Customer Satisfaction with Service Quality in the Life Insurance Industry in India

24,593 views

Published on

Published in: Economy & Finance, Business
2 Comments
5 Likes
Statistics
Notes
  • fine. but the factors are not defined
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • very good
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total views
24,593
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
1,063
Comments
2
Likes
5
Embeds 0
No embeds

No notes for slide

Customer Satisfaction with Service Quality in the Life Insurance Industry in India

  1. 1. Customer Satisfaction with Service Quality in the Life Insurance Industry in India Paromita Goswami* The insurance industry in India was opened up to private sector participation in the year 2000. Prior to this, Life Insurance Corporation (LIC) of India was the sole player in the life insurance industry in India. In six years since the entry of private players in the insurance market, LIC has lost 29% market share to the private players, although both, market size and the insurance premium being collected, are on the rise. In 2005, life insurance accounted for 79% of the total insurance market in India. In view of the increasing competition, this paper attempts to understand the dimensions of service quality which helps ensuring maximum customer satisfaction, and hence , helps , life insurers to acquire a larger share of the market. The study was done on a systematic sampling design. SERVQUAL scale was used to discern the different dimensions of service quality and stepwise multiple regression was run with the scores on tangibility, reliability, responsiveness, assurance and empathy as independent variables and customer satisfaction as the dependent variable. It was found that the responsiveness dimension of service quality provides maximum customer satisfaction in the life insurance industry in India. Introduction The state-sponsored Life Insurance Corporation (LIC) of India, before 2000, was the sole player in the Indian life insurance market. The insurance industry in India was opened up to the private sector participation in the year 2000. In case of life insurance, the share of insurance premium to GDP (Gross Domestic Product) is meagerly 1.04% and 0.6% in the case of non-life insurance in India, against the US share of 3.85% and 4.64% respectively, (Nayak and Vivek, 2006). According to an estimate prepared by Max New York Life Insurance in 2002, the Indian insurance market would increase by five times to Rs. 2,50,000 cr by the end of 2008 and the life insurance segment alone would increase by four times to Rs. 1,50,000 cr. Even according to the conservative estimates prepared by the Confederation of Indian Industry (CII), the insurance market would grow to touch Rs. 1,88,700 cr by 2009-10 and the life insurance premium in whole is expected to touch Rs. 1,45,000 cr (http://www.saisonindia.com/arti.html). Industry statistics indicates that in February 2006, LIC had 71.65% market share in the life insurance industry (New Business Stats, April to Feb 06, http://www.saisonindia.com), followed by ICICI Prudential (7.44%), Bajaj Allianz (7.38%), HDFC Standard (3%) and SBI Life (1.95%). In India, life insurance products are bought more as investments, which give tax-benefits rather than for risk protection and therefore on March, the financial year-end, is the peak selling season for insurances while April, May, and June are the * Faculty Member, The Icfai Business School, Kolkata, West Bengal, India. E-mail: paromitagoswami@ibsindia.org Customer Satisfaction with Service Quality © 2007 The Icfai university Press. All Rights Reserved. 25 in the Life Insurance Industry in India
  2. 2. dull months. In non-life category, other than car insurance, no other insurance is mandatory for the customers. This explains why 79.06% of the total premium in the year 2005 was accounted for by life insurance and only a paltry 20.94% by the non-life insurance (The India Insurance Report, 2006). It is necessary to identify the key success factor/factors in the insurance industry in terms of customer satisfaction, keeping in view the increasing market size and intense competition that has initiated in the life insurance industry since 2000. This revelation would help the players in this industry to meet customer expectations better. This paper attempts to understand the dimensions of service quality which will ensure maximum customer satisfaction. Literature Review It has been observed that insurance agents should constantly monitor the level of satisfaction among his/her customers to keep themselves close to the customers for fulfilling their needs (Joseph et al., 2003). Ennew et al. (1993) indicated that a comparison of mean scores on the importance of service attributes provides a very effective method of measuring the ability of services to meet the needs of the customers. Perceived service quality has a significant effect on the attitude towards obtaining insurance (Arora and Stoner, 1996). Moreover, the degree of success in the implementation of enterprise mobilization in the life insurance industry is positively correlated to the management performance of external aspects like providing increased customer satisfaction (Luarn et al., 2003). Customer satisfaction and the salesperson’s relation orientation significantly influences the future business opportunities and as the salespersons are able to enhance their relationships with the clients, clients are more satisfied and are more willing to trust, and thus secures the long-term demand for the services (Tam and Wong, 2001). Hellier et