Relationship between service quality and customer satisfaction in life insurance services in viet nam

UNIVERSITY OF ECONOMICS HOCHIMINH CITY --- oOo --- LÊ THỊ BÍCH ĐÀO RELATIONSHIP BETWEEN SERVICE QUALITY AND CUSTOMER SATISFACTION IN LIFE INSURANCE SERVICES IN VIET NAM MAJOR: BUSINE

IN LIFE INSURANCE SERVICES IN VIET NAM

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – 2012

2

ACKNOWLEDGEMENT

I would like to express my deepest gratitude to my research supervisor, Professor Pham Quoc Hung for his intensive support, valuable suggestions, guidance and encouragement during the course of my study

I would like to express my sincere gratitude to all of my teachers at Faculty of Business Administration and Postgraduate Faculty, University of Econimics Hochiminh City for their teaching and guidance during my MBA course

My sincere thanks is extended to Professor Nguyen Dinh Tho, Dr Tran Ha Minh Quan, Dr Nguyen Thi Nguyet Que, Dr Nguyen Thi Mai Trang, Dr Nguyen Van Ngai for their valuable time as members of examination committee Their comments and suggestions were of great value for my study

I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA program in English and Dr Tran Ha Minh Quan for his support during the course

I would like to specially express my thanks to all of my classmates, my friends, and

my colleagues for their support and encouragement

I sincerely thank the management and staff of AIA Insurance, Prudential, Bao Viet, Dai-ichi life, Manulife, and ACE Life insurance for contributing to this study

Last but not least I must express my gratitude to my beloved parents, my husband Nguyen Ngoc Minh and daughter Minh Anh who have always sacrificed to encourage and support me during these years of study

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

- oOo -

LÊ THỊ BÍCH ĐÀO

RELATIONSHIP BETWEEN SERVICE QUALITY AND CUSTOMER SATISFACTION

IN LIFE INSURANCE SERVICES IN VIET NAM

MAJOR: BUSINESS ADMINISTRATION

MAJOR CODE: 60.34.05

MASTER THESIS

Ho Chi Minh City – 2012

ACKNOWLEDGEMENT

I would like to express my deepest gratitude to my research supervisor, Professor Pham Quoc Hung for his intensive support, valuable suggestions, guidance and encouragement during the course of my study

I would like to express my sincere gratitude to all of my teachers at Faculty of Business Administration and Postgraduate Faculty, University of Econimics Hochiminh City for their teaching and guidance during my MBA course

My sincere thanks is extended to Professor Nguyen Dinh Tho, Dr Tran Ha Minh Quan, Dr Nguyen Thi Nguyet Que, Dr Nguyen Thi Mai Trang, Dr Nguyen Van Ngai for their valuable time as member of examination committee Their comments and suggestions were of great value for my study

I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA program in English and Dr Tran Ha Minh Quan for his support during the course

I would like to specially express my thanks to all of my classmates, my friends, and

my colleagues for their support and encouragement

I sincerely thank the management and staff of AIA Insurance, Prudential, Bao Viet, Dai-ichi life, Manulife, and ACE Life insurance for contributing to this study

Last but not least I must express my gratitude to my beloved parents, my husband Nguyen Ngoc Minh and daughter Minh Anh who have always sacrificed to encourage and support me during these years of study

in this study to examine the relationship between service quality and customer satisfaction The result from this paper confirmed that the two constructs are distinct, but are highly correlated, implying that an increase in one is likely to lead

