A STUDY ON THE MACROECONOMIC FACTORS AFFECTING

DEMAND FOR LIFE INSURANCE INDUSTRY IN MALAYSIA

SIT] ROSMASLINA BINTI AJAN

2005653454

BBA (HONS) FINANCE

FACULTY OF BUSINESS AND MANAGEMENT

UNIVERSITI TEKNOLOG] MARA

MACHANG CAMPUS

KELANTAN

APRIL 2007

UNIVERSITI TEKNOLOGI MARA CAWANGAN KELANTAN

BACHELOR OF BUSINESS ADMINISTRATION WITH HONOURS (FINANCE)

FACULTY OF BUSINESS ADMINISTRATION UNIVERSITI TEKNOLOGI MARA

“DECLARATION OF ORIGINAL WORK”

I, Siti Rosmaslina Binti Ajan (I/C Number: 840710-06-5258)

Hereby, declare that:

This work has not previously been accepted in substance for any degree, locally or

overseas, and is not being concurrently submined for this degree or any other degrees.

This projecl paper is the result of my independent work and invesfigation, except

where otherwise stated.

All verbatim extracts have been distinguished by quotation marks and sources of my

information have been specifically acknowledged.

Signature: ......C/

ABSTRACT

This study investigates the macroeconomic factors affecting demand for life insurance

industry in Malaysia. Because the macroeconomic factors have an imponanl influence on life business and this area has not been grmtly researched in Malaysia, this study is

undertaken to examine the demand for life insurance industry in Malaysia. This study further examines the significant relationship between income, inflation rate and price of insurance as the independent variables with the demand for life insurance industry in Malaysia as the dependent variable. All the data used are in annual basis range from the year 1972 until year 2005‘ In analyzing the data, Multiple Linear Regression Model is used, The major findings of this study indicate that income, inflation rate and price of insurance show positive insignificant relationship with the demand for life insurance industry in Malaysia. Further research is needed in this respect in order to confirm the relationship between of these three variables.

TABLE OF CONTENTS

CON'I T PAGE

DR'IARA HON ()l‘ WORK

LETTER ()l‘ '[ RANSMI'I'TAI.

ACKNOWlDGLMI—IN [' i

ABSTRACT ii

’IABLE ()FCONllzNT iii

US] UP ABBRLVIATIONS vi

[,lS'I 0F IV’\H[.|{ vii

CHAPTER 1

1.0 GENERAL INTRODUCTION 1

|.1 BACKGROUND()F’I'HES'I'UDY l

I 1.] Brief Inlruduu/ion 0/ Life Imumm'y I

1. [.2 I’urpmu qi/L/ Im'urum‘u 3

1. [.3 '[jwex Q/‘Li/c Imurum'c 3

1. H ()wrvicw rI/‘Lg'fl’ Ins'ururlcy Industry in Malaysia 5

1.2 PROBlM S'I'ATICMIYNT l)

1.3 OBJECTIVE 0]" STUDY I I

L4 SCOPE 0!" STUDY I I

15 MM] I A'I‘ION OF STUDY 12

Lil Dam ( 'al/uc/izm 12

/ 5 2 Aucumu' and Reliabilib/ of ln/iwmuliun 12

|.() 'lHllORli'I'ICALFRAMEWORK I3

1.7 STATEMENT ()FHYI’()'[‘1[ESIS 14

1.8 SI<’iI\'H"l(‘/\N'I‘OF 1'} lb STUDY IS

A Study on Ihe 'nuL ’ Factor: Aflecling Demand for Life Insurance Industry in Malaysia

1.0 GENERAL INTRODUCTION

1.1 BACKGROUND OF THE STUDY

1.1.1 Brief Introduction of Life Insurance

Life insurance relates to perils associated with human life. 1! is designed to provide

protection against two distinct risks: premature death and superannuation (living too

long). As a matter of fact, death at any age is probably premature, and superannuation

does not nonnally strike the individual as an in desirable contingency From a

practical point of View, however, one can, and sometimes does die before adequate

preparation has been made for the future financial requirements of ones‘ dependents

By the same way, a person can, and ofien does, outlive income—eaming ability. Life

insurance, endowments and annuities protect the individual and his or her dependents

against the Hm’ financial of p. death and

superannuation.

Life insurance also concemed with events that could happen during a person's life and

the probability of such an event actually taking place. The policyholder pays

premiums regularly and this ensures payment of an agreed amount if the specified

event - such as death or an accident resulting in death or disability - occurs. Premiums

collected from all the policyholders are pooled together to form the life insurance

fund, This fund is nurtured with the intention of being paid out as and when required

to the dependents of those who have contributed to iL Life insurance normally