Practicum Proposal Sem I 2014/2015

Bachelor Of Industrial Statistics with

Honours

A Study of Factors Affecting The Demand For

Health Insurance Policy In Malaysia

Prepared by: Tan Yen Yen 212049

Prepared for: Dr.Hashibah Hamid
School Of Quantitative Sciences
UUM College Of Art & Science

Table of Contents
CHAPTER 1 INTRODUCTION 3
1.1 Company Background ..3
1.2 Current Project in Company..4

CHAPTER 2 PROJECT DEFINITION.5

2.1 Background of the Study...5
2.2 Problem Statement....6
2.2.1 Objectives of the Study...6
2.2.2 Research Questions.............7
2.2.3 Hypothesis...........7

CHAPTER 3 SIGNIFICANT OF STUDY.8

CHAPTER 4 LITERATURE REVIEW.9

CHAPTER 5 METHODOLOGY..11
5.1 Data collection.11
5.2 Method of Data Analysis.14
5.2.1 Model estimation...15

CHAPTER 6 Expected Result...16

REFERENCE

CHAPTER 1
INTRODUCTION

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1.1 Company Background
My Practicum organization name Senior Marketing System Sdn. Bhd (SMS). One of
the worlds best information provider of medical and nursing care through website.
SMSs headquarter on Japan. SMS established in years 2003. SMS had expended its
business to many Asia countries such as China, Korean, Taiwan, Indonesia, Thailand,
Vietnam, and also Malaysia. Branch in Malaysia was established since years 2012,
head office is on Bukit Bintang, Kuala Lumpur.

Organization mission was created value and contribute to society by being the best
provider of information through collect, organize and transfer of medical
informations. SMS is an organization of professional healthcare information team on
healthcare and medical field.

1.2 Current Project in Company

Senior Marketing System Sdn. Bhd. (SMS) provides 23 services such as community
websites, E-learning websites and job search engines, targeting 8 segments of users.

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Core business in each countries are different due to different needs in each market. In
2013, Malaysia operation launched a hospital search engine website and started the
medical tourism business. Search engine for hospital and clinic provide service to
society by provide information of hospital and clinic all around Malaysia. This service
ease end user whose search for hospital, clinic, doctors, drugs, and diseases. The side
business of SMS in years 2013 was medical tourism business. This business was help
end user matching of foreigner patients with private hospitals in Malaysia. In years
2014, previous years business still going on however, SMS had provide a new service,
a current project which name Insurance Malaysia.

Insurance Malaysia is a new service provided by SMS. Insurance Malaysia is a

project that provide information of all 45 insurance company in Malaysia through
website. Information provided that included are background information and all
medical and life insurance policy provide by those 45 insurance company. Detail
information of insurance policy also given such as sum assured, amount of coverage,
entry age of insurance policy. The techniques of collecting information perfectly
match my qualification in UUM. I used technique of secondary data, phone call,
interview.

As an employee of SMS, I was assigned to collect and organize informations of all 45

insurance companies and also detail information of different insurance policy. As a
part of marketing department, to understand who are our target end user (Who looking
for insurance) was very important. This is because wrong target range (Age range,
Area live, Gender, economic ability) of end user can affect number of end user
visiting our website.

CHAPTER 2
PROJECT DEFINITION

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2.1 Background of the Study
Insurance is a special type of contract between an insurance company and its client in
which the insurance company agrees that on the happening of certain events the
insurance company will either make payment to its client or meet certain costs.
Insurance can defined as a promise of compensation for specific potential future
losses in exchange for a periodic payment. Insurance, in the simplest terms, means
you pay a lump sum to get a leverage or protection against an accident of a large
magnitude.

In Malaysia, there are 45 registered insurance companies, However, those 45

insurance companies can be divided by follow its registered operation types such as
takaful operators insurance company, life Insurance company, general insurance
company, and also life and general type insurance company. The number of insurance
companies from those following types of insurance companies are 12, 9, 19, and 5
respectively.

All around Malaysia, many difference insurance company and insurance policy
available. (Ramesh Bhat, 2007) Understanding the factors (such as Age, Gender, State
of living, Annual income/education), which affect the demand of purchasing an
insurance policy, is imperative for future growth and development of my organization
in this potential sector.

2.2 Problem Statement

All around Malaysia, many difference insurance company and insurance policy
available. (Ramesh Bhat, 2007) Understanding the factors (such as Age, Gender, State
of living, Annual Income/education), which affect the demand of purchasing an

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insurance policy, is imperative for future growth and development of my organization
in this potential sector.

My organization wish to started a new project name Insurance Malaysia currently.

However, my organization find it difficult to make sure that who are the most
potential customer (people who have high probability to purchase health insurance
policy). Among Age, State of living, gender, Annual income of an individual which is
the factor that will directly or most affect the decision of an individual to purchasing a
health insurance policy?