to an increase in another

Keywords: Service quality, customer satisfaction, confirmatory factor analysis,

measurement, life insurance services

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

ABSTRACT ii

TABLE OF CONTENTS iii

LIST OF FIGURES iv

LIST OF TABLES vi

CHAPTER 1: INTRODUCTION 1

1.1 BACKGROUND 1

1.2 RESEARCH PROBLEMS 3

1.3 RESEARCH OBJECTIVES 6

1.4 RESEARCH METHODOLOGY AND SCOPE 7

1.5 STRUCTURE OF THE STUDY 8

CHAPTER 2: LITERATURE REVIEW 10

2.1 INTRODUCTION 10

2.2 SERVICE QUALITY 10

2.3 CUSTOMER SATISFACTION 13

2.4 THE LINK BETWEEN SERVICE QUALITY AND CUSTOMER SATISFACTION 14

2.5 LIFE INSURANCE IN VIET NAM 16

2.6 HYPOTHESIS AND EMPIRICAL MODEL 19

CHAPTER 3: METHODOLOGY 22

3.1 INTRODUCTION 22

3.2 RESEARCH DESIGN 22

3.3 VARIABLES MEASUREMENT 22

3.3.1 Scale to measure service quality 22

3.3.2 Scale to measure customer satisfaction 25

3.4 PILOT TEST 26

3.5 MAIN SURVEY 27

3.5.1 Brand selection 27

3.5.2 Sampling 27

3.5.3 Sample size 28

3.5.4 Survey method 28

3.5.5 Data analysis techniques 28

3.6 SUMMARY 29

CHAPTER 4: EMPIRICAL RESULTS OF THE RESEARCH 30

4.1 INTRODUCTION 30

4.2 CHARACTERISTICS OF RESEARCH SAMPLES 30

4.3 SCALES ASSESSMENT 33

4.3.1 RELIABILITY TESTING 33

4.3.2 CONFIRMATORY FACTOR ANALYSIS (CFA) 33

4.3.3 CUSTOMER SATISFACTION WITH SERVICE QUALITY 43

CHAPTER 5: CONCLUSIONS, RECOMMENDATIONS AND LIMITATIONS 51

5.1 INTRODUCTION 51

5.2 CONCLUSIONS 51

5.3 RECOMMENDATIONS 53

5.4 LIMITATIONS 54

REFERENCES 56

APPENDIX 1 59

APPENDIX 2 62

APPENDIX 3 63

APPENDIX 4 64

LIST OF FIGURES

Figure 2.1: Research model 21

Figure 3.1: Research Process 23

Figure 4.1: Confirmatory factor analysis (CFA) – the initial model 36

Figure 4.2: CFA modified model 40

LIST OF TABLES

Table 4.1 : Response frequency of each brand 31

Table 4.2 : Demographic characteristics of the respondents 31

Table 4.3 : Skew and Kurtosis Values of Variables 32

Table 4.4 : Reliability of the measurement instrument 34

Table 4.5 : Modification Indices (Group number 1 - Default model) 37

Table 4.6 : Standardized Regression Weights of variables (factor loadings) 39

Table 4.7 : CFA results – Construct loadings 41

Table 4.8 : Correlations matrix of variables 43

Table 4.9 : Matrices Correlations 64

Table 4.10: Results of paired “t” test 44

Table 4.11: Correlation between customer satisfaction and service quality 45

Table 4 12: Cross-tabulation results between service quality and customer satisfaction with respect to assurance 46

Table 4 13: Cross-tabulation results between service quality and customer satisfaction with respect to personalized financial planning 47

Table 4 14: Cross-tabulation results between service quality and customer satisfaction with respect to competence 47

Table 4.15: Cross-tabulation results between service quality and customer satisfaction with respect to tangibles 48

Table 4.16: Cross-tabulation results between service quality and customer satisfaction with respect to corporate image 48

Table 4.17: Cross-tabulation results between service quality and customer satisfaction with respect to technology 49

Table 4.18: Degree of complete agreement and complete disagreement between service quality and customer satisfaction 49

Table 4.19: Summary of the hypotheses testing results 50

CHAPTER 1: INTRODUCTION

1.1 BACKGROUND

Service quality and customer satisfaction have long been recognized as playing a crucial role for success and survival in today’s competitive market They are two core concepts and crux of the marketing theory and practice (Spreng and Mackoy, 1996) A basic agreement emanating from the wide range of literature on service quality and customer satisfaction is that service quality and customer satisfaction are conceptually distinct but closely related constructs (Parasuraman et al., 1994; Dabholkar, 1995; Shemwell et al., 1998; G.S Sureshchandar, 2002)

Customer satisfaction is considered a prerequisite for customer retention and loyalty, and obviously helps in realizing economic goals like profitability, market share, return on investment, etc (Scheuing, 1995; Reichheld, 1996; Hackl and Westlund, 2000) Service quality has been described as a form of attitude -a long-run overall evaluation, and service quality and attitude constructs are viewed as similar (Parasuraman et al., 1988; Zeithaml, 1988; Bitner et al., 1990; Bolton and Drew, 1991a, b; Cronin and Taylor, 1992; Bitner and Hubert, 1994)

Perceptions of service quality could occur at multiple levels in an organization -e.g with the core service, physical environment, interaction with the service providers, etc (Bitner and Hubert, 1994) Besides that, the customer's overall satisfaction with the services of the organization is based on all the encounters or experiences of the customers with that organization Similar to service quality, customer satisfaction can occur at multiple levels in an organization, e.g satisfaction with the contact person, satisfaction with the core service and satisfaction with the company In today's world of intense competition, the key to sustainable competitive advantage lies in delivering high quality service that will in turn result in satisfied customers (Shemwell et al., 1998)

The life insurance industry like many other financial services industries is facing a rapidly changing market, new technologies, economic uncertainties, fierce competition and more demanding customers has presented an unprecedented set of challenges Like other business domains, life insurance providers have started realizing that their business depends on customer service and customer satisfaction With liberalization and internationalization in insurance, service quality has become

an important means of differentiation and path to achieve business success Such differentiation based on service quality can be a key source of competitiveness for insurance companies

With the increasing demands of customer, insurance sector has become competitive Customers are becoming increasingly aware of their expectations, and demand higher standards of services, as technology is enabling them to make comparisons quickly and accurately Their perceptions and expectations are continually evolving and they may readily change providers if they are not satisfied with service quality they receive This makes difficult for service providers to measure and manage services effectively Therefore, the life insurance providers need to reconfigure their strategy and business to sustain or improve their competitive advantage Moreover, they need to consider how to create a satisfied customer base that will not be eroded even in the face of fierce competition The trend of insurance companies shifting from a product-focused view to a customer-focused one has been developing recently as insurance products become increasingly hard to differentiate in fiercely competitive markets Insurance companies in the world are consequently directing their strategies towards increasing customer satisfaction and loyalty through improved service quality

Numerous researchers have made theoretical and empirical contribution to the study

of relationship service quality and customer satisfaction in various industries (like banking, healthcare, education etc) However, the area of life insurance is not adequately researched In addition, the causal relationships between service quality and customer satisfaction have been examined by a number of studies, but mainly at the level of aggregate constructs The conclusions that the two constructs are

distinct though interrelated and that service quality is an antecedent of customer satisfaction, when focusing on the assessment of service quality in the context of a service relationship, is prevailing in the literature However, little is known regarding the relationships between the two constructs at the level of individual dimensions This is a literature gap that this research attempts to narrow by reporting its findings from studying these links in a model of which the constituent variables are the individual dimensions of service quality and customer satisfaction

