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DECISION MAKING PROCESS OF TAKAFUL CONSUMER IN JAKARTA 2010




Rhesa Yogaswara, S.Si
1


To be presented in Global Islamic Marketing Conference (GIMC)
Dubai, 2011


ABSTRACT

Insurance as one of the industry within the financial system, is one of the intermediary
institutions that have an important role in providing the stability and financial and economic
distribution in Indonesia. Insurance in Act No. 2 - 1992 about insurance companies.
The effort to increase Islamic life insurance market share has been carried out by
Indonesia Ulama Council (MUI). MUI has issued a fatwa on the prohibition of interest in
December 2003, and also fatwa from the National Sharia Board (DSN) No: 21/DSN-MUI/X/2001
containing about "General Guidelines for Islamic Insurance". The Islamic insurance industry is
experiencing significant growth market domination. The Cummulative Annual Growth Rate
(CAGR) of Islamic insurance policyholder is 10%. On the other side, conventional insurance
continues to growth, with estimated CAGR is about one percent.
However, there are other approaches that could be a solution for Islamic insurance
company to increase their market share. This approach represents an aspect of marketing, which
insurance company needs to know their consumer very well. The process to identify their
consumer, was part of a stage before doing marketing activities. The consumer behavior is
observed by doing the studies to know the factors that influence the purchase decision process.
This is expected help insurance company before doing marketing activities, in order to create the
demand of Islamic life insurance. Therefore, market driven approach can be used as an
alternative to increase the Islamic insurance market share.
Therefore, targeting market segments will be apropriate on the target when the player
perform a study to know and understand the consumer through consumer decision-making
behavior. Market segment which the decision-making behavior is well recognized, player can
perform marketing activities that fit in the pattern of decision-making process. Finally, the result
is expected to be a solution for player to do the marketing activities more efficiently, in order to
increase the Islamic life insurance market share.
According to the problem identification, there is a key question that is needed to be
answered through this study on "Decision Making Process". The question is, what are the factors
that is affecting the consumer, to make decision in purchasing Islamic insurance?







1
Consultant of QASA Strategic Consulting, Indonesia
Chartered Islamic Finance Professional Candidate. INCEIF, Kuala Lumpur. Malaysia.
Master Candidate in Islamic Business and Finance. Paramadina Graduate School, Jakarta, Indonesia.
Email: rhesa.yogaswara@bismillah.com

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I. INTRODUCTION

I.1. Background
Insurance as one of the industry within the financial system, is one of the
intermediary institutions that has an important role in providing the stability and financial
and economic distribution in Indonesia. Insurance in Act No. 2 - 1992 about insurance
companies say that insurance is an agreement between two or more parties, which the
insurer is binding to the insured, by accepting the insurance premium, to provide
reimbursement to the insured for loss, damage, or legal liability to third parties that may
be suffered by the insured, arising from an event that is uncertain, or provide a payment
based on death or life of an insured person.
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In Indonesia, Islamic insurance has began to be developed since 2001 which is
regulated in the General Sharia Insurance Code of Islamic National Council Fatwa No:
21/DSN-MUI/X/2001. By the definition, Islamic insurance is an effort to protect each
other and mutual help among a number of people / party through investment in assets and
/ or tabarru 'which gives the pattern of return, to minimize the particular risk through the
contract (engagement) in accordance with sharia.
The Islamic insurance products are not only launched by Islamic insurance
company, but also the conventional insurance companies were allowed to offer Islamic
insurance products and marketed to consumers. According to the International Muamalah
Summit last 2008, Islamic insurance industry has increased by 10% from 2004 2007
annually, based on number of policyholders.
3

Compared to conventional life insurance, Islamic insurance market share is still
very small in terms of assets, claims, and premiums. The market share of Islamic
insurance is estimated to have almost 10% from total market of insurance (both
conventional and Islamic insurance).
4

The effort to increase Islamic life insurance market share has been carried out by
Indonesia Ulama Council (MUI). MUI has issued a fatwa on the prohibition of interest in
December 2003, and also fatwa from the National Sharia Board (DSN) No: 21/DSN-
MUI/X/2001 containing about "General Guidelines for Islamic Insurance". The Islamic
insurance industry is experiencing significant growth market domination. The
Cummulative Annual Growth Rate (CAGR) of Islamic insurance policyholder is 10%.
On the other side, conventional insurance continues to growth, with estimated CAGR is
about one percent.
5

The fatwa that has been issued is an approach that can be expected to increase the
market share of Islamic insurance, through the encouragement of government
(government driven). However, there are other approaches that could be a solution for
Islamic insurance company to increase their market share. This approach represents an
aspect of marketing, which insurance company needs to know their consumer very well.

