Effects of behavioral biases on life insurance demand decisions in Uganda

Abstract

Purpose This paper examines the relationship between behavioral biases, and demand decisions for life insurance products in Uganda. Design/methodology/approach Data were collected from 351 life insurance policyholders in Uganda. The authors used a cross-sectional survey by applying a structured questionnaire. Descriptive analysis was conducted and hypothesized relationships between the constructs were evaluated through the use of structural equation modeling. Findings Results indicate that, behavioral biases are significant predictors of life insurance demand among Ugandan policyholders. Also, the two behavioral bias variables (heuristic bias and prospect bias) are significant predictors of demand decisions for life insurance products. Practical implications These results are helpful for both insurers and regulators. For insurers, it is now evident that demand decisions for life insurance products are not fully rational. It is imperative for insurers to simplify life insurance product information (heuristics), integrate product education and widen dissemination of product information (prospect bias) to allow policyholders to come up with optimal demand decisions. While for insurance policymakers, the study provides an understanding of behavioral biases. With such insights, policymakers can identify exploitative and deceptive information that target policyholders to better guide life insurance documentation and product designs. Originality/value This study is the first to offer insights into behavioral biases' influence on demand decisions for life insurance products in a developing country like Uganda. By integrating prospects and expected utility theory, this study examines rationality and irrationality in demand decisions for life insurance products. Peer review The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-03-2023-0201

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