Information asymmetry in the insurance market: A comparative study of conventional insurance and islamic insurance (Takaful) industry in Nigeria

Abstract

Information asymmetry is a source of incompleteness in the insurance market and often is viewed as a fundamental factor obstructing the efficient operations of insurance market. Moral hazard and adverse selection are the essences of the informational problem especially in the developing countries. This study investigates the role of information asymmetry towards consumer attitude and perception of both conventional insurance and Islamic insurance (Takaful) in Nigeria. A survey instrument, primarily based on the Survey of Attitudes Toward Statistics© (SATS-28©), is used to examine consumer attitude in four major components, namely value, affect, difficulty and cognitive competence. A total of 200 questionnaires were administered using the convenience sampling technique in three major cities of Abuja, Kano and Lagos state of Nigeria. Only 78 of the questionnaires were filled and returned. Data was analysed using frequency distribution and hypothesis for difference and relationship was tested using paired sample t-test and the chi square test respectively. The results show that consumers perceive the level of information asymmetry is relatively higher in the conventional insurance than Takaful, hence resulting in more negative attitude and perception towards the conventional insurance. Further, income level and education status are found to be associated with the general consumer attitude and perception. This study implicates on more positive note to encourage more efforts in the development of Takaful industry in Nigeria. The prerequisites are strong regulatory framework, high level of transparency and public education initiative on the importance of Takaful.

Keywords: Islamic insurance, takaful, morality, information asymmetry