2.1.1 Objectives of the Study

1. To investigate the factors affecting the demand of health insurance
policy
2. To identify which factors are most significant to demand of health
insurance policy
3. To determine the relationship between factors that influence the
demand of health insurance policy

2.1.2 Research Question

1. What are the factor(s) that influence demand of health insurance policy
2. What is the most influence factor in demand of health insurance
policy?

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 3. Does the factors have relationship by affecting demand of health
insurance policy?

2.2.3 Hypothesis
The following null hypotheses will be test in the study:
1. There is a significant relationship between demand of health insurance
policy with age
2. There is a significant relationship between demand of health insurance
policy with gender
3. There is a significant relationship between demand of health insurance
policy with state of living
4. There is a significant relationship between demand of health insurance
policy with annual income

CHAPTER 3
SIGNIFICANT OF STUDY

This research will provide an understanding about the factor that influences demand
of health insurance policy. This research is vital to my practicum organization and all
insurance company in Malaysia.

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For my practicum organization and all insurance company in Malaysia, they will get
to know who are their target end user/client. By knowing the research, my practicum
organization can always hit the correct proportion of people and increase organization
profit. This study may also help my practicum organization as a reference or guide in
which state of people to approach thus improve future growth and development of my
organization in this potential sector.

CHAPTER 4
LITERATURE REVIEW

All around Malaysia, many difference insurance company and insurance policy
available. (Ramesh Bhat, 2007) Understanding the factors, which affect the demand

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of purchasing an insurance policy, is imperative for future growth and development of
my organization in this potential sector.

This included factor on different socio-economics independent variables like age,

gender, annual income, state of living. Some part of interview question has been
adapted from the work of Paulin and Dietz(1995) and some questions have their roots
in literature. Those factors were identified during my interview and discuss with my
supervisor of my organization.

Ways of collected primary data using interview survey. This method has been most
frequently used method of data collection to study insurance purchase decision
(Feldstein 1973; Ngui, Burrows et. al.1990; Kronick and Gilmer 1999; Paulin and
Dietz 1995)

Econometric analysis to find the factors affecting the demand of health insurance
policy. Bhat and Jain (2006) have used Heckman two-step method to analyse factors
affecting health insurance purchase. This method has been used to take care of the
sample selection problem. Here the dependent variable is a binary variable, which
takes value of 1 if willing to purchase a health insurance policy and 0 if not to
purchase a health insurance policy. Here the observed dependent variable is discrete.

Use of ordinal variable such as 5-point Likert scale with interval assumption has been
used in contemporary social science research. Jaccard and Wan (1996) suggest that for
many statistical tests assumption of non-interval do not seem to affect Type I and
Type II errors dramatically. Standard citations to literature showing the robustness of
correlation and other parametric coefficient with respect to ordinal distortion are
(Labovitz 1967 and 1970; Kim 1975; Zumbo and Zimmerman 1993).

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 CHAPTER 5
METHODOLOGY

5.1 Data collection

My research population is all individual in Malaysia. I have collected primary data
using phone survey. This method has been most frequently used method of data

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collection to study insurance purchase decision (Feldstein 1973; Ngui, Burrows et.
al.1990; Kronick and Gilmer 1999; Paulin and Dietz 1995)

Data was collected through phone interview. This included data on different socio-
economics independent variables like age, gender, annual income, state of living.
Some part of interview question has been adapted from the work of Paulin and
Dietz(1995) and some questions have their roots in literature. Those factors were
identified during my interview and discuss with my supervisor of my organization.

I have used econometric analysis to find the factors affecting the demand of health
insurance policy. Bhat and Jain (2006) have used Heckman two-step method to
analyse factors affecting health insurance purchase. This method has been used to take
care of the sample selection problem. Im using similar approach in my research too.
The result does not suggest sample selection bias in my research. Therefore, binary
discrete choice modeling was used in my research. Here the dependent variable is a
binary variable, which takes value of 1 if willing to purchase a health insurance policy
and 0 if not to purchase a health insurance policy. Here the observed dependent
variable is discrete.

The following table provided the definition of variables used in my research.

Dependent variable is a binary variable while independent variable are ordinal (age &
Annual income), Nominal(State of living & Gender)

Variable Definition
Demand of health Whether individual willingness on purchase health insurance

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insurance policy policy. This variable is 1 when willing to purchase a health
insurance policy & 0 when not willing to purchase a health
insurance policy
Age Age of a respondent has been collected and divided into seven
group:
Group 1 Below 18 years old
Group 2 18 years old to 24 years old
Group 3 25 years old to 34 years old
Group 4 35 years old to 44 years old
Group 5 45 years old to 54 years old
Group 6 55 years old to 64 years old
Group 7 Above 65 years old
Gender Gender of respondent
State of living State of living of respondent has been collected and divided into
fourteen group:
Kuala Lumpur 1
Selangor -2
Perak - 3
Pahang - 4
Perlis -5
Penang - 6
Johor - 7
Kedah - 8
Kelantan 9
Terengganu 10
Negeri Sembilan 11
Malacca 12
Sabah -13
Sarawak -14
Annual Income Economic ability of respondent been collected and divided into
Group 1 Below RM 1,000
Group 2 RM 1,000 RM 1,499
Group 3 - RM 1,500 RM 1,999
Group 4 - RM 2,000 RM 2,499
Group 4 RM 2,500 RM 4,999
Group 5 Above RM 5,000

