economic Studies Department of Statistics & Econometrics Calea Dorobantilor 15-17, District 1, Bucharest, Postal Code 010572, Romania Email: bogdan.ileanu@csie.ase.ro Biographical notes Ingrid-Mihaela DRAGOTA is professor at the Finance Department from Bucharest Academy of Economic Studies. She has been awarded her PhD in Finance in 2006. Her interest fields are corporate finance and corporate governance, insurance and pensions, investments and portfolio management. Member of European Working Group on Financial Modelling. Member of the Federation of European Accountants, as CECCAR representative (Insurance group) during 20052007. Member of the Society for the Study of Emerging Markets. Member of the Editorial Board of the Review of Finance and Banking. Member in the Scientific Committee of the journal Budgetary Research Review. Scientific coordinator and author of many scientific books, such as Piete financiare collection, Decizia de investire pe piata de capital, Asigurari moderne de bunuri si persoane. She published articles in different scientific journals such as Finance India, Economic Computation and Economic Cybernetics Studies and Research, Romanian Journal of Economic Forecasting, Theoretical and Applied Economics. Bogdan-Vasile ILEANU is Assistant Professor of Statistics and Econometrics in The Academy of Economic Studies Bucharest, Department of Statistics and Econometrics. Starting with 2007 he is a Ph.D. candidate in statistics having the main goal to develop a method for intellectual capital measure. His research objectives are connected with financial econometrics, human and intellectual capital measure, regional analysis, statistical analysis etc.

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis Abstract: In an international context, Romania had a special position, with both positive and negative aspects in its evolution. Even during a crisis period, starting with 2008, Romania life insurance penetration rate had a continuous growing trend, but it has lagged behind other countries, from Europe or from other continents. The statistics for Romania proved that more steps must be done, primarily in terms of peoples mentality to recognize the usefulness of this sector. Based on our field research of 870 respondents in a nationally representative statistical survey of urban environment in Romania, a binary logit model identified the age, the education level, income per capita and gender as predictors for the probability a life insurance policy to be chosen against an optional private pension. Different result between regions suggests as adequate a regional approach in future management plans regarding life insurance penetration. Keywords: life insurance, regional comparison, logit model, urban population, Romania JEL Classification: G22, C35, P25

1. Introduction In an international context, the life insurance market can be considered as a market with great discrepancies between the most important regions (America, Europe, Asia, Africa and Oceania) and between their sub-regions, too. These circumstances are not a particularity, the insurance business as a whole can be regarded in a same manner, but due to its intrinsic characteristics, associated with the level of education, the household income, as well as with religious and institutional indicators, a life insurance policy required more conditions to be fulfilled in order to be chosen be an individual or a family. For life insurance industry, in 2009, 40.49% share from the world market was owned to Europe, as a whole, 31.72% to Asia and 24.98% to America. Africa and Oceania had very low values, 1.38% and, respectively 1.42%, in the same year (Swiss Reinsurance Company, 2010). Europe and Asia were more closed based on gross written premiums in % of GDP (the penetration rate), with 4.52% and 4.53%, greater than the level of this indicator for the world, 4.03%. The discrepancies between their regions remained enormous over the years. Thus, for 2009, statistics from Swiss Re revealed that Western Europe had 39.73% share from the world market and 5.24% premiums in % of GDP, while countries from Central and Eastern Europe had only 0.77% from the world market and, respectively 0.59% premiums as % of GDP. Similar cases can be identified between North and Latin America or between Japan and newly industrialised Asian economies and Middle East and Central Asia. Consequently, between industrialized and emerging markets the differences remained significant, the first ones owning a
71