In addition, in Viet Nam, lack of empirical evidence about the relationship between quality and customer satisfaction in life insurance factor, is an issue for both academics and practitioners There have not such study has been carried out in the area of life insurance

Given the importance of the life insurance industry in Viet Nam 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 Viet Nam Besides that, it also attempts to represent and estimate the interrelated causal relationships among these perceptual service quality dimensions with the overall satisfaction with life insurance services In addition, it has been attempted to measure the complex and interdependent relationships between service quality dimensions, satisfaction dimensions and overall satisfaction with life insurance services

1.2 RESEARCH PROBLEMS

Life insurance is designed to provide protection Life insurance plays an important role in individuals’ and families’ financial lives both covering the life risk and to provide economic security to the dependent members of the family Life insurance serves as a means to guarantee income and wealth transfer to future generations Life insurance allows individuals and families to share the risk of premature death with many others and to alleviate the financial loss from the premature death of the

primary wage earner (Garman & Forgue, 2006) Thus, the main reason for the purchase of life insurance is to provide financial security for the family

When society grows, the service of life insurance also constantly increases Indeed, even though we live in a civilization and progressive society, and enjoy a background of modern techniques, but we have to surrender before these threats and unexpected risks Life insurance is given to recover and reduce losses caused by these risks

It is said that the life insurance is never bought, it is always sold In life insurance industry, an insurance policy is almost always sold by an agent who, in 80% of the cases, is the customer’s only contact (Richard and Allaway, 1993; Clow and Vorhies, 1993; Crosby and Cowles, 1986) Therefore, customers are likely to place

a high value on their agent’s integrity and advise (Zeithaml et al., 1993) The quality

of the agent’s service and his/her relationship with the customer serves to either mitigate or aggravate the perceived risk in purchasing the life insurance product Clearly, understanding consumers’ expectations of life insurance agent’s service is crucial as expectations serve as standards or reference points against which service performance is assessed (Walker and Baker, 2000)

In 1996 marked the launch of the life insurance sector in Vietnam by the Ministry of Finance allows Bao Viet piloted life insurance activities After the pilot period, the Ministry of Finance has licensed orderly for the life insurance business as Prudential, Manulife, Bao Minh - CMG - Daiichi Life, AIA, Prevoir, ACE Life, Great Eastern Life, Kerean life, Cathay Life At present, Vietnam's market has more than 14 life insurance companies As predicted, there will be more life insurance companies licensed to operate in Viet Nam in the future

Despite of developing in the long time period, but we can see that to date the life insurance market Vietnam is very small and still in the formative stages, exploit new markets According to a survey of Vietcycle by TNS Vietnam made, in 2011, with a population of 87,8 million people, the proportion of people owning insurance

in Vietnam is quite low, only 6.6% And only 25% of people in three major cities of

Vietnam, including HCM City, Hanoi and Da Nang have has insurance products If compared with the demand and market potential, the figure is still very modest However, with the source of life insurance premium, the life insurance industry has provided a large amount of capital to the economy

There are some researchers have studied about service quality and customer services in life insurance sector as Authors Masood H Siddiqui and Tripti Ghosh Sharma (2010), Paromita Goswami (2007), Ms Neetu Bala (2011), etc

Authors Masood H Siddiqui and Tripti Ghosh Sharma (2010) have studied and analyzed customer satisfaction with service quality in life insurance at Indian market This study indicates six dimensions to measure service quality, they including assurance, personalized financial planning, competence, corporate image, tangibles and technology This study reiterates that life insurance service providers and managers should also be aware that customer satisfaction is primarily based on service quality They should have a clear concept of what constitute customer satisfaction before they can attempt to measure it and its relationship with service quality dimensions So that, quality improvements by management should not just focus on improving customer satisfaction but also target on improving the customers’ perception of service quality This research shows that service quality dimensions influence customer satisfaction with agents, functional services and with company In practical terms, this means that improving service quality increases satisfaction with agents, functional services and with company, all three of which ultimately enhance the overall customer satisfaction in life insurance services

The author Paromita Goswami, 2007 also researched about customer satisfaction with service quality in life insurance at Indian market It concluded that the superior service quality performance in certain dimensions will provide maximum customer satisfaction to the life insurance industry in India He requires life insurers should emphasis on giving training to the insurance agents and establish the Customer Relationship Management Proper Customer Relationship Management

implementation would not only ensure increased customer satisfaction but also help

in acquiring new customers, at the same time retaining the old customers

The subject of Ms Neetu Bala (2011) was “measuring Life Insurance Service Quality - An Empirical Assessment of SERVQUAL Instrument” The aim of paper

is to test the reliability and to examine the dimensionality of SERVQUAL instrument in the life insurance sector Besides, the study has identified deficiencies

in the specific areas of service quality where concentrated efforts are required to be made

Author G.S Sureshchandar (2002) researched the relationship between service quality and customer satisfaction - a factor specific approach - in the banking industry His study indicates that service quality and customer satisfaction are different constructs and they are closely related

However, there is lack of empirical evidence about the relationship between quality and customer satisfaction in life insurance factor, is an issue for both academics and practitioners This study attempts to identify the service quality dimensions which contribute to the maximum customer satisfaction in the life insurance industry of Viet Nam Besides that, it also tries to represent and estimate the interrelated causal relationships among these perceptual service quality dimensions with the overall satisfaction with life insurance services In addition, it has been attempted to measure the complex and interdependent relationships between service quality dimensions, satisfaction dimensions and overall satisfaction with life insurance services