2
http://id.wikipedia.org/wiki/Asuransi (Accessed on 21 June 2009)
3
Rachmatawarta, Isa. The Growth of Sharia Insurance Business. International Muamalah Summit. Jakarta.
2008.
4
Ibid.
5
http://syakirsula.com/index.php?option=com_content&view=article&id=62:fatwa-mui-tak-pengaruhi-
industri-asuransi-syariah&catid=1:berita-syakir-terkini&Itemid=54 (Accessed on 30 Desember 2010)
3

The process to identify their consumer, was part of a stage before doing marketing
activities. The consumer behavior is observed by doing the studies to know the factors
that influence the purchase decision process. This is expected to help insurance company
before doing marketing activities, in order to create the demand of Islamic life insurance.
Therefore, market driven approach can be used as an alternative to increase the Islamic
insurance market share.

I.2. Problem Identification
To increase the Islamic life insurance market share, the players need to conduct
marketing activities efficiently. Marketing could be said to be efficient if it can target the
right market segment.
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Attempts to identify the appropriate market segment, it is a
challenge for them especially for insurance company that offer conventional life
insurance products.
Therefore, targeting market segments will be apropriate on the target when the
player perform a study to know and understand the consumer through consumer decision-
making behavior. Market segment which the decision-making behavior is well
recognized, player can perform marketing activities that fit in the pattern of decision-
making process. Finally, the result is expected to be a solution for player to do the
marketing activities more efficiently, in order to increase the Islamic life insurance
market share.
According to the problem identification, there is a key question that needed to be
answered through this study on "Decision Making Process". The question is, what are the
factors to the consumer, to make decision in purchasing Islamic insurance?

I.3. Research Coverage
The scope of the study is limited in terms of objects, place, time, and parameter
studies. In terms of the object, this research is limited to the policyholders from one of
Multinational insurance company. From the type of insurance, this study only cover the
life insurance market.
In terms of place, the scope of this study is limited only to policyholders who live
in the Greater Jakarta. In terms of time, it is limited only for 2010. The parameters of the
study, which examined a consumer behavior is a behavior that closely related to the
factors that influence the purchase decision making process. However it is not include the
variable of consumer personality.

I.4. Research Purpose
There is a main objective of this research. It was to determine the factors that
influence consumer decision-making process to purchase Islamic Insurance. Benefits of
this research is to provide an overview for Prudential to identify consumer behavior in
making purchasing decisions, before targeting a specific market segment. In addition, this
study will be useful for marketing activities carried out can be done with a more efficient
manner.
Benefits from this research are, to describe and identify the consumer behavior in
in terms of purchasing decisions-making process. In addition, this study will be useful for
player that their marketing activities will be done more efficient. It is because, they can

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Royan, Frans M. Smart Launching New Product. PT. Elex media Komputindo. Jakarta, 2004. Pg.60
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target a specific market segment before doing sales and marketing activities. In addition,
this research can provide life insurance companies understand the market very well in
order to increase its market share.

I.5. Research Framework
Nowadays, the small of Islamic life insurance market share has become the
government's attention. Some regulations have been issued by the government with the
aim to improve the life Islamic insurance market. However, the market share is not
experiencing significant growth. There is another approach that could be a solution. It is
the approach through the marketing area, which player need to know the consumers very
well.
The consumer identification process is one of the stage prior doing the marketing
activities. Consumer behavior is observed through examining the factors that influence
the purchase decision-making process. The result can provide a solution for player before
conducting the marketing activities efficiently. It is expected can increase the demand for
Islamic insurance. Therefore, the market driven approach can be used as an alternative to
increase the Islamic insurance market share.
The following chart is a research framework in order to study "Analysis of
Consumer Decision-Making Process of Islamic Life Insurance in Greater Jakarta in
2010


Chart I.5.1. Framework of Research Background

According to (Leon: 1997) in his book, which is entitled Consumer Behavior.
Simple model in a decision-making process consists of three stages which are different
however it is interconnected. The three stages are consist of input, process and output
stages.