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis share of world market more than seven times grater than the emerging countries, with a life insurance penetration rate three times bigger, in the year 2009. In the general context of the emerging economies, Romania registered both positive and negative evolutions. This country had an almost continuous growing trend in life insurance premium volumes (in local currency), from 672 millions in 2004 to 1139 millions in 2006 and 1625 millions in 2009. Moreover, in 2008, considered as a year of financial crises, Romanian life insurance market maintained this tendency, contrary to different European developed countries such as United Kingdom, France, Italy, Belgium, Norway etc. Using the database of Beck & DemirgucKunt (2009), for 42 countries in the world, analyzed for the period 1997-2007, the first conclusion was that life insurance penetration rate had a growing trend, from 3.52% in 1997 to its greatest value in the year 2006, of 5.41%, followed by a slight decline to 5.07% in the next year. If the analysis is limited only to 26 European countries, including both developed and developing countries, the life insurance penetration rate recorded, in each of those 11 years, values grater than those calculated for all the 42 states from America, Asia, Europe and Africa. Moreover, it can be mentioned a continuous upward trend for life insurance penetration rate in the period 1997-2006, from 3.75% to 5.78%., with a slight decrease in 2007, to 5.5%. Despite these positive aspects regarding the life insurance market in Romania, the degree of development for this industry remained at the lower values, even if countries from Central and Eastern Europe were chosen for the comparative analysis. Using the same countries which were above analysed, in Romania the life penetration rate registered in 2004 its maximum share of 7.85% from the same indicator determined as an average value for 42 countries and 7.28% from the average value for 26 European countries. Its upward trend, from 0.03% in 1997 to 0.33% in 2007 did not balance the slack development of this important economic sector in Romania. In a more extended analysis, using 88 countries from the entire world, Romania occupied the 55th rank in 2009, having 0.02% share from the world market, while Europe had 41% share and United States 21%. Regarding the insurance density (premiums per capita), in 2009, Romania occupied the 62nd position, with 25$ per capita for life business and the 65th position if the life insurance penetration rate is considered for this analysis (0.34%), while Europe as a whole had 4.52% rate and the United States only 3.52%. The statistics for Romania proved that more steps must be done, primarily in terms of peoples mentality to recognize the usefulness of this sector. Different studies revealed that the development of life insurance market will have positive effects in the economy because the insured companies will engender a higher rate of economic growth (urak; Lonar and Poposki, 2009). The
72

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis importance of life insurance for economic and financial development together with the manner the development will be made, especially in an emerging economy, motivates the investigation for the determinants of life insurance demand for this type of products, through a more detailed regional analysis. Based on our field research of 870 respondents in a nationally representative statistical survey of urban environment in Romania, the economic power, the cultural influence given by region of provenience, the educational level and a gender analysis were considered for the Romanian life insurance regional analysis. The results of this study are expected to assist policy makers to understand the strategic movements and the financial incentives for the Romanian insurers sales policies and to build strategies to develop this part of insurance market, still remained behind other regions from Europe or from other part of the world. The remainder of the paper is organized as follows. Section 2 describes the criteria for choosing a life insurance company and its products, with a detailed analysis at the regional level for Romania. Section 3 discusses data and methodology used for a binary logit model which put together the choice for a life insurance policy facing the alternative of an optional private pension. Section 4 presents the empirical results for the model, using four predictors: age, education level, income per capita and gender. Section 5 concludes.

2. The criteria for choosing a life insurance company and its products. A regional analysis for Romania After two decades of transition from a centralized economy toward a functioning market one, Romania had accumulated a number of economic imbalances, but with significant social impact. Evolution of life insurance products in Romania, especially those with saving and protection components, very useful for the retirement period, depends on the difficulties faced by the Romanian public pension system. Thus, if in the early 90s, almost four employees sustained a pensioner (the dependency rate), the situation was dramatically deteriorated, in September 2010 a retired person was sustained by 0.76 employees. In a broader sense, protection and savings alternative products can be chosen by the Romanian insured persons, as from private pension industry - compulsory and voluntary, besides those from life insurance industry. Even if the public pension system is confronted with increasingly difficulties larger data set showed that the life insurance sector in Romania is not sufficiently developed, whether the analysis is done at the European level (including Central and Eastern Europe countries) or in a global context. Moreover, Euro-barometer conducted in Autumn 2010 - National Report for Romania,
73

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis showed that at that time rising prices/inflation has been considered the most important issue on a personal level (50% of total responses), while the pension issues were considered significant only by 16% of the respondents. At least at this moment, to ensure protection for the retirement period is not a priority for Romania. During the year 2008, Romania had finally adopted, after ten years of debates, the mandatory private pensions law. Each employee having the age between 18 and 35 years must choose, at that moment, a private pension fund and, monthly, part of his pension contribution is paid from his gross salary to this fund. Although the motivation of financial protection after retirement is obvious from a theoretical point of view, Romanians considered the mandatory private pension only as a legal obligation and their attention has focused more to fulfil these "formalities" than to understand the utility or the selection criteria to be applied for a private pension fund. Therefore, we considered that a thorough investigation of alternatives for protection would be extremely useful, as voluntary private pensions and, respectively, life insurance policies, in terms of their utility perceived by the Romanian insured persons, together with the selection criteria used for these types of products. This research was accomplished through statistical survey method and the achievable responses included in the questionnaire were based on a previous ethnographic research, using well-known approaches in anthropology and sociology of financial markets to understand socio-cultural dimensions characterizing the behaviour of investors in private pension products or their equivalents. This research started with an investigation of the practices associated with the sale of life insurance and private pensions through friends, acquaintances, relatives system, which becomes a principle of action for the companies which offer such products in Romania. From this ethnographic analysis, social networks have been identified as crucial a life insurance contract to be signed. The friends, acquaintances, relatives system can be considered as social resources for various purposes. The reason of friendship or mutual obligations between acquaintances provides a framework of eligibility for social action, a type of action that has proved its usefulness in the past, facilitating the achievement of some objectives, for hedging purposes or, generally, enabling people to "cope" under conditions of severe socio-economic constraints. Known also as networking marketing, MLM is a system whereby vertically integrated networks of so-called distributors both consume and sell products (Jefferey 2002). Enterprises based on MLM have spread rapidly all over Central and Eastern Europe but also China during the post-socialist period (ibid.; Ghodsee 2005) and sell a multitude of products or services - medical

