The Prudential Assurance Malaysia Berhad Finance Essay

CHAPTER 1

INTRODUCTION

It is important to invest our savings in a meaningful way for economic development. How much money do people invest out of their total savings? How much frequency of their investments? Which financial instruments they invest and risk aversion that they show in their investment behavior? People should be aware of the investment alternatives in making financial decision. Proper and further analysis of investors’ behavior requires household or micro level data on investing patterns and preferences as well as estimating the household savings. The information will help financial institutions and policy makers organize savings and increase investments.

Investment usually related to saving and spending. In other word, people put their money into some investment plan for long term and expect they will gain something in return. There are several risks to be considered when investing. One of the most popular risks is inflation risk.

Investing plays an important role in economic development. Growth theories have shown that investment will enhance a country’s productivity. Therefore, it would be important to look at the determinants of people’s investing to full understand economic growth.

In the present day, each investor has their own specific financial needs which are based on their financial goals and risk type. But eventually, every investors aims at maximizing returns on their investment. Therefore, it is important for people to have financial knowledge so that they can invest their money rationally. In Malaysia, savings have become popular but the main concern is where to invest the saving. Most comment place or investment plan among Malaysian is bank-deposits, securities and non-financial assets.

Nowadays, women control or influence over half of family investments. In terms of financial literacy, women often been downgraded than men. This have impact the financial behavior of women negatively. Understanding investment behavior among women is important because investing is important in Malaysia. Women are facing significant challenges when it comes to financial decision making and lack of knowledge about financial solutions that can help them. The reason for this is that since before, man has been the primary breadwinner of the family. Men are responsible in earning and managing money of the family. Women, on the other hand, were usually responsible for raising children and settling household activities. Even though many women is qualified enough in earning money, they view that their earning as secondary compared to men.

In general, women have lower literacy than men. Based on a financial literacy study, participants were asked to rank their financial knowledge through a set of problems as to measure their actual level of financial literacy. The correlation was between women’s low self-evaluations and poor performance on the literacy problems. This showed that lack of overconfidence is might be helpful in financial decision making and this awareness may help women to take action.

BACKGROUND

INDUSTRY BACKGROUND

There are a large number of companies of various sizes which involve in insurance industry. Insurance policies were being offered by insurance company to the public through direct selling or through third party. Through third party or other source meaning that through the employee’s benefit plan which is given by the employer. An insurance company is usually involved multiple insurance agents. In addition, an insurance company can specialize in one type of insurance. For example, life insurance, health insurance, auto insurance or multiple types of insurance. There are two groups of insurance companies. It is either a company based on life insurance or based on non-life insurance. The life insurance includes selling life insurance or pension products and others. As for the non-life insurance, includes selling property, general and other types of insurance.

As an addition, insurance are also involved in managing the risk among each investment being made by their policy holders. For example, insurance company helps managing the death rates among the policy holders through life insurance. The insurance company collects the premiums either monthly, quarterly or yearly from the policy holders then invests the money in low risk fund and then help the policy holder to reimburses the money to the beneficiary once the policy holder passes away of in the maturity of the policy. The amount or value of the premium that must be paid by any policy holders depend on their age, sex, smoking habits and others. This is to estimate the life span of the policy holder. In order to qualify as a policy holder, they must provide their medical information. The entire insurance acquired are also depends on these characteristics.

PRUDENTIAL ASSURANCE MALAYSIA BERHAD (PAMB)

Prudential Assurance Malaysia Berhad (PAMB) was established in Malaysia in the year 1924. PAMB is part of Prudential plc of the United Kingdom which is established in 1848. Prudential plc is one of the world’s leading retail financial services group. As for PAMB, it achieved a record RM1.107 billion in new business annual premium equivalent (APE) in the year 2011. This new business APE comprises Life Insurance sales and Takaful contributions. This means, Takaful products distributed by PAMB’s Wealth Planners and agents are underwritten by Prudential BSN Takaful Berhad.

