Demand for insurance in Nairobi an econometric study
This study analyses the determinants of the probabilities of purchasing insurance, relative to that of not purchasing any insurance at all, as well as the determinants of the expenditures on different insurance contracts, conditional on decision to buy insurance. The data for this study were collected in two Nairobi divisions, namely Makadara and Kibera. A total of 112 respondents were interviewed for a period extending from 19th of March to the 23rd of April 1992. Estates were clustered into blocks, were upon radial sampling technique was applied. The determinants of the probability for purchasing insurance, as well as the factors determining expenditures on insurance were divided into two viz; attributes of insurance types themselves and characteristics of insurance buyers. These factors include cost of insurance, sum assured for the various types of insurance services, income, wealth, age and education. The estimated results indicate that the premium level which is also the cost of insurance, and the sum assured for each of the insurance types available in the insurance markets, have very significant effects on the probability that an individual will enter into an insurance contract. Specifically, premium levels reduce probabilities of taking up insurance contracts as well as the expenditures on those contracts. Income and wealth are positively correlated with probability of taking up insurance and with the household budget shares devoted to insurance expenditures. The results indicate that the other variables studied do not have significant effects either on the probability of buying insurance or on household budget shares taken up by insurance services. Study findings are used to suggest policy recommendations.