al. (2003) found that in insurance purchase brand preference is an intervening factor between customer satisfaction and repurchase intention and the main factor influencing the brand preference is the perceived value and customer satisfaction. Both the company and agent’s service quality as well as recommendations of friends are factors that significantly affect decisions of purchasing life insurance policies (Chow-Chua and Lim, 2000). Stafford et al. (1998) in a study on auto-casualty industry proved that reliability is consistently the most important determinant of both perceived service quality and feelings of satisfaction among customers engaged in auto-insurance claims. No such study has been carried out in the area of life insurance. Given the importance of the life insurance industry in India in terms of increasing market size, growing competition and the share of the total insurance premium market, this paper attempts to identify the service quality dimensions which contribute to the maximum customer satisfaction in the life insurance industry of India. Objective The objective of the study is to identify the dimension/s of service quality that ensures maximum satisfaction for the customers in the life insurance industry. Accordingly, the following hypothesis is proposed: 26 The Icfai Journal of Services Marketing, Vol. V, No. 1, 2007
  3. 3. Hypothesis: Superior service quality performance in certain dimension(s) ensures maximum customer satisfaction in the life insurance industry. Methodology The study was done on a systematic sampling design. Two databases of customers were prepared, one from a development officer of LIC and another from ICICI Prudential. The survey administrators approached every fifth individual in the database to ensure the systematic nature of the sample. The study was carried out in Kolkata. Kolkata is a cosmopolitan city consisting of people belonging to different states and sub-cultures and speaking different languages, thus the study would help discerning the relationship between Table 1: Demographic Details of Sample service quality (in percentage) dimension(s) and customer Sex Male 8.6% satisfaction in general. 250 Female 81.4% questionnaires were Number of Family 2 members 3.7% distributed, out of which Members 3 members 42.6% 232 were usable. If a 4 members 43.7% respondent had policies 5 or more members 10.0% with more than one Residence Central 7.5% company, he/she was asked East 10.0% to fill-up as many North 17.2% questionnaires as the South 23.6% number of companies he/ Sub-urban 33.7% she had policies from. The West 8.0% questionnaire had the Yearly Household Less than Rs. 1 lakh 6.5% SERVQUAL scale (based on Income Rs. 1-2 lakhs 13.6% Parasuraman et al. , 1988) More than Rs. 2 lakhs 79.9% and respondents were asked how far they were satisfied with their service provider on a five-point scale including options from totally satisfied to totally dissatisfied. Besides, this the demographic details of the respondents were also noted (Table 1). The respondents were asked to respond to the statements in the SERVQUAL scale (Parasuraman et al., 1988) on a five-point satisfied-dissatisfied scale. The scores reflecting a specific dimension of the service quality were averaged to get the score of each individual on that dimension. Consequently stepwise multiple regression was run with the scores on tangibility, reliability, responsiveness, assurance and empathy as independent variables and customer satisfaction as the dependent variable. Findings and Analysis The result of stepwise multiple regression indicated that responsiveness ensures maximum satisfaction to the customer. Table 2 in dicates that the regression Customer Satisfaction with Service Quality 27 in the Life Insurance Industry in India
  4. 4. coefficient is 0.20 which is significant at 0.009 level. Thus, the hypothesis proposed earlier is supported. This implies that to maximize customer satisfaction, different players in the competitive life insurance industry in India needs to concentrate on the responsiveness dimension of th e service quality. The examination of the items of the responsiveness dimension indicates that promptness and timeliness in service as well as willingness to help the customers, satisfies the customer the most. The items that were included in the questionnaire are—the company does not tell customers exactly when services will be offered, the customer does not receive prompt service from the employees of the company, employees of the company are not always willing to help the customers, employees of the company are too busy to respond to customer requests promptly. All the items were reverse-scored. This also suggests that there would be tremendous gain to the players of the life insurance industry in India if Customer Relationship Management (CRM) is introduced with due seriousness. As pointed out by Lilly and Wood (1997), the commitment of insurance marketers to technological advances will thus be paramount and it should be used in a way that provides greater services to their insureds and the individuals marketing the insurance should be able to build strong relationships with their clients. CRM should be implemented not only by adoption of the right software package but also by truly believing in the philosophy of building a viable long-term relationship with customers. In order to ensure such an environment, internal marketing of the concept is required for the insurance agents. The challenge would be to not only gain new customers, but to retain them as well. If customers are satisfied with the responsiveness of