As an innovative leading insurer, PAMB offers a full range of financial solutions through its 43 branches nationwide in order to serve the savings, protection and investment needs of Malaysians. PAMB is committed to help people achieve their hopes and dreams for a brighter and financially secure future. PAMB consisted of 1, 400 employees and over 12, 000 agents and Wealth Planners.

PRODUCT RANGE

PAMB currently have different products for every range of age. There are 7 categories of products in PAMB. There are for protection, critical illness and health, child, female insurance, senior insurance, savings and investment and also for retirement. As for protection, some of the products are PRU life ready, PRU link one, PRU link million and others. For the critical illness, there are PRU flexi med, PRU clinic care, PRU health and others. As for child, PAMB covers through PRU my child, PRU early start or PRU best start. For female insurance, they offered PRU lady standalone. The product offered for senior insurance is PRU senior med. PRU cash and PRU link investor account are examples of savings and investments. Finally, for retirement, PAMB offered PRU retirement growth.

YEN SZE WEI AGENCY (PAMB, Kuching, Sarawak)

Yen Sze Wei Agency is an agency represented PAMB in Kuching. This agency is situated on the 2nd Floor of Wisma Prudential in Kuching, Sarawak. This agency was established by Mr. Yen Sze Wei. He joined PAMB in the year 1994 and has been promoted to Agency Manager in 1998. This agency is a brand name which represents a world class financial institution with successful and winning environment. They provide excellent training and personal development in order to improve their agents professionally. Yen Sze Wei Agency consisted of more than 40 agents and Wealth Planner.

WORKING WOMEN AMONG POLICY HOLDERS (PAMB Kuching, Sarawak)

Women are the pillar of success behind every man and the strength behind every family. Every woman has the potential to create an impact in her field or industry. As for that, most of the policy holders in PAMB Kuching are working women and are local from Kuching area. They saved and invested in several products especially PRU lady standalone and PRU cash. For certain, they even buy PRU my child product for coverage of their children. This shows that working women are able to save and invest their earning.

CHAPTER 2

ISSUE IDENTIFICATION

Difficulties in making good and rational investment decisions have been issues lately. In fact, past studies show that investors were not always rational in making investment decision because in doing this, there are a lot of criteria to be considered. Furthermore, the decision making processes are focus to several biases. Investors usually invest when investment returns are highly uncertain and unpredictable. The way the investors’ act or behave will consequence the rate of degree of market risk they have to face. Studies have shown that various factors could affect the investment outcome among investors such as the investors’ age, race, gender, demographic, educational level and their annual income.

Initial reason to perform the study arose from a need to have more understanding of financial decision making of individuals from a behavioral point of view. There is a lack of research on investor behavior among working women in Malaysia. Therefore, this study is intended to determine the types of investment behavior and investment preferences of working women. Apart from that, this study also focused on the level of agreement of working women on various aspects of investment planning. Past studies examining investment behavior tend to have inconclusive results when it comes to identifying which types of investment behavior are most or least influential. As for that, there is no research on investment behavior among working women in Malaysia especially for Kuching area.

OBJECTIVES

The objectives to be in this study are as follow:

To study types of investment behavior of working women among policy holders of PAMB, Kuching

To study types of investment plan preferred by working women among policy holders of PAMB, Kuching

To study the level of agreement of working women among policy holders of PAMB, Kuching on various aspects of investment planning

STUDY QUESTIONS

What are the types of investment behaviour of working women among policy holders of PAMB, Kuching?

What are the types of investment plan preferred by working women among policy holders of PAMB, Kuching?

What are the levels of agreement of women among policy holders of PAMB, Kuching on various aspects of investment planning?

SCOPE OF THE STUDY

This study will discuss about investment behaviour of working women of PAMB in Kuching Sarawak. This study will involve 3 agents in Yen Sze Wei’s Agency out of 40 agents. Each of them will be given 50 questionnaires to be distributed among their policy holders which are working women. I choose the agents based on the total number of policy holders they have. Apart from that, I choose the agents through their willingness in giving me the lists of working women among their policy holders. The agents are:

No.