1.3 RESEARCH OBJECTIVES

A research objective is the researcher’s version of a business problem Objectives explain the purpose of the research in measurable terms and define standards of what the research should accomplish (Zikmund 1997, p 89) The objective of this paper is to investigate service quality structure for life insurance and then relative importance of these service quality dimensions from customers’ perspective, so as

to ensure optimal deployment of resources among these dimensions, and thereby best value to the customers It represents and estimates the multiple and interrelated causal relationships among these perceptual service quality dimensions with the customer satisfaction It also has been attempted to understand and measure the complex and interdependent relationships between service quality and customer satisfaction dimensions in life insurance services The last objective will be to determine the significance of the relationship between service quality and customer satisfaction in the life insurance services

RESEARCH QUESTIONS

The research problems defined above leads to the following research questions:

 What is the relationship between customer satisfaction and service quality in life insurance services in Viet Nam market?

 Are service quality and customer satisfaction two distinct constructs?

If so, are they correlated or not?

Two research variables of the topic:

• Service quality

• Customer satisfaction

Primary data is mainly used for analysis A well structured questionnaire was used

to collect the primary data The questionnaire was finalized based on the comments and suggestions given by the insurance employees, development officers, agents Secondary data for the study were collected from reputed journals, magazines, websites and insurance records

234 policyholders from the six leading life insurance companies in Viet Nam constitute as sample size for this study For achieving the goals of this study, certain

sampling factors needed to be under control to avoid meaningless data Therefore, it was decided that only customers who met the following criteria would be included

in the sample: (1) Purchased at least one policy in life insurance product (whole life insurance policy and/or an endowment policy) in the past 3 years; (2) Over the age

of 25 (usually younger individuals in Viet Nam have their parents paying for their bills); and (3) customers live at Ho Chi Minh City

This study was conducted through two phases:

 Preliminary study: Using qualitative method This step was carried out by using group discussion techniques to revise and adjust the model in order to match content of the research

 Official study: Using quantitative method The survey instrument was a SERVQUAL type questionnaire relevant to the life insurance sector Data were collected by interviewing face to face and sending email to life insurance’s customers The purpose of this phase was to re-assess the reliability of the measurement scales using Cronbach alpha coefficient and

confirmatory factor analysis (CFA) SPSS software version 16 and AMOS software version 20 were used for data analysis Chapter 3 will discuss the methodology for this study in more detail

1.5 STRUCTURE OF THE STUDY

The structure of the study consist five chapters:

Chapter 1: Introduction

This chapter presents research background, research problems, research objectives, research methodology and scope, as well as the structure of the study

Chapter 2: Literature Review

This chapter summary the literature review and present the fundamental ideas on service quality, customer satisfaction with emphasis on services, as well as the

general about life insurance’s market in Viet Nam This chapter also presents a research model of the study

Chapter 3: Research Design

Based on the research objectives and scope, research methodology concerned in chapter 1, and literature review and empirical model presented in chapter 2, this chapter particularly presents the research methodology, data, research design and research process The aims, the outline and the phases of this study are presented Further, the sampling and survey administration, research instruments, measurement of variables and statistical software and techniques are detailed

Chapter 4: Empirical Results of the Research

Chapter 4 presents the characteristics of research samples and measures concepts of the research I use descriptive statistics to explore the features of explanatory variables, as well as the relationship between each variable in the models

Chapter 5: Conclusions, Recommendations and Limitations

Chapter 5 opens with a summary of findings followed by sections dealing with the implications of this study It continues with a section on the limitations of the study and recommendations for further research Finally, the chapter ends with a section outlining the main conclusions of this research

CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION

Chapter 2 summaries the literature review and present the fundamental ideas on service quality, customer satisfaction, relationship between service quality and customer satisfaction, as well as the general about life insurance’s market in Viet Nam This chapter also presents a research model of the study

2.2 SERVICE QUALITY

Although services contribute almost 80% to the world’s economy, the arrangement

on the definition of service is yet to be reached Actually, more than 25 years of study, scholars in the field of service management do not agree on what a service is Service quality takes a prominent position in the marketing management literature

Before 1983, the definition of quality was defined primarily based on the concept of quality control with corresponding standards focused completely on achieving quality Juran (1974) defined quality as “suitable use” Crosby (1979) defined quality as “conformance to requirement”, and assumed the existence of correspondence between quality and operational standards Cornell (1984) considered that the service industry required a broader definition of quality than that used by the manufacturing industry Zimmerman (1985) took the quality control concept of the manufacturing industry and applied it to service quality Zimmerman considered the components of service quality, including practicality, replication of manufacturing ability immediacy, ultimate user satisfaction, and corresponding standards

Christian Grönroos (1982, 1984) considers services as products requiring to a large extent the customer’s involvement in the process of simultaneous production and consumption He divides the customer’s perceptions of any particular service into two dimensions, namely technical and functional quality He proposes that

customers’ expectations for a service are influenced by such factors as traditional marketing activities by the firm, external influences and word-of-mouth However, the Grönroos’ service quality model does not offer explanations on how to measure the different aspects of service quality, especially technical quality