74

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis supplies, beauty products, house appliances, electronic products, foreign language manuals and cassettes, or various forms of insurance are just some examples (Tulbure, 2009). With these explanations can be easily understand the presence of three possible responses from the seven offered in one question from our statistical survey, referring to the intermediary's suggestion, relatives and friends suggestions and from media (see Table 1). The question addressed to urban respondents who had already a compulsory private pension was: What are the criteria that have been taken into account when you choose a life insurance policy?

Table 1. The criteria used by Romanian urban respondents to choose between life insurance companies (2010)1
Percentages from total respondents of each region
The return of the investment fund in which the insurance company invests part of its gross written premiums The insurance company reputation The advice from the insurance intermediary (agent/broker) The willingness of the employers to fully or partially sustain the life insurance premiums Relatives or friends suggestions The flexibility of payments Mass-media (Newspapers, TV, radio, internet) Bank credit Future protection

North South South East East South West West

13,0 16,7 16,7 3,7 16,7 6,5 5,6 1,9 0,0 11,3 25,0 17,7 4,8 7,3 10,5 7,3 4,0 0,8 9,4 17,0 15,1 8,5 10,4 9,4 5,7 3,8 1,9 6,1 23,2 14,6 3,7 12,2 8,5 4,9 3,7 0,0 5,3 18,7 20,0 1,3 9,3 12,0 9,3 1,3 2,7

North BucharestWest Center Ilfov

18,9 24,3 18,0 6,3 9,9 13,5 7,2 1,8 0,0 13,0 23,5 24,3 2,6 8,7 10,4 4,3 2,6 2,6 14,1 16,1 8,7 5,4 8,1 10,7 4,0 2,7 0,0

The practical analysis of the regional differences regarding friends, acquaintances and relatives system revealed that the differences between regions exist, especially if we consider the suggestions of friends and relatives, and then the advices from the insurance intermediaries and even the recommendations extracted by the insured persons from mass-media. In regions like the North-East and, respectively, in South-West of Romania, the insurance intermediary advice is (almost) as important as that from friends and relatives. Considering the fact that the intermediary is a specialized person in this field and, therefore, has a professional competence to make recommendations regarding the most suitable insurance product for each client and can also assist him after the unfavourable event occurs (and here we consider the position of the insurance broker), not the same thing can be said about the advice of friends, which may not have
1

Authors calculations based on the available sample

75

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis the same abilities, being invested with trust (only) based on personal relationship developed over the time. Also, it should be noted that only in Bucharest-Ilfov and in North-West regions the return of the investment fund that invests part of the insurance premiums paid by clients (very important for the insured sum to be paid by the insurance companies at the maturity of the contract) exceeds in importance the insurance intermediary advice. Moreover, in Central and Western regions of Romania, the insurance broker's advice is more important even beyond the insurer's reputation. If we assume that its reputation is derived from its market position, its financial performances etc and not only from an advertising campaign, it can be appreciated the degree of importance of these criteria. If the advertising campaigns make the difference, then, indeed, more useful and more to the point can be considered the intermediary advice who has the duty to counsel you and to provide information directly related to the characteristics of the insurance companies and their products. The place occupied by the media on these issues related to providing criteria for selecting a life insurance product must be mentioned. There is a significant discrepancy between the confidence of the Romanians in the media, in general, and the results from this survey regarding life insurance sector. More specifically, according to a survey made by Sociological Research and Branding Company (23-28 September 2010), with a representative sample of 1017 people, the confidence in media was placed on the fifth position (61%) after fire department (89%), church (80%), army (73%) and the gendarmerie (63%), where 100% means very much and quite confident. In a regional analysis, with some higher percentages, can be mentioned in the first place the Western region of the country (with 9.3% responses) and after that South East and Northwest regions with very close percentages, 7.2% -7.3%. At least three reasons can be identified for this result: insurance companies did not sufficiently use these communication channels with their clients, or they have not been identified the most appropriate communication channels or the clients did not appreciate these sources of information as enough credible to invest their own money on the long term. Regarding "Relatives or friends suggestions" must be mentioned the North East region of Romania, with the highest percentage of responses indicating as the most important selection criteria, equally important as the reputation of the insurance company and that advice from an insurance intermediary. The level of education can be considered as a possible explanation and the binary logit model subsequently developed confirm this hypothesis. The results from Table 2 showed that the only region with predictor education statistically relevant is the North East
76