Name

Date of Birth

Year Joined PAMB, Kuching

Total Number of Policy Holders

1

Winnie Lim

16th February 1975

2005

500

2

Christina Boyer

29th February 1980

2007

370

3

Nurzunizza bte. Kamarudin

9th November 1980

2010

200

CHAPTER 3

ELEMENTS CONTRIBUTING TO THE ISSUE

This chapter will discuss some of the literature survey that will support each factor regarding this study. A literature review is a step-by-step process that involves the identification of published and unpublished work from secondary data sources on the topic of interest, the evaluation of this work in relation to the problem, and the documentation of this work. (Sekaran & Bougie, 2010). This chapter focuses on review of literature pertaining to researches that is relevant to the study which is on investment behaviour of working women.

WORKING WOMEN

Working woman can be defined as:

"Working woman is a woman who works for wages. A working woman earns salary, wages, or other income through regular employment usually outside the home. Other than that, a working woman usually employed in manual or industrial labor."

(Farlex, 2013)

During the last four decades, women have benefited the economic growth and development in Malaysia. There are a lot of employment opportunities for women. So, the rate of working women in all sectors of the economy has multiplied since 1970s.

The female labour force continues to be an important component of the labour supply in Malaysia, accounting for 3.17 million or 33.1 percent of the labour force in 2000. (Jalil, 2003). It seems high percentage of working women nowadays but the involvement level of Malaysian working women is still relatively low among developed countries. One of the challenges is working women have to equip and prepared themselves with necessary and relevant financial skills especially in investing their saving. As for that, working women should be aware of their investment behavior in order to develop and plays the role of women in the economy.

While women are more in control than ever of their finances, the study shows they are facing significant challenges when it comes to financial decision making and admit to a lack of knowledge about financial solutions that can help them. (Blount & Marcks, 2012). This shows that the financial services industry has to work in accordance to educate women in taking action and aware of their investment and retirement.

COMMON INVESTORS BEHAVIOUR

Behavioral investing can be defined as:

"Behavioral investing definition is a theory which recognizes critical psychological and behavioral variables in stock market investing. This theory states there are opportunities for investors to profit during these times if they are sharp enough to pick up the signs."

(IWP, 2011)

The common investment behavior was affected by emotions of expecting more on return compare to risk. These emotions will not go away as emotion will constantly affect investment decision and leads to biases in judgements. (Chun & Ming, 2009). Different people have their own behavior and same goes to investors. Different investors have different investment behavior. They did not suffer the same behavioral bias.

Therefore, there are different types of investment behavior. In some of the previous study, they have concluded that investment behaviour does affect the investors’ judgement in investing but in Malaysia, there are no studies that investigate the investment behavior among working women. As for that, the next section will improvised on four major behaviours that investors are frequently exhibit. These four behaviours were also being identified by financial researchers which are overconfidence, representativeness, regret and price anchoring.

OVERCONFIDENCE

Overconfidence can be defined as:

"Overconfidence or presumptuousness is excessive belief in someone or something succeeding, without any regard for failure. Confidence can be a self-fulfilling prophecy as those without it may fail or not try because they lack it and those with it may succeed because they have it rather than because of an innate ability."

(Wikipedia, 2001)

A person tends to overestimate their knowledge, skills and the precision of their information.(Odean, 1988). This study shows that investors generally rate themselves as above average when it comes to selecting investments. When an investor is above average, it means that the investor generally perceive themselves as a good decision makers that is equipped with a better financial decision skills than they really are.

A study on overconfidence investors have shown that, overconfidence encouraged investors to trade more than rational investors and lowered their expected returns because overconfident investors tend to be over certain about their judgments (Odean, 1988). This happens because they cannot see that being overconfidence is a mistake which affect their decision in investment. Other studies also mentioned about the implications of being overconfidence. For example, being overconfidence will lead to underestimating or overestimating the probability of better results.