Parasuraman et al (1985, 1988) introduced the American model of service quality, known as the Gaps Analysis Model or simply the Gaps Model In the original model of service quality, they proposed ten dimensions that customers use in forming expectations and perceptions of service quality, namely tangibles, reliability, responsiveness, competence, courtesy, credibility, security, communication, understanding, and access But in the subsequent study of Parasuraman et al, these ten were later reduced to five through exploratory factor analysis, including tangibles, reliability, responsiveness, assurance, and empathy Parasuraman et al proposed the gap model of service quality that operationalised service quality as the gap between expectation and performance perception of the customer It is viewed as an attitude or global judgment about the overall excellence

of a service, with comparison of expectations and performance as the measuring tools

Further, Murfin et al (1995) developed the service quality model for medical services Soteriou and Stavrinides (2000) developed the service quality model for bank branch in order to optimally utilize its resources Zhu et al (2002) and Seth et

al (2008) proposed the service quality model highlighting the information technology-based service options to investigate the relationship between IT-based services and customer’s perceptions of service quality

The life insurance industry like many other financial services industries is facing a rapidly changing market, new technologies, economic uncertainties, fierce competition and more demanding customers has presented an unprecedented set of challenges Life insurance is a professional service characterized by high involvement of the consumers due to the importance of specific needs, the variability of products available, the complexity involved in the policies and processes, and the need to involve consumer in every aspect of the transaction With

liberalization and internationalization in insurance, service quality has become an important means of differentiation and path to achieve business success The life insurance industry has recognized that the quality of services and the achievement

of customer satisfaction are fundamental principles of successful marketing In particular, the quality of after sales services leads to customer loyalty, persistency, cross-selling, and positive word-of-mouth communication Some insurers define insurance quality as the insurers’ willingness to compensate sincere customers (Anderson and Skogh, 2003); some others confuse quality with generosity which is insurers’ readiness to compensate more than a court would order (Roos, 1981)

In insurance sector, there have been several studies, such as Stafford et al (1998); Leste and Vittorio (1997); Westbrook and Peterson, 1998; Mehta et al (2002); Evangelos et al (2004); Goswami (2007); Gayathri et al (2005); Siddiqui et al (2010); Paromita Goswami in India (2007); Ms Neetu Bala (2011), etc

A review of the relevant literature also reveals that the principal focus of service quality research has been twofold: Firstly, the identification of service quality dimensions being of primary interest to researchers (Parasuraman et al., 1985, 1988, 1991b); and secondly, the development of measurement instruments of service quality being the focus of subsequent research efforts (Parasuraman et al., 1988, 1991a, 1993; Cronin and Taylor, 1992, 1994; Asubonteng et al., 1996, Buttle, 1996)

However, the most widely used service quality measurement tools include SERVQUAL (Parasuraman et al., 1988) and SERVPERF (Cronin et al., 1992) The SERVQUAL scale measures service quality based on difference between expectations and performance perceptions of customers using 22 items and five dimensional structures In the SERVPERF scale, service quality is operationalized through performance only scores based on the same 22 items and five dimensional structure of SERVQUAL SERVQUAL is appreciated by researchers for its robust and well defined structure However, some authors found the SERVPERF scale to outperform the SERVQUAL scale in terms of both reliability and validity But SERVQUAL has more and diverse applicability

2.3 CUSTOMER SATISFACTION

Customer satisfaction is commonly considered a prerequisite of customer retention and loyalty, as well as increased profitability and market share Nowadays, achieving customer satisfaction is a important goal for most service companies (Jones and Sasser, 1995) because it leads to improved profits, word-of-mouth, and less marketing expenditure (Reichheld, 1996; Yeung et al., 2002) Satisfaction is not a universal phenomenon and not everyone gets the same satisfaction because the different customers have different needs, different objectives and different past experiences that influence their expectations Therefore, it is important to gain a clear idea of the customer needs and objectives that correspond to different kinds of satisfactions Service firms focus on achieving customer satisfaction and loyalty by delivering superior value, an underlying source of competitive advantage (Woodruff, 1997) For service firms, especially life insurance firms, the challenge is

to identify the critical factors that determine customer satisfaction and loyalty There are many definitions of customer satisfaction Customer satisfaction is generally defined as a feeling or judgment by customers towards products or services after they have used them (Jamal and Naser, 2003) Customer satisfaction

is a psychological concept that involves the feeling of well-being and pleasure that results from obtaining what one hopes for and expects from an appealing product and/or service (WTO, 1985) Davis and Heineke, 1998 proposes that customer satisfaction in service industries has been approached in two ways; satisfaction as a function of disconfirmation, and as a function of perception The confirmation/disconfirmation paradigm views customer satisfaction judgments as the result of consumer perceptions of the gap between their expectation and perception of actual performance (Parasuraman et al., 1994; Oliver, 1981)

Further, Terry G Vavra, 2002 indicates that satisfaction is a customer’s emotion response to customer evaluation of the perceived discrepancy between his or her prior experience with and expectation of product and organization and the actual experienced performance as perceived after interacting with organization and

consuming product He also shows that customer’s satisfaction will influence their future reactions toward organization such as readiness to purchase, willingness to recommend, willingness to pay price without haggling or seeking a lower-cost providers Customer satisfaction is defined as an emotional response (Cadotte et al., 1987), a cognitive response (Churchill and Surprenant, 1982) or as comprised of both cognitive and affective dimensions (Westbrook and Reilly, 1983) It is also define as a customer’s process of perceiving and evaluating a consumption experience (Yi 1991)