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis region. For the other regions were recorded lower response percentages, from 12.2% down to 7.3% (in South-East region). Analyzing the criteria linked to the performances of an insurance company, and here, on the first place the return of the investment fund in which part of the insurance premiums is invested must be mentioned and, in subsidiary, the reputation of the insurance company, the first criterion is much less important, regardless of the region. Moreover, in the last years, in Romania, in order to increase the involvement of their clients in so-called management of the life insurance policies, these companies decided a "revolution", by introducing the insurance policies with an investment component, and the insured persons can decide about the investment destination of their own insurance premiums. The results of this statistical survey made in 2010 revealed the fact that these insurance products had a relatively low success and, once more, the relatively low values for the insurance penetration rate can be more easily explained. The reputation of life insurance companies is much more important than the yield criterion, regardless of the region we are discussing. As we pointed out above, with two exceptions, even the suggestion of the broker is more important, although the literature often showed that the desire to sell many policies came into conflict with the needs of the insured person. Except the Southwest, West and Bucharest-Ilfov regions, the flexibility of insurance payments ranked last in the hierarchy of the selection criteria of companies/ insurance products. It should be noted that life insurance companies found as solutions to overcome the financial crisis period to offer payment facilities for the insurance premiums, along with restructuring the life insurance products, in order to simplify them (associated with much cheaper policies). Again if we put together these two types of findings, we can conclude that the communication between the insurer and the insured persons remained distorted. These findings were previously confirmed from our ethnographic research. For the insurance clients from three different regions the friends and relatives advice was a more important criterion to choose between insurance companies than this financial solution, even though many of them faced financial difficulties during this period. The North-East region had the most significant gap between these two responses, from 16.7% - based on the advice of friends, to 6.5% - respondents who choose based on the flexibility of payments for the insurance policy. Only the respondents from Bucharest-Ilfov region positioned above the advice of the intermediary the flexibility of payments. Without a significant importance, in most regions can be mentioned the willingness of the employers to bear the related insurance premiums for life insurance policy, as a criterion to choose between different insurance companies. Various countries in the world, especially in developed
77

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis economies, use this financial solution, which can increase the life insurance penetration rate. Providing this facility by the employer depends, on the one hand, on the performance of the company and, on the other hand, on the country's cultural determinants, which may form or not a useful mindset to consider usefully these products, especially those focused on the protection and savings components. Marginally, it is found that the combination of a bank credit with the need for, very often mistakenly called life insurance policy when in fact it is death insurance, may be an argument to buy such a product. If we consider the fact that in practice, the bank directly provides an insurance policy to its client when he sign the credit agreement, and, moreover, very often the customer accepts the policy which is offered, linking this product with a cost of credit, practically the insurance policy is an objective to be "checked". A possible analysis performed by the bank client can be motivated by the price of this policy, which may lead him to seek another insurance company, but the motivation remains: fulfilling the criteria required by the bank to access the desired loan.

2. Data and empirical methodology 2.1. Sample description The target population consisted in major respondents from urban area having at least on type of saving product, considering that the potential achievers of insurance and optional private pension products are mostly in urban area taking into account the specific of Romanian population regarding education, income and information about insurance and private pension systems. According to official data provided by National Institute of Statistics the urban population in Romania represents 55.1% from total inhabitants. The research was carried out during October-November 2010 and the volume sample is 870 units, interviewed by Computer Assistant Telephone Interview (CATI) method, using a randomly selection. For this study we took only the respondents who have only optional private pension and those who have only life insurance. In this case the volume of subsample is 426 cases.

2.2 Variable descriptions in the subsample The most important variables used in the analysis were socio-demographic variables. The income/capita variable was computed by the authors using two basic variables: household income measured in Romanian currency and household dimensions registered as number of persons living together. Regions are characterized by the same distribution of income. In general,
78