REPRESENTATIVENESS

Representativeness can be defined as:

"Representativeness is defined as the level of how well or how accurately something reflects upon a sample. When a study gives a good indication of what the whole population believes, this is an example of a study with good representativeness."

(Dictionary, 2012)

People judge probabilities by equating situation A to situation B, or by the level of similarities between A and B. this situation called representativeness heuristic and it happens when investors confront uncertainty or lack of information. (Tversky & Kahneman, 1974). An investor with this kind of investment behaviour will perceive and invest into latest investments that perform well. They are unlikely to invest into investments that have performed weakly.

A research in finance exposed that prior stock performance was generally not a good indication or prediction of future stock returns. (Fama, 1970). In this case, investors still rely on this type of information in their decision-making process. This shows that investors have the mindset of considering the past performance of the organization as strong or weak. Then, this will lead to depending on the organizations past performance and not on the future forecast of investment.

REGRET

Regret can be defined as:

"Regret is a theory that says people anticipate regrets if they make a wrong choice, and take this anticipation in consideration when making decisions. Fear of regret can play a large role in dissuading or motivation someone to do something."

(Investopedia, 2013)

It is expected that people would feel greater regret and responsibility for actions that deviate from the norm because it is easy to imagine doing the conventional thing. (Kahneman & Miller, 1986). Previous studies show that the feelings of guilt among investors are commonly because of poor outcome. Investors are afraid of poor or no outcome will be obtained from their investments.

Investors can be a risk averse typed of investors or they are motivated to take higher risk in investing because of their fear of regret. As an example, when an investor involve in an investment plans such as life insurance based on their agent’s recommendation. After 2 years, the market value falls, so the investor withdraws the policy. To avoid regret, the investor will ask agent for other better recommendation. Conversely, if the investor did not take the agents recommendation at first, but the market value increases. In order to avoid the regret of losing out, the investor will be less risk averse and buy any life insurance that the agent recommends in the future. This shows that investors might blame their advisors for mistakenly perceived the value of their investments.

PRICE ANCHORING

Price anchoring can be defined as:

"Price anchoring is the use of irrelevant information as a reference for evaluating of estimating some unknown value or information. When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value."

(Investopedia, Investopedia, 2013)

Some investors do concentrate on specific price of investment plan. According to (Benartzi & Thaler, 1995), the reference point is crucial measurement as investors think it determines the opportunity of obtaining a profit or liability in experience a loss. This shows that investors will always hang on to losing their investments through waiting so that the investment will breakeven at the price in which they will purchase. Investors will take a greater risk by holding their investment plans and hoping that it will increase their profits in the future. From the investor’s point of view, the reference point determines the degree of profit and loss made. However, the investors also engage in reference point updates to match unrealized profit along the way. (Chun & Ming, 2009)

CHAPTER 4

STUDY METHODOLOGY

This chapter will show how this case study will be designed. Apart from that, in this chapter I will also suggest how this case study can collect data needed to generate information regarding the intended case study topic. Both primary and secondary data collection will be used for the purpose of this case study in obtaining necessary data for the completion of this case study.

RESEARCH DESIGN

The purpose of this research design is to define investment behaviour of working women of PAMB, Kuching. All the data and information will be collected and will be obtained from respective respondents from the questionnaires that will be distributed. The research design was explanation types of case study.

According to (Babbie, 1998), the purpose of this study is to explain things. The case study is for explaining on investment behaviour of working women of PAMB, Kuching in which will refer to the types of investment behaviour, the types of investment plan and the levels of agreement of women among policy holders of PAMB, Kuching on various aspects of investment planning.

UNIT OF ANALYSIS

This study will be addressed to those working women which are policy holders of PAMB, Kuching. This case study will also for obtaining information and providing better understanding regarding investment behaviour of working women among policy holders of PAMB, Kuching. Units of analysis in this study will be 150 working women who are the policy holders of PAMB, Kuching.