While there are a variety of approaches to the explanation of customer satisfaction/dissatisfaction, the most widely used model of customer satisfaction is based on Oliver’s (1980) expectancy disconfirmation theory According to this theory, customers purchase goods and services with pre-purchase expectations about anticipated performance Once the product or service has been purchased and used, outcomes are compared against expectations When product/service performance matches expectations, confirmation occurs Disconfirmation occurs when there are differences between expectations and actual performance Negative disconfirmation occurs when product/service performance is less than expected Positive disconfirmation occurs when product/service performance is better than expected Satisfaction is caused by confirmation or positive disconfirmation of consumer expectations, and dissatisfaction is caused by negative disconfirmation of consumer expectations

2.4 THE LINK BETWEEN SERVICE QUALITY AND CUSTOMER SATISFACTION

Service quality and customer satisfaction play an important role for success and survival in today’s competitive market Considerable research has been conducted

on these two concepts However, there has been some confusion regarding the difference between service quality and customer satisfaction Conceptual and

empirical overlap between the two concepts has been debated among service quality researchers (Rust and Oliver, 1994)

Oliver (1981) asserts that satisfaction is a summary psychological state resulting when the emotion surrounding disconfirmed expectations is coupled with the consumer's prior feelings about the consumption experience In an effort to integrate the service quality and customer satisfaction literatures Oliver (1993) proposed a model which posits that service quality is formed by a comparison of ideals and perceptions of performance along quality dimensions, whereas satisfaction is a function of the disconfirmation of predictive expectations regarding both quality and non-quality dimensions

Parasuraman et al (1988) in essence agree with Oliver's assessment and ascribe similar criteria to service quality - informing that perceived service quality is a global judgment like an attitude, whereas satisfaction is encounter specific and thus more related to individual transactions They also proposed that the instances of satisfaction over a time period lead to a perception of general service quality In the subsequent study, Parasuraman et al (1994a) pointed out that conflicting arguments might result from the holistic focus of research on service quality contrary to satisfaction research which is mainly based on specific transactions They proposed that service quality and customer satisfaction should be examined under both viewpoints The prevailing general conclusion is that when the term service quality

is used to refer to a global, long-term attitude about a service provider, then customer satisfaction is generally recognized as an antecedent of service quality Cronin and Taylor (1992) observe that the distinction between satisfaction and service quality is important to both managers and researchers, in that service providers must determine whether their primary objective should be to deliver a high level of service quality to satisfy customers with their performance They reported that, in their analysis for the causal relationships between satisfaction, service quality, and purchasing intentions, the coefficients of the path: service quality → satisfaction → purchasing intentions were all significant while the ones

of the path: satisfaction → service quality → purchasing intentions were not On the

contrary, service quality researchers tend to consider service quality as a more term and general evaluation as opposed to satisfaction which is a transaction specific assessment

long-Bitner and Hubbert (1994) conducted an empirical test to determine whether customer satisfaction and service quality are separate constructs or, one in the same Their study investigated three factors; service encounter satisfaction, overall satisfaction, and perceived service quality The conclusion from three separate factor analyses was that customer satisfaction, associated with individual service encounters, is interrelated and often highly correlated with both the customers’ overall satisfaction as well as their perceived service quality of a particular service provider

Perceptions of quality affect satisfaction for individual transactions and the aggregate of multiple satisfying service experiences can affect future perceptions of service quality The perceived service quality as an antecedent to satisfaction model had the better fit, thus indicating the causal direction to be a perceived service quality – customer satisfaction Once this relationship is established, satisfaction will not remain constant, even decrease because the increase in large part of customers in expectations over time So, continual improvements in service quality

performance must be made for satisfaction to increase as well

2.5 LIFE INSURANCE IN VIET NAM

In 1996 marked the launch of the life insurance sector in Vietnam by the Ministry of Finance allows Bao Viet piloted life insurance activities At present, Vietnam's market has more than 14 life insurance companies As predicted, there will be more life insurance companies licensed to operate in the future

With the accession of the foreign life insurance companies, the life insurance market in Vietnam has strong growth in size, product, service quality and

professionalism Some interesting figures and information in 2011 as follows

(source: Association of Vietnamese Insurers):

The number of contracts: The number of new contracts reached 880,928 contracts

(major product), up 7% The number of reinstatement was 84,538 contracts, increased 15% over the same period last year The total number of valid contracts is 4,459,771 contracts (primary products), up 5%

Amount of insurance: The total level of responsibility that life insurance

companies holding is 465 thousand billion VND, up 24% over the same period last year In which, the responsibility of the primary products reached 343 trillion VND,

up 35%, the responsibility of the rider products reached 122 trillion VND, up 7%

Revenue premium: Yearly premium for the first year reached 4,565 billion VND,

up by 23.5% Total premiums of new contracts reached 4, 617 billion, up 23% compared with 2010 The total premiums in the life insurance market were 16,025 billion, up 16.2% Life insurance market also showed a clear differentiation The number of new contracts increased at a low level, the premiums increased at a high level This showed that the life insurers also concentrated to design the products with high value, big par value and high premiums to offer into the market

Payment of insurance: The total amount that life insurance companies paid

benefits to customers in 2011 was 6029 billion VND Total reimbursement amount

is 2379 billion VND

The number of agents: The total number of agents in the life insurance market was