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis more than a half of the household from each region have an income lower than 2400 lei, with no statistical significant differences between regions regarding substructure (see Table 3 form the Annex). Variables gender is a dichotomous one codified with 1 for males and 2 for females. Structure by gender has no statistical difference between regions2. Females are represented in the sample by around 60% from the total respondents in each region (Table 4 from the Annex). Variable education (EDU) was initial measured on a scale of 7 points where 1 means no any form of school and 7 = Higher education. In the model it was used in this way but for an easier analysis we grouped it in three categories (see Table 5 from the Annex). In general the access to life insurance or optional private pension is easier for higher educated person. There are no statistical relevant differences between regions regarding this structure, more than 60% of the subsample consisting in respondents which have at least high school finished. Age is a variable which creates significant discrepancies between regions. In the Table 6 from the Annex could be seen the structure by groups of age and by region. In general the middle age category is the most important one. After 35 years old it is the most appropriate period to think at protection on long term. The age is correlated also with some specific duties which inevitable appears after 35 years old like, house credits, stable jobs, family with children, etc. A significant percentage of Bucharest youngsters are saying that they have a private pension or a life insurance. 38% from the respondents from Bucharest are younger than 35 years old. According to the specific Romanian legislation, in 2008, all the persons having the age between 18 and 35 years were obliged to choose for a private pension fund. Consequently, in our sample, most of the respondents had at least a mandatory private pension.

2.3 Quantitative methods description Our purpose is to determine the factors which are influencing the decision of choice between optional private pension and life insurance. We use a binary logit model which has as dependent variable, y, which shows the type of insurance product chosen (private pension = 0 and life insurance = 1. Lets note with p the probability to choose life insurance against of private pension.
k p = 0 + i xi , where xi represent the list of determinants, represent the general Then ln 1 p i =1

form of the logit model. The probability P(y = 1 | x1, x2,, xk) could be achieved by using the exponential transformation (Green, 2003).

Chi-square test was applied. The decision was taken at levels lower than 0.1.

79

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis
0 + i xi
i =1 k

P( y = 1 / x1 , x 2 ...x k ) =

1+ e

0 + i xi
i =1

If we set all the X at zero, we have: e 0 P( y = 1 / all x1 , x 2 ...x k = 0 ) = ; 1 + e 0 P( y = 1 / all x1 , x 2 ...x k = 0 ) P( y = 1 / all x1 , x 2 ...x k = 0 ) e 0 = = = OR0 1 P( y = 1 / all x1 , x 2 ...x k = 0 ) P( y = 0 / all x1 , x 2 ...x k = 0 )
In the same manner for i we have:

( ) 1 = ORxi =1, x j = 0 exp( i ) = OR0 1 P ( y =1 / xi =1, all x j = 0 for j i ) OR0

P y =1 / xi =1, all x j = 0 for j i
k i =1

and then

ORx1 , x2 ,... xk = exp( 0 ) exp( i xi ) , from where we can see that the coefficients i (i > 0)
measure the contribution of each factor X on the probability of having a life insurance instead of an optional private pension (Balakrishnan, 1991). Every coefficient i should be tested as in the normal regression but in this case it should be used the Wald Test, taking into account that the distribution of the rapport between coefficient and its standard error does not follow a normal or student distribution (Hosmer, 2000). The performance of the model could be tested by several tests such as: Log Likelihood value, Cox and Snell or Nagelkerke pseudo R-squared and other tests combined with the classification table (Nagelkerke, 1991).

3. Empirical results
The basic aim of this analysis is to describe the way in which the preference for life insurance products varies by age, education, income per capita and gender. The analysis is made on a representative sample for Romanian urban population using quantitative methods. Due to the fact that a multiple linear regression may be used to investigate the relationship between a continuous dependent variable, for socio-economic factors and binary choice option, a logistic regression is generally considered more appropriate. Consequently, after a comparative regional analysis of the selection criteria to be used for choosing between different insurance companies, for our empirical investigation, a binary logit model was estimated and analyzed for each development region. Binary
80

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis logit model was used to predict the event to choose a life insurance product instead of an optional private pension, which is practically an event with only two possible outcomes. In this statistical survey, the respondents were asked about three types of products, having same similarities regarding their component of protection for the retirement period: life insurance, optional private pension and mandatory private pension. For this study only the first two products were considered. In our analysis we considered the demand for life insurance products as the response (dependent variable) of age, education, income per capita and gender as predictors. The regional analysis was maintained in the second part of this study. The results are presented in Table 2.