SAMPLING SIZE AND SAMPLING TECHNIQUE

According to (Sekaran & Bougie, 2010), a proper sampling technique and sampling size are very important in order to achieve credible research finding. The sample size for this study involves working women who are policy holders of PAMB, Kuching. The sampling will be distributed equally to ensure that the data collected will not being manipulated and only to the extent of the factors that I wanted to emphasize in this study.

The sampling that I have chosen is random sampling. The selection of sample is from the set of working women who are among the policy holders for 3 agents in PAMB, Kuching. For this case study, about 150 questionnaires will be distributed randomly to the respondents which are among working women of the policy holders of PAMB, Kuching.

DATA COLLECTION METHOD

Data can be collected in a various ways. Data can be collected either from primary or secondary resources. In order to achieve the objectives of this research which is to study the investment behavior among working women, I will use primary and secondary data collection methods.

PRIMARY DATA

Primary data is known as the data we have collected from any raw that we choose in our study. The data must have been used or done by other studies. As for this case study, the data will be collected through personally administered questionnaire to the respondents. The primary data will be gathered directly from 150 respondents. The questionnaires will be distributed to 150 working women among policy holders of PAMB in Kuching, Sarawak.

Questionnaire

A questionnaire is one of the research instruments which consist of a sequence of questions that being asked for the purpose of gathering information from the respondents. As for this case study, the questionnaires will be used as the main tool to collect data from the respondents. The advantages of using questionnaires are low cost and vagueness among respondents that will lead to more open and truthful responses. In this case study, the questionnaire will be divided into Section A, B, C, D and E.

Section A: Demographic Studies of the Respondent.

This section will require information about personal and demographic data of the respondents. The questions that will cover this section are age, marital status, race, highest educational level, job category and annual personal income of the respondents.

Section B: Investment Profile of the Respondent.

This section will require information about investment profile of the respondents. The questions that will cover this section are investment plan they invested into, year involved in investment and self-rated investment skills and knowledge.

Section C: Types of Investment Behavior of the Respondent.

This section will comprise 4 types of investment behavior which are overconfidence, representativeness, regret and price anchoring. For each type, the respondent will be required to answer 3 questions. The questions will be based on Likert scale on the frequencies from strongly disagree (1) to strongly agree (5). It is based on their level of agreement towards various aspects of investment planning. It is based on their influential types of investment behavior.

Section D: Level of Agreement of Working Women on Various Aspects of Investment Planning.

This section will comprise 8 questions in determining the level of agreement of working women on various aspects of investment planning. The questions will be based on Likert scale on the frequencies from strongly disagree (1) to strongly agree (5). It is based on their level of agreement towards various aspects of investment planning.

Section E: Recommendation

This last section consist of 2 open ended question which require the respondents to give out their suggestion and recommendation on how working women can improve their investment behavior in investment plan. Second question is regarding their recommendation to ensure investment can improve their standard of living which can be useful for future research references.

SECONDARY DATA

Secondary data are data which were obtained from a number of resources such as internet, book, journal article, magazine and newspaper and any source of reading. Secondary data can be obtained either from internal and external sources.

Internal Sources

Internal sources are sources that can be obtained from the organization. In simple way, the sources were obtained from the company itself. As for this case study, the internal sources will be obtained from Yen Sze Wei Agency and the 3 agents that will be involved in the case study. The agents will give the information regarding the policy holders.

External Sources

External sources are sources that can be obtained outside the organization. In other way, the sources were not obtained from the company itself. As for this case study, the external sources will be obtained from books, journals, articles, newspapers, internet and other printed media. Since this case study is related with Finance area, the information will be gathered from Journal of Finance, Insurance and Economy articles.

DATA ANALYSIS METHOD

Statistical Package for the Social Science (SPSS 16.0) can be used to analyze data sollected from surveys, tests, or secondary data. This programme will help in running the primary data that will be collected in this case study. As an addition, through this programme, data collection can be analyze to identify the types of investment behavioir, the types of investment plan and level of agreement of working women among policy holders of PAMB in Kuching.