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Chart I.5.2. Decision-Making Process Framework

Input stages consist of the marketing mix of the insurance product as well as the
environment around the consumer as an individual. External influences that affect
consumer communication are delivered from promotional activities. The second external
influence is the socio-cultural of the consumer as an external factors that drive consumers
behave before making a decision. Daily cultures of the consumers environment from the
family (father, mother, husband/wife, brother/sister, etc.), social environment, work or
business environment, social class, are going to be the external factors that influence the
decision-making process .
The second stage of consumer decision-making process is psychological factors
such as consumers' motivation to purchase the product, the perception in consumers
minds about a product, learning process and the involvement of consumers towards a
product, as well as individual attitudes. All of those psychological factors will greatly
affect the consumer in making the purchase decision.
Consumer decision consists of three stages. The first, "Introduction Process",
second is "Checking and validating the information before make a purchase decision",
and the last is "Evaluation Process". Relying on these consumer stages, we will be able to
know the compatibility between the communication activities that have been conducted
with the perception received by the targeted market segments.
The third stage is how consumers behave after consumers make decisions, where
this stage will greatly affect their next decision. The consumer decision-making is closely
related with evaluation after they purchase and the attitude of the consumers after they
have the experience.
There are two possibilities when the consumers purchase a product. The first
possibility is the purchase which is categorized as a trial purchase. The second possibility
is classified as purchases made in the second time or as an additional purchases. At this
stage, there is the possibility of influence process as a factor for consumers in making
decisions, after consumers have had experience with the Islamic insurance product.




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I.6. Research Methodology
I.6.1. Data Collection Methodology
The research is conducted by using a primary data. Primary data will be obtained
though random sampling methods by distributing the questionnaires to the policyholders
of Islamic insurance product. The respondents were met through sales agents that had
been met randomly in each Branch Office in Greater Jakarta.

I.6.2. Data Analysis Methodology
This study will use several patterns analysis. First, the analysis process can be
done by doing cross-tabulation of frequencies. It can provide the domination and the
trend factors that had influenced the purchase decision-making.
There are some patterns of analysis in this study. There are Segmentation
Analysis, Hierarchy of Human Needs according to Maslow's theory, Mapping Perception,
Attitude Tri-component Model, Group Dynamics, and then will be analyzed through a
model of decision-making behavior.

I.6.3. Research Flowchart
The analysis that will be proceed to answer the research questions is illustrated
through the following chart:

Chart I.6.3. Research Flowchart





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II. Result and Analysis
II.1. Perseption
The consumer in Indonesia has awared about the Islamic insurance products.
However, they will have different perceptions on their minds. There is 58% from total
respondents (n=90) has perceived that Islamic insurance product has been comply with
the Sharia rules.

Graph II.1. Perseption

This perception had been a general perception when they heard about Islamic
insurance product in the first time. By using the perception mapping technique, we can
draw three variables to measure the perception in the consumers mind. (Kennedy,
Riquier & Sharp, 1995)
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First is the perception of conformity with the Sharia (the graph is described in the
y variable). If the variable positive, then the consumer perception is that the products
comply with Sharia rules.
Second is the perception in terms of price (the x variable), where the premium is
perceived as cheap products if the variable is positive. The third is about the universality
variable (the z variable). If the obtained value is positive, then the product will be
perceived as a product that can be used for anyone. In this context, it means that the
product can be used for any religion.
The result obtained from the data collection process, perception mapping
describes that the products are comply with the Sharia rules, with +40 y value. The
mapping is followed by a +8 value for the x variable in terms of cheap premiums. The
last is a z variable that show -5, which means that Islamic insurance is perceived as a
product that is only reserved for Muslims only, not for non-Muslim.

