Online insurance

1. Executive Summary:

Online insurance is not popular as compared to other online finance services in the Taiwan. By the research through different theories (transaction cost theory and innovation diffusion theory) in the online insurance sector in Taiwan, I will develop a model to determine online insurance objective and check it at every stage of insurance. The paper will focus on the influences of different factors like trust, relative advantage and online banking experience on the consumer behaviour in purchase and after sales service stages. In the conclusion few implications and suggestions will be offered for online insurance companies.

The literature reviews suggests that

2. Literature Review:

According to Mehr and Cammack (1976), Insurance is usually thought of as a product that spreads the risk of serious, but low-probability, losses among a group of individuals, thus providing some financial protection to each individual. Insurance is in the category of "unsought goods" (Kotler, 1973). He states that unsought goods pose special challenges to the marketer. In the current scenario customers are very much aware of their Insurance policies (Jigar, 2009). They evaluate all the advantages and disadvantages of the products and services provided by the companies. After being fully satisfied only, they choose their policy. Kunreuther (1979) said that the product makes good sense, particularly when the protection is purchased against potential losses so large as to be catastrophic, such as total destruction of one's home, a large accident liability judgment, or death of primary family breadwinner. However, it has been recognized that this sensible product is difficult to sell.

Several empirical studies have been conducted on consumer's decision behaviour. Some of these studies have focused on the topic: how more options can generate decision conflict and preference uncertainty? Kahneman & Tversky, (1984) stated indeed, repeated demonstrations have shown most people lack an adequate understanding of probability and risk concepts. Dhar (1997), Greenleaf and Lehmann (1995), Tversky and Shafir (1992) have shown that offering more options can generate decision conflict and preference uncertainty, leading to decision deferral.

Amy Wong (2004) empirically examined the role of emotional satisfaction in service encounters. Specifically, this study seeks to: investigate the relationship between emotional satisfaction and key concepts, such as service quality, customer loyalty, and relationship quality, and clarify the role of emotional satisfaction in predicting customer loyalty and relationship quality.

Consumers have two options, traditional channel and electronic channel. When consumers are attracted by the creative websites, easy documentation, good offers, they switch to the electronic channels. The measure of values is combined of costs and benefits generally. Rooted in transaction cost theory (Williamson, 1991), the consumers will choose one channel that has lower transaction cost than others, and that transaction cost is associated with frequency, uncertainty and asset specificity. Most empirical studies evidence that the perceived transaction cost affect whether a consumer buys a product through the electronic channel (Liang & Huang, 1998; Teo & Yu, 2005; Lian & Lin, 2008). However, while attracted by convenience of an online channel, consumers also perceive a lot of uncertainty on the Internet, which increases the transaction cost. Strader and Ramaswami (2004) find that the online channel is not expected to completely replace the traditional channel in the context of financial products, because some investors still prefer the face-to-face service available through the traditional channel.

Consumer's benefit is one of the most affecting factors in the buying behaviour. According to innovation diffusion theory, the consumers make adoption decisions about the Internet based on their perceptions of the relative advantage of the innovation (Rogers, 1998). The relative advantage is conceptualized as a multidimensional construct that captures the benefits of an innovation with regard to such dimensions as lower costs, savings in time and effort, and decrease in discomfort. Choudhury and Karahanna (2008) use three dimensions of the perceived relative advantage, including convenience, trust, and efficacy of information acquisition, to examine the consumer's intention to use the web for auto insurance transactions. They find that the dimensions of relative advantage are interplay between trust and convenience that changes at different stages of the purchase process. Therefore, based on the view of costs and benefits, we should combine transaction cost theory and innovation diffusion theory to examine the online insurance behaviour.

Trust, and the lack of it, is a critical impediment for the consumers to shop online (Salam et al., 2005). Hoffman et al. (1999) indicate that most people have yet to shop online is due to a fundamental lack of faith existing among vendors and consumers onthe web. Limiting to the security and uncertainty risk of electronic channels, Curtis (2000) finds that people browse the Internet more for information than for buying online. Numerous empirical studies have significant evidence show that trust could improve the business relationship and positively influences consumers' intent to engage in e-commerce (e.g., Williamson, 1985; Shapiro et al., 1992; Gefen, 2000, Mcknight et al., 2002; Gefen et al., 2003). Building and increasing consumer trust is thus useful, as it increases the likelihood of attracting visitors to a website and then to engage in an online transaction. In this study, we consider the characteristics of online purchase in Taiwan, and refer to the dimensions of trust antecedents from Gefen et al. (2003) and Wu et al. (2008). We only focus on the relevant aspect of institution-based trust, which creates an environment conducive to the formation of trusting beliefs.

According to the above discussion, we suggest that the transaction costs, the relative advantage and the trust of the web side would affect consumers whether or not to use the electronic channel. The consumers would measure those advantages and disadvantages between the web vendor and the traditional agent, with the channel that has more relative advantages and lower transaction costs winning their business.

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