Table 2. Current demand for life insurance products against optional private pension by age, income per capita, education and gender Romanian Statistical Survey, 2010
The Romanian regions
North East Step 1a Gender Age Income/capita Education Constant a Step 1 Gender Age Income/capita Education Constant Step 1a Gender Age Income/capita Education Constant Step 1a Gender Age Income/capita Education Constant Step 1a Gender Age Income/capita Education Constant North West Step 1a Gender Age Income/capita Education Constant Step 1a Gender Age

B
-,749 ,097 ,780 ,837 -7,626 -,565 ,113 1,156 ,527 -7,338 ,893 ,103 1,138 ,435 -8,322 ,878 ,012 -1,269 -1,052 7,819 -,292 ,131 1,563 -9,704 62,697 -1,379 ,132 -1,489 ,463 -2,844 -2,000 ,119

S.E.
,929 ,040 ,902 ,454 4,180 ,775 ,040 ,699 ,409 3,815 ,847 ,038 ,921 ,344 3,894 1,048 ,051 ,924 ,929 7,220 1,288 ,070 2,431 4027,55 3 28192,8 69 1,028 ,049 ,861 ,363 3,643 1,257 ,050

Wald
,649 5,783 ,748 3,404 3,328 ,532 8,117 2,733 1,661 3,700 1,112 7,175 1,527 1,596 4,567 ,702 ,053 1,883 1,282 1,173 ,051 3,529 ,413 ,000 ,000 1,800 7,202 2,991 1,627 ,610 2,532 5,690

df
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Sig.
,421 ,016 ,387 ,065 ,068 ,466 ,004 ,098 ,197 ,054 ,292 ,007 ,217 ,206 ,033 ,402 ,817 ,170 ,258 ,279 ,821 ,060 ,520 ,998 ,998 ,180 ,007 ,084 ,202 ,435 ,112 ,017

Exp(B)
,473 1,102 2,182 2,310 ,000 ,568 1,120 3,177 1,694 ,001 2,442 1,108 3,122 1,545 ,000 2,407 1,012 ,281 ,349 2486,898 ,747 1,140 4,773 ,000 1,694E27 ,252 1,141 ,226 1,589 ,058 ,135 1,126

South East

South

South West

West

Center

81

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis
Income/capita Education Constant Gender Age Income/capita Education Constant 1,420 -,574 2,054 -1,789 ,070 ,226 ,034 ,140 ,939 ,413 3,784 ,684 ,028 ,346 ,274 2,394 2,290 1,934 ,295 6,832 6,355 ,426 ,016 ,003 1 1 1 1 1 1 1 1 ,130 ,164 ,587 ,009 ,012 ,514 ,901 ,953 4,138 ,563 7,801 ,167 1,073 1,253 1,035 1,151

Bucharest Ilfov

Step 1a

a. Variable(s) entered on step 1: Gender, Age, Income/capita, Education3

The North-East region has been proved as the poorest county of Romania, with the lowest
value of regional GDP4 (according to the data from NIS and from the Regional Operational Programme 20072013, REGIO). Using three main economic variables, Goschin et al. (2008) constructed a composite index of disparities, which contain GDP per inhabitant, the unemployment rate and the average monthly net earnings. According to this average composite index, the NorthEast region had the lowest values, both in 2000 and 2005. The lowest disparities from this county could explain the statistical irrelevance of the predictor income per capita. The age and the education level are the only significant predictors for this region. The statistical results from Table 2 can be understood in the following manner: on average, for each year of age the chances of choosing a life insurance instead of an optional private pension increase of 10%. The odds of choosing a life insurance product increase of two additional times for each level of education. For the South-East region the age and the education level are the determinants for life insurance choice. The age exercises a grater influence compared with the results for the North-East region, and for each year of age the chances of choosing a life insurance instead of an optional private pension increase of 12%. The education was not relevant, but the level of income per

capita is relevant, for each monetary unit earned, the probability to choose a life insurance
increases three times. This region was on the fourth place from the perspective of composite index of disparities. The South-East region is a relatively well developed region, slightly below the average performance (Goschin et al., 2008). For the South and Center regions, only the age remained the relevant factor, with a similar value for the probability a life insurance policy to be chosen as for the North-East and South-East regions (12.6%). In the South-West region, none of the predictors used in this model seemed to be relevant. This is the exception of this study.

3 4

Source: Authors calculations. Source: National Institute of Statistics (NIS), https://statistici.insse.ro/shop/?lang=en.

82

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis In both West and North-West regions, the age was relevant for choosing the life insurance products, with very similar values of the probabilities, around 14%. A special case was the NorthWest region due to the negative impact exercised by the income per capita. Practically, for each monetary unit earned by the respondents, the probability for life insurance products to be chosen decreased with 80%. For Bucharest-Ilfov region, the age recorded the lowest value of the probability as life insurance products to be chosen by the respondents, 7%. The exception in this case is the gender predictor, which revealed the fact that female persons had a lower probability than male persons to choose a life insurance policy against an optional private pension.