202,956 people, up 25% The number of new agents was 134,106 people, up 24% Despite of developing in the long time period, but we can see that to date the life insurance market Vietnam is very small and still in the formative stages, exploit new markets According to a survey of Vietcycle by TNS Vietnam made, in 2011, with a population of 87, 8 million people, the proportion of people owning insurance in Vietnam is quite low, only 6.6% And only 25% of people in three major cities of Vietnam, including HCM City, Hanoi and Da Nang have has

insurance products If compared with the demand and market potential, the figure is still very modest

The challenges

The life insurance market Vietnam is still very small and very modest It is also facing some challenges as follows:

The first challenge is inflation In 2010, the inflation rate in Vietnam is 11.75%, in

2011 is 18, 58% (source: Association of Vietnamese Insurers) The high inflation rate will cause to reduce the people's trust for long-term investments, especially the long-term life insurance contracts Further, it also leads the short-term interest rise and creates the great competition for life insurance products

Secondly, the competition between financial organizations (such as banking, securities and other financial institutions) and life insurers is increasingly fierce to attract idle capital in inhabitants The banks have offered some products to compete against the life insurers' products such as savings with fixed time, savings with tiered interest rate, and long-term savings with the form of promotions, namely giving insurance, sweepstakes and many other related incentives According to general assessment, the competitiveness of financial institutions is one of the main reasons causing the decline of the life insurance market in Viet Nam nowadays Thirdly, the legal environment in life insurance business has yet caught up with the development of the sector, particularly in the context of Vietnam integrates into the world's economy So, the law of life insurance business should be amended and supplemented

Fourthly, the awareness and understanding about life insurance in Viet Nam is not high This causes a lot of difficulties for the operation of life insurance industry In life insurance industry in Viet Nam, an insurance policy is almost always sold by an agent who, in 80% of the cases, is the customer’s only contact Until recently, becoming an insurance agent is very simple After taking part in a short internal training course offered by the company which he collaborated (usually some days

or weeks), he could become an advisors So, life insurance agents have not received

the appreciation in the society and have not been officially recognized as a professional career

At last but not least, the investment activities of the life insurers meet many difficulties due to the financial market of Vietnam has not yet fully developed About 90% investment of life insurers invest only in government bonds and commercial banks So, investment efficiency is low and dividends for the insured

are not high

To sum up, the potential for expansion of the life insurance market is huge because Viet Nam is behind world in terms of insurance penetration, and insurance density,

so there is a tremendous opportunity in a vast untapped market In addition, the rising average income and a growing middle class, and the standard of living have been improved significantly, these creates the high demand for life insurance

Customer satisfaction and the salespersons’ relation orientation 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 et al., 2001) To enhance customer satisfaction, life insurance providers should measure and improve the approaches to delivery of service They commence a search for the important quality dimensions in the life insurance sector The service quality dimensions could be a basis for differentiation for the providers, which could be developed into

a sustainable competitive advantage in the long run

2.6 HYPOTHESIS AND EMPIRICAL MODEL

Assurance dimension is used to measure service quality to test the relationship between service quality and customer satisfaction It reflects that policyholders are assured that they are being dealt with representatives who are well versed with the reality’ s of the service and helped them to identify their specific needs, and also provide solution accordingly In addition, it assures that the policyholder of knowledge of agents and their ability to inspire trust and confidence Assurance consists of items such as trained and well-informed agents, approaching from customer’s point of view, trusting agents when explaining policies, clarity in

explaining policy’s terms and conditions and understanding intimately specific needs

Personalized financial planning is the second dimension to analyze the relationship between service quality and customer satisfaction Life insurance involves long-term association, hence policyholder moves through different life cycle stages in this long period and his needs and preferences change accordingly It is depicting handling of these changing preferences, by providing flexible solutions and convertibility options and giving personalized services It has four variables, including provision of flexible payment schedule, availability of flexible product solution, provisions for convertibility of products, supplementary services

Competence is used to measure the relationship between service quality and customer satisfaction This factor talks about the ability of the service provider to perform service dependably and efficiently and also about their willingness to provide hassle-free and prompt services It incorporates items such as staff dependable in handling customer’s problems, efficient staff, easy access to information, prompt & efficient grievance handling mechanism, and prompt and hassle free claims settlement

Tangibles factor is the fourth factor used to measure service quality and customer satisfaction of this model It is related to providing physical facilities and communication materials It has four items, namely adequate number of branches, accessible location of the branch, good ambience of the branch, and possessing good certification and credentials

Corporate image is related to creating an overall image of the organization in the eyes of the customers It includes five items, including innovativeness in introducing new products, courteous agents, value for money, simple and less time consuming procedure for purchasing a policy, and financially stable company

Technology is the last component used to measure the relationship service quality and customer satisfaction The component is related to use of modern aids in providing service It consists three items, namely easy online transaction, prompt complaint handling, online, and proactive information through e-mail or SMS Basing on the above literature review and the research questions, to analyze the relationship between service quality and customer satisfaction in the life insurance services, some hypotheses are suggested below:

H1: There is significant difference between service quality and customer

satisfaction with respect to assurance

H2: There is significant difference between service quality and customer

satisfaction with respect to personalized financial planning

H3: There is significant difference between service quality and customer

satisfaction with respect to competence

H4: There is significant difference between service quality and customer

satisfaction with respect to tangibles

H5: There is significant difference between service quality and customer

satisfaction with respect to corporate image

H6: There is significant difference between service quality and customer

satisfaction with respect to technology

Based on the hypotheses, the author presents the research model (Figure 2.1):