7
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg. 164
8


Graph II.1.2. Mapping Perception
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Perceptions that have been established in the minds of consumers is a result of the
companies by delivering information through various media, then accepted by
consumers. At the end, the promotion and branding activities have created the perception
that Islamic insurances are the products that comply with Shariah rules".
In terms of product image from consumers perception, there has been a relation
between perception and motivation of consumers who have chosen Islamic insurance
product. Generally, Islamic insurance is a congruent product with the consumers self-
image, where the consumers tend to have a motivation in having a product that is
perceived accordance with they want.
These findings are good for player to have the right product positioning, in order
to target the market with the suitable communication message. The message could
accentuate that the products have been comply with the Shariah rules. In addition, this
positioning communication will be effective by targeting the market segment accurately.

II.2. Consumer Needs
From those who are interested with Islamic insurance, there are several reasons
that make them purchase the product. The most reason (21 respondents) is because of the
Sharia compliance. And the second is the attractive investments as the main reason,
which are 12 respondents, have this reason. The next 10 respondents did trial and error as
their motivation.

8
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg 164
9


Graph II.2.1. Their Main Reason which are interested immediately

Thus, the unmet needs are satisfied after the Islamic insurance products are
available in the market. The need of Islamic insurance that comply with Sharia, is a
psychological needs of the consumers. Psychological need can be viewed from various
aspects, such as self-actualization, protection and affection.
It means that Islamic insurance is a solution for consumers who have a need for
self actualization. When the consumers have Islamic insurance product, they will feel that
they have comply with the Shariah rules. The second is a social need, which means that
consumers have the investment as affection to their heirs.
The third is the security needs that had been fulfilled that the protection has been
provided to the policyholders or the heirs. Their motivation was to protect their income to
fulfill the expenses when the policyholder got the disaster.
According to the data, there are indications that not all Muslims have a motivation
"Comply with Shariah Rules as their main reason. The wordly aspect like investment
gain is still dominating their reason for having Islamic insurance. Here is a Hierarchy of
Policyholderss Needs Maslow theory diagram.

Graph II.2.2. Hierarchy of Human Needs (Maslow)
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9
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Hal 106
10


The graph above has shown that there are three levels of consumer needs, which
had influenced their motivation to have Islamic insurance. The highest level is the self-
actualization needs that Sharia compliance is the majority needs for self-actualization. It
means that Islamic insurance is a product that has entered the highest levels of human
needs.


II.3. Consumer Behavior
II.3.1. Group Dynamic
Process of analysis is one of the consumer behaviors that influences in decision-
making process. The influence from the surrounding environment is dominated for
insurance products, because insurance is a long term purchase that will reduce their
income frequently. Therefore, the right decision has make respondents are dominated by
surrounding environment.
In terms of decision-making process, respondents themselves are the most
influential party. 50 respondents stated that they alone were the first influencer. However,
there are 46 respondents who have another party, whom influenced them to make
decisions. Most of their partner is (wife/husband). This is a reasonable reason because the
spouse is a party who knows the family's financial budgeting plan that is conducted every
month. Thus, the decision making process has involved both party.


Graph II.3.1.1. The First Influencer in Decision-Making Process

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Graph II.3.1.2. Second Influencer in Decision-Making Process

The family runs a social function in the consumers level, which means that
families socialize the product naturally and it can motivatie the spouse (husband/wife) to
purchase insurance. Not only as a social function, spouse (husband/wife) also contributes
to socialize the products for long term period, where have the potential to influence the
next generation to have the same product.
In the dynamic group, there is still another social class factors which influence
them to make decisions. In this study, it was found that the class of "White Collar"
(employee), with income is less than 50 million rupiahs a year; have a tendency to give
positive influence.


Graph II.3.1.3. Consumer Referece Groups
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10
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg 294
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II.3.2. Loyalty and Brand Equity
Level of loyalty and brand equity is another benefit that the Islamic insurance
product can become a high value product from consumers perspective. Loyalty level of
policyholders can be measured by considering the level of policyholders new
acquisition, as well as in terms of premiums value. The response of policyholders after
their experiences, will be expected to increase market share than its competitors.
However in this study, loyalty and brand equity are only measured the new acquisition of
policyholders. The premium value was not covered in this research.
The increasing of policyholders is closely related to the satisfaction level. Hence,
the experiences of the policyholder become one of the variable that need to be analized.
The result from this study is 72% of respondents stated that they are happy with the
product. While the rest, said that they do not have any particular experience that makes
them feel satisfied.