4. Conclusions
Romanian life insurance industry has a competitive market, having, however, a deep character of heterogeneity and degree of concentration. In an international context of analysis, life insurance market in Romania was a different evolution as compared to similar markets from Central and Eastern Europe and even in a wider framework, with 42 countries from all around the world; its growing tendency was maintained, even in the year 2009, when, in many countries, this insurance sector stagnate or even decreased. Romanian life insurance market had one of the lowest values for the penetration rate in this international context. Despite its quite high degree of concentration, the most part of the 46 life insurance companies made significant steps to reorganize their activities and products, to be more tailored to the customer needs. The results of the regional analysis made in this study revealed the fact that these efforts must be differentiated between regions. An important question remained: Did the insurance companies achieve their objectives on the market? The efforts made the Romanian life insurance companies to restructure their policies seemed to be very questionable based on the efficiency criteria and much closer connection between the insurers and the insured persons is needed. Based on the conclusions from a statistical survey made in the year 2010 for the Romanian urban population, we concluded that the companys reputation and the insurance brokers/agent advice were the first two important criteria to choose between different life insurance companies. The North-West region had the highest percentage of responses linked to a financial performance criterion - the return of the investment fund in which the insurance company invested part of its gross written premiums. The flexibility of payments was another financial argument introduced in the statistical survey, but with relatively less importance (the forth place in the preferences of respondents). The North-West region must be mentioned, once more, in this context.
83

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis A criterion with a much grater potential bias and lack of financial arguments in decision making is based on relatives or friends suggestions. The North-East region had the highest percentage of responses in this area, followed at some distance, by the South-West region. From binary logit model, no significant difference gave by gender on life insurance choice was identified. The dimension of household has a significant influence in regions with higher economic development such as Bucharest-Ilfov and North-West regions. The educational factor is significant only in the North-East region. The age of the respondent is the main factor and it has relevant significance in each region, except South-West. Different result between regions suggests as adequate a regional approach in future management plans regarding life insurance penetration. Even if the determinants are not significant in each model, looking at indicators of the model performance (Table 7 and 8) it is visible that the insurance selection could be analyzed with the provided model and using the presented determinants.

Acknowledgements This research was supported by CNCSIS - UEFISCDI project PNII - IDEI code 1831/2008.

Selective References
Balakrishnan, N. (1991). Handbook of the Logistic Distribution. Marcel Dekker, Inc.. ISBN 9780824785871. Beck, T., Demirg-Kunt, A. and Levine, R. (2009) Financial Institutions and Markets Across Countries and over Time: Data and Analysis, World Bank Policy Research Working Paper No. 4943, available on-line at http://www-wds.worldbank.org. urak, M., Lonar, S., Poposki, K. (2009) Insurance Sector Development and Economic Growth in Transition Countries, International Research Journal of Finance and Economics, Issue 34. European Commission, Standard Euro barometer 74/Autumn 2010TNS Opinion & Social, http://ec.europa.eu/public_opinion/archives/eb/eb74/eb74_ro ro_nat_pre. pdf. Ghodsee, K. (2005) Potions, Lotions and Listick: The Gendered Consumption of Cosmetics and Perfumery in Communist and Post-Communist Bulgaria. Paper Presented at AAASS National Convention 2005. Salt Lake City, Utah, November 3 6. Goschin, Z, Constantin, D. L., Roman, M., Ileanu, B. (2008), The current state and dynamics of regional disparities in Romania, Romanian Journal of Regional Science, vol. 2, no. 2, pp. 80-105. Greene, W. H. (2003). Econometric Analysis, fifth edition. Prentice Hall. ISBN 0-13-066189-9

84

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis Hosmer, D.W., Lemeshow, S. (2000) Applied Logistic Regression, New York : Wiley, ISBN 0471615536 Jeffery, L. (2002) Marketing Civility, Civilizing the Market: Chinese Multilevel Marketings Challenge to the State. in The New Entrepreneurs of Europe and Asia: Patterns of business Development in Russia, Eastern Europe and China, Bonnell E.V. and Gold, T.B., Armonk, NY: M.E. Sharpe, pp. 325-346. Nagelkerke, N (1991) A Note on a General Definition of the Coefficient of Determination, Biometrika, vol. 78, no. 3, pp. 691692. Tulbure, N. (2009) Bani albi pentru zile negre: Nest Egg, Romanian Sociology, vol. VII, no. 3, pp. 9l-109. The Regional Operational Programme 20072013, Romania, http://www.adrcentru.ro/Document_Files/ADPlanulRegional/00000021/9591f_PDR-20072013.pdf.