The logistic regression model description is as follows:

(Health insurance policy purchase) = 0 + 1*(Age 1)i +2*(Age 2)i + 3*(Age

3)i +4*(Age 4)i +5*(Age 5)i + 6*(Age 6)i +7*(Age 7)i + 8*(Gender)i
+9*(State1)i+ 10*(State 2)i +11*(State 3)i + 12*(State 4)i +13*(State 5)i

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+14*(State 6)i+ 15*(State 7)i +16*(State 8)i + 17*(State 9)i +18*(State 10)i
+19*(State 11)i+ 20*(State 12)i +21*(State 13)i + 22*(State 14)i +23*(Income
1)i +24*(Income 2)i+ 25*(Income 3)i +26*(Income 4)i +27*(Income 5)i +i

5.2 Method of Data Analysis

First, descriptive analysis of data usually tell us basic distribution characteristics.
Therefore, Ill going get insight from descriptive analysis.

Description statistics of respondents that willing to purchase a health insurance policy

Variable N Mean Std Dev Range
Age
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Gender
Income
State of living

Description statistics of respondents that Not willing to purchase a health insurance

policy
Variable N Mean Std Dev Range
Age
Gender
Income
State of living

Second, test significant of difference between the descriptive variable of respondents

that willing to purchase a health insurance policy and respondents that Not willing to
purchase a health insurance policy

Variable t-value Pr > t

Age
Gender
Income
State of living

From the table above Ill compare respondents that willing to purchase a health
insurance policy from Age, Gender, Annual Income, State of living are significant or
not significant difference across the two group( Insurance Policy- Yes/No).

Since I having ordinal variable also along with other variable in my study while
running logistic regression. Use of ordinal variable such as 5-point Likert scale with
interval assumption has been used in contemporary social science research. Jaccard
and Wan (1996) suggest that for many statistical tests assumption of non-interval do
not seem to affect Type I and Type II errors dramatically. Standard citations to
literature showing the robustness of correlation and other parametric coefficient with
respect to ordinal distortion are (Labovitz 1967 and 1970; Kim 1975; Zumbo and
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Zimmerman 1993). In this study the four qualitative variables, which I have used, has
been collected through qualitative study. Respondent were ask the willingness to
purchase health insurance policy if 1 when willing to purchase a health insurance
policy & 0 when not willing to purchase a health insurance policy.

5.2.1 Model Estimation

Im going to used SAS software for econometric analysis of data. PROC LOGISTIC
will used to analyze the data. Analysis of Maximum Likelihood estimates will test.

Analysis of Maximum Likelihood estimates

Parameter Estimate Standard Wald Chi- Pr > Chisq
Square

*Significant at 5% , = 0.95

Testing Global Null Hypothesis: BETA = 0

Test Chi-Square Pr > Chisq
Likelihood ratio
Score
Wald

CHAPTER 6
Expected Result

After my study I wish get to know:

1) Among Age, State of living, gender, Annual income of an individual which is the
factor that will affect the decision of an individual to purchasing a health

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 insurance policy? In other words, what is the factor in affecting demand of health
insurance policy?

2) Among Age, State of living, gender, Annual income of an individual which is the
factor that will most affect the decision of an individual to purchasing a health
insurance policy? In other words, what is the most influence factor in demand of
health insurance policy?

REFERENCE

Bhat, Ramesh and Nishant Jain (2006). Factors affecting the demand for health
insurance in a micro insurance scheme. Working paper 2006-07-02, IIM
Ahmedabad.

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Bhat, Ramesh and Nishant Jain (2007). A study of factors affecting the renewal of
health insurance Policy. Working paper 2007-01-02, IIM Ahmedabad.

Feldstein, M. S. (1973). The Welfare loss of Excess Health Insurance. Journal of

Political Economy. 81:251-280.

Labovitz,S. (1967). Some observation on measurement and statistics. Social Forces

46: 151-160.

Paulin,G.D. and E.M.Dietz (1995). Health insurance coverage for families with
children. Monthly Labor Review 118(8): 13-23.

Jaccard,J. and C.K.Wan (1996). LISREL approaches to interaction effect in multiple

regression. Thousand Oasks, CA, Sage Publications.

Senior Marketing System(2012). Our Company-About Us. Retrieved from

http://my.bm-sms.asia/about/index-en.html

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