the life insurance service provider, they are likely to take-up new policies, and also engage in positive word-of-mouth which would further increase the number of policies being sold. In a sector like financial service, word-of-mouth is a very effective mode of communication as credibility is a major concern in this sector. Satisfied customers recommend the company and the insurance agent to friends and acquaintances thus bringing in further business for the concerned company. Some aspects of the regulatory framework also need to be changed in view of the results of the study. At present life insurance agents cannot undertake premium payment on behalf of their clients. This regulation should be scrapped to ensure regular premium payment and better service to the custom ers. Table 2: Result of Stepwise Multiple Regression with Servqual Dimensions as Independent Variables and Customer Satisfaction as Dependent Variable Unstandardized Coefficients t Sig. B Std. Error (Constant) 2.935 0.218 13.437 0.000 Responsiveness 0.200 0.076 2.633 0.009 28 The Icfai Journal of Services Marketing, Vol. V, No. 1, 2007
  5. 5. Conclusion It may be concluded that the responsiveness of service quality provides maximum customer satisfaction to the life insurance industry in India. With the increase in the overall market size of the industry as well as increasing competition since 2000, different players of the industry should invest to improve the customer relationship. This would not only involve implementation of CRM solutions, but also internal marketing of the CRM concept. This would naturally require giving more emphasis on giving training to the insurance agents. Proper CRM implementation would not only ensure increased customer satisfaction but also help in acquiring new customers, at the same time retaining the old customers. Improved customer satisfaction would also result in positive word-of-mouth and consequently better customer acquisition and retention. G Acknowledgment: The author thanks his student Pradipta Sen for collecting data for the study. Reference # 32J-2007-03-02-01 References 1. Arora R and Stoner C (1996), “The Effect of Perceived Service Quality and Name Familiarity on the Service Selection Decision”, Journal of Services Marketing, Vol. 10, No. 1, pp. 22-34. 2. Chow-Chua C and Lim G (2000), “A Demand Audit of the Insurance Market in Singapore”, Managerial Auditing Journal, Vol. 15, No. 7, pp. 372-382. 3. Ennew C T, Reed G Vand Binks M R(1993), “Importance/performance Analysis and the Measurement of Service Quality”, European Journal of Marketing, Vol. 27, No. 2, pp. 59-70. 4. Hellier P K, Geursen G M, Carr R A and Rickard J A (2003), “Customer Repurchase Intention: A General Structural Equation Model”, European Journal of Marketing, Vol. 37, Nos. 11/12, pp. 1762-1800. 5. Joseph M, Stone G and Anderson K (2003), “‘Insurance Customers’” Assessment of Service Quality: A Critical Evaluation”, Journal of Small Business and Enterprise Development, Vol. 10, No. 1, pp. 81-92. 6. Lilly C C and Wood D A (1997), “Who will Market Insurance at the Beginning of the Twenty-first Century?”, CPCU Journal, Vol. 50, Issue 4, pp. 210-227. 7. Luarn P, Lin T M Y and Lo P K Y (2003), “An Exploratory Study of Advancing Mobilization in the Life Insurance Industry: The Case of Taiwan’s Nan Shan Life Customer Satisfaction with Service Quality 29 in the Life Insurance Industry in India
  6. 6. Insurance Corporation”, Internet Research: Electronic Networking Applications and Policy, Vol. 13, No. 4, pp. 297-310. 8. Nayak S and Vivek T R (2006), “Fighting for Life”, Business Today, http:// www.india-today.com/btoday/20010916/feature5.html (last accessed on December 10, 2006). 9. Parasuraman A, Zeithaml V and Berry L L (1988), “SERVQUAL: A Multiple-item Scale for Measuring Consumer Perceptions of Service Quality”, Journal of Retailing, Vol. 64, pp. 12-40. 10. Saisonindia.com(2006), “New Business Stats [April to Feb 06]”, http:// www.saisonindia.com (last accessed on December 11, 2006). 11. Stafford M R, Stafford T F and Wells B P (1998), “Determinants of Service Quality and Satisfaction in the Auto Casualty Claims Process”, Journal of Services Marketing, Vol. 12, No. 6, pp. 426-440. 12. Tam J L M and Wong Y H (2001), “Interactive Selling: A Dynamic Framework for Services”, Journal of Services Marketing, Vol. 15, No. 5, pp. 379-396. 13. The India Insurance Report (2006), “Swiss Re Sigma Database: Regulator(s) and or Trade Association(s): BMI Research”, as reported in http:// www.businessmonitor.com/insurance/india.html (last accessed on December 12, 2006). Form IV 1. Place of publication : Hyderabad 2. Periodicity of its publication : Quarterly 3. Printer’s Name : E N Murthy Nationality : Indian (a) Whether a citizen of India? : Yes Address : # 52, Nagarjuna Hills, Panjagutta, Hyderabad - 500 082. 4. Publisher’s Name : E N Murthy Nationality : Indian (a) Whether a citizen of India? : Yes Address : # 52, Nagarjuna Hills, Panjagutta, Hyderabad - 500 082. 5. Editor’s Name : E N Murthy Nationality : Indian (a) Whether a citizen of India? : Yes Address : # 52, Nagarjuna Hills, Panjagutta, Hyderabad - 500 082. 6. Name and addresses of individuals who own the newspaper and holding more than one percent of the total capital - The Institute of Chartered Financial Analysts of India, The Icfai University, # 52, Nagarjuna Hills, Panjagutta, Hyderabad - 500 082. I, E N Murthy, hereby declare that the particulars given above are true to the best of my knowledge and belief. Date Sd/- March 2007 Signature of Publisher 30 The Icfai Journal of Services Marketing, Vol. V, No. 1, 2007

×