Annex

Table 3. The structure of respondents by household income and by region

Development region Household income North East Below 1200 lei 1201- 2400 lei 2401 - 3600 lei Over 3600 Total 21,8% 41,8% 20,0% 16,4% 100,0% South East 18,3% 28,3% 26,7% 26,7% 100,0% South 22,4% 29,3% 24,1% 24,1% 100,0% SouthWest 18,8% 28,1% 28,1% 25,0% 100,0% West 25,8% 41,9% 22,6% 9,7% 100,0% North West 23,5% 39,2% 17,6% 19,6% 100,0% Center 21,2% 40,4% 13,5% 25,0% 100,0% Bucharest 16,4% 36,1% 16,4% 31,1% 100,0% Total 20,8% 35,5% 20,8% 23,0% 100,0%

Chi-Square Tests Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 15,343a 16,093 ,091 400 df 21 21 1 sided) ,805 ,764 ,763

a. 0 cells (, 0%) have expected count less than 5. The minimum expected count is 6,43.

85

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis Table 4. The structure of respondents by gender and by region
Development region Gender North East Males Females Total 36,2% 63,8% 100,0% South East 36,5% 63,5% 100,0% South 49,2% 50,8% 100,0% SouthWest 47,1% 52,9% 100,0% West 40,6% 59,4% 100,0% North West 36,4% 63,6% 100,0% Center 33,9% 66,1% 100,0% Bucharest 40,0% 60,0% 100,0% Total 39,7% 60,3% 100,0%

Chi-Square Tests Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 4,761a 4,722 ,109 426 df 7 7 1 sided) ,689 ,694 ,742

a. 0 cells (,0%) have expected count less than 5. The minimum expected count is 12,69.

Table 5. The structure of respondents by age groups and by region

Development region Age groups North East Younger (18-34 y.o) Middle age (35-54y.o) Older (54+) Total 15,5% 56,9% 27,6% South East 27,0% 47,6% 25,4% South 19,0% 47,6% 33,3% 100,0% SouthWest 23,5% 70,6% 5,9% 100,0% West 31,3% 43,8% 25,0% North West 32,7% 43,6% 23,6% Center 14,3% 64,3% 21,4% 100,0% Bucharest 38,5% 43,1% 18,5% 100,0% Total 25,1% 51,4% 23,5% 100,0%

100,0% 100,0%

100,0% 100,0%

Chi-Square Tests

Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association 27,401a 28,900 4,760

df 14 14 1

Asymp. Sig. (2-sided) ,017 ,011 ,029

N of Valid Cases

426

a. 0 cells (,0%) have expected count less than 5. The minimum expected count is 7,51.

Table 6. The structure of respondents by age groups and by region Age groups Development region

Total

86

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis
North Low level of education Average level of education Higher education Total East 5,2% 37,9% 56,9% 100,0% South East 1,6% 30,2% 68,3% 100,0% South 7,9% 31,7% 60,3% 100,0% South-West West 18,8% 25,0% 56,3% 100,0% North West Center Bucharest 9,1% 8,9% 7,7% 36,4% 54,5% 100,0% 39,3% 51,8% 100,0% 27,7% 64,6% 100,0% 7,0% 32,6% 60,3% 100,0%

29,4% 70,6% 100,0%

Chi-Square Tests Asymp. Sig. (2Value Pearson Chi-Square Likelihood Ratio Linear-by-Linear Association N of Valid Cases 17,717a 19,338 1,260 426 df 14 14 1 sided) ,220 ,152 ,262

a. 8 cells (33,3%) have expected count less than 5. The minimum expected count is 2,25.

Table 7. Regional models performance

Model Summary Step -2 Log likelihood North East South East South South West West North West Center Bucharest 1 1 1 1 1 1 1 1 43,136a 54,728b 45,490c 26,331d 17,611e 41,205f 35,920g 63,790h Cox & Snell R Square ,292 ,244 ,241 ,188 ,394 ,279 ,250 ,265 Nagelkerke R Square ,429 ,351 ,366 ,284 ,600 ,411 ,401 ,357

Table 8. Classification table. Second indicator of performance

Classification Tablea Development region Has only PP North East Step 1 HAS private pension (PP) LI Predicted Percentage of Correct classification

57,1

87

Ingrid Mihaela Dragota, Bogdan-Vasile Ileanu- The Romanians Preferences for Life Insurance and Optional Private Pension Products. A Regional Analysis
4 36 90,0 81,5 8 6 9 37 47,1 86,0 75,0 4 3 9 41 30,8 93,2 78,9 1 1 6 22 14,3 95,7 76,7 5 2 2 22 71,4 91,7 87,1 5 4 8 34 38,5 89,5 76,5 3 3 7 39 30,0 92,9 80,8 18 9 7 27 72,0 75,0 73,8

life insurance(LI) Overall Percentage South East Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage South Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage South West Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage West Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage North West Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage Center Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage Bucharest Ilfov Step 1 HAS private pension (PP) life insurance(LI) Overall Percentage a. The cut value is ,500

88