Graph II.3.2.1. The Experience of Policyholders

The period of being the member has been grouped that 35% are in 3-years,
followed by 1 year, which reached 30% of the total respondents. This indicates that until
the 3 years being a member, the satisfaction and the experience are still well maintained.
The results indicate that 25 of the 50 respondents who expressed happy, feel that Islamic
insurance has been proved comply with Sharia rules.
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Graph II.3.2.2. The Things that Make the Policyholders Happy

From this result obtained, there are the indications that the Islamic insurance
products have high satisfaction level. It affect that the 90% of respondent (n=50) will
recommend the Islamic insurance to their family, friends, etc

Graph II.3.3.3. Recommendation Response

There are several reasons that the respondents will recommend the product in
their first priority. There are 26 respondents (n=45) said they would refer a Shariah
Compliance reason, and then it was followed by a trusted agency, the attractive
investment and protection.

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Graph II.3.3.4. Reason behind the Recommendation

With a detailed explanation of the policyholders behavior above, we can see a
decision-making process model in Islamic insurance. The process is described in a model,
which according to Leon Schiffman, the model is a simple model of consumer decision-
making process.















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Graph II.3.3.5. Decision Making Process Model
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11
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997. Pg 521
External Influence




Input




Consumer Decision Making







Procces





Consumer Behavior
After Make a Decision




Output







Marketing Mix
1. Product: Tabarru Contract
2. Promotion: Universal Message
3. Price: Min Rp.250,000 per months
4. Place: Insurance Agency
Socio-Culture
1. Family: Husband/Wife
2. Social Class: White Collar
3. Income: < Rp.50 million/year
4. Education: Bachelor
5. Religion: Islam

Initial Response: Interested
immediately

Information Validation: Asking
Friend

Product Alternative Evaluation:
Compare with similar product
Psychological
1. Motivation: Find Shariah Compliance
2. Perception: Comply with Syariah
3. Learning: Friends Recommendation
4. Sikap: Consistent between perception,
experience, action

Experience

Purchase (it is not under research scope)
1. Trial and Error
2. Increase the premium amount
Feeling: Happy
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III. Conclusion and Recommendation
Before the policyholder makes a decision to purchase Islamic insurance, the
policyholders can be categorized as a consumer economic model as well as a consumer
cognitive models. They can be assumed as a cognitive model because the policyholders
have decided to purchase the products through the long thinking process. Policyholders
have an active role to find the information about their products before they purchase. A
cognitive component in this case, can be concluded as a belief and understanding of
policyholders that the Islamic life insurance is a product that meets the Shariah Rules.
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Policyholders can be categorized into economic models because of their rational
thinking who consider the price factor. This is very reasonable because the insurance is a
product that will affect their monthly cash flow for a long time period. Thus, the
decision-making model can be categorized as a limited problem-solving model, which is
limited according to the basic criteria of their perception; which is related to the Shariah
compliance.
In the future, this research can be expanded by considering the personality factor
that has a possibility to influence the decision-making process. In addition, the study can
be more accurate and specific by focusing the research scope is only implemented for
particular Insurance companies.


IV. References

Hawkins, Del and Kenneth A Coney, Roger J Best. Consumer Behavior: Implications for
marketing strategy. Business Publications, Inc. 198.
http://id.wikipedia.org/wiki/Asuransi (Accessed on 21 June 2009)
http://syakirsula.com/index.php?option=com_content&view=article&id=62:fatwa-mui-
tak-pengaruhi-industri-asuransi-syariah&catid=1:berita-syakir-terkini&Itemid=54
(Accessed on 30 Desember 2010)
Leon, Schiffman. Consumer Behavior. Second Edition. Prentice Hall. Australia. 1997.
Rachmatawarta, Isa. The Growth of Sharia Insurance Business. International Muamalah
Summit. Jakarta. 2008.
Royan, Frans M. Smart Launching New Product. PT. Elex media Komputindo. Jakarta,
2004.




12
Hawkins, Del and Kenneth A Coney, Roger J Best. Consumer Behavior: Implications for marketing
strategy. Business Publications, Inc. 198. Pg 333