• Dependent variable: Customer satisfaction

• Independent variables: Assurance; Personalized financial planning; Competence; Tangibles; Corporate image; Technology

Figure 2.1: Research model

CUSTOMER SATISFACTION

CHAPTER 3 METHODOLOGY

3.1 INTRODUCTION

The previous chapter provides literature review and empirical model This chapter particularly presents the research methodology, data, research design and research process The aims, the outline and the phases of this study are also presented Further, the sampling and survey administration, research instruments, measurement of variables and statistical software and techniques are detailed

3.2 RESEARCH DESIGN

This study is a descriptive one Primary data is mainly used for analysis A well structured questionnaire was used to collect the primary data The questionnaire was finalized based on the comments and suggestions given by the life insurance employees, development officers, agents Secondary data for the study were collected from reputed journals, magazines, websites and insurance records The research process was presented as figure 3.1

3.3 VARIABLES MEASUREMENT

3.3.1 Scale to measure service quality

The SERQUAL scale is intentionally used to measure service quality in this study However, according to Trang & Tho (2003), the number and content of service quality components, as well as how to measure them, differ among different types

of services and markets Therefore, to do research in a specific market, some amendment and complement might be needed To measure service quality in the life insurance service, this study adapted the scale developed by Masood H Siddiqui and Tripti Ghosh Sharma (2010) with which they measured the service quality in life insurance services in Indian market To measure the service quality, 26 items

are employed All of these items concerning service quality are measured on a seven-point Likert scale, with 1 denoting strongly disagree and 7 denoting strongly agree Here, we presume that a high scale point of service quality indicates that the service quality not only has a positive service to the customer but also exhibits a greater level of service quality strength in comparison with others The service quality scale consists of 26 items for 6 factors as follows:

Figure 3.1: Research Process

Modifications

Reliability analysis

Writing the report

Confirmatory Factor Analysis (CFA)

Paired “t” test and Cross-tabulation procedure

Literature Review

(Customer Satisfaction, Service Quality, Hypotheses, Model)

The first draft of questionnaire

Focus Group Discussions

(Group discussions with Policyholders, Agents, Managers,

Measure of assurance

ASS_1: Company insurance [X] has trained and well-informed agents

ASS_2: Company insurance [X] approaches from customer’s point of view

ASS_3: I trust agents when explaining policies

ASS_4: Company insurance [X] explains clarity in policy’s terms and conditions ASS_5: Company insurance [X]’s agents and staffs understand intimately my specific needs

Measure of personalized financial planning

PER_1: Company insurance [X] provides flexible payment schedule

PER_2: Company insurance [X] provides availability of flexible product solution PER_3: Company insurance [X] provides for Convertibility of products

PER_4: Company insurance [X] has supplementary services

Measure of competence

COM_1: Staff is dependable in handling customer’s problems

COM_2: Staff of Company insurance [X] is efficient

COM_3: It’s easy to access to information from Company insurance [X]

COM_4: Company insurance [X] has a prompt & efficient grievance handling mechanism

COM_5: Company insurance [X] has a prompt and hassle free claims settlement

Measure of tangibles

TAN_1: Company insurance [X] has an adequate no of branches

TAN_2: The location of the branch is accessible

TAN_3: The ambience of the branch is good

TAN_4: Company insurance [X] possess good certification and credentials

Measure of corporate image

COR_1: Company insurance [X] has innovated in introducing new products

COR_2: Company insurance [X]’s agents are always courteous

COR_3: Company insurance [X] gives me value for money

COR_4: The procedure is simple and less time-consuming when purchasing a policy

COR_5: Company insurance [X] has a stable finance

Measure of technology

TEC_1: It's easy to transact online with the company

TEC_2: Company insurance [X] is prompt in handling my complaint by online TEC_3: Company insurance is proactive send for information for me through e-mail

or SMS

3.3.2 Scale to measure customer satisfaction

The present study takes a slightly different approach and views customer satisfaction as a multi-dimensional construct, but the underlying factors of customer satisfaction are the same as the ones by which service quality is measured Moreover, the customer satisfaction should be operationalized along the same dimensions that constitute service quality and by the same items that span the different dimensions Therefore, to measure service quality in the life insurance service, this study adapted the scale developed by G.S Sureshchandar (2002) with which they measured the customer satisfaction in banking services in Indian market

It is postulated that customer satisfaction also comprises of the six factors, namely

assurance, personalized financial planning, competence, corporate image, tangibles, technology

In order to measure customer satisfaction, the same 26 operating items of service quality have been used All of the items concerning customer satisfaction are measured on a seven-point Likert scale, with 1 denoting very high dissatisfaction and 7 denoting very high satisfaction Data have been collected from the same customers who responded to the survey on service quality

3.4 PILOT TEST

The purpose of the pilot test was to refine the first draft questionnaire to create the final questionnaire for the main survey A structured questionnaire was designed to collect the primary data The questionnaire was developed by identifying the variables based on literature review, some previous researches in life insurance sector, and the objective of this study

The first draft of questionnaire was developed in English It was then translated into Vietnamese During the translation, there have some group discussions with experts, professionals, trainers in the field of life insurance were taken so as to ensure the content validity After that, ten in-depth interviews (four with branch managers and six with agents of various life insurance companies) were conducted Few minor modifications were made based on their feedback regarding the clarity of some items Finally, 26 statements of service quality in life insurance sector were identified after the process

A pilot study was conducted with a small sample size of 10 people to clarify the overall structure of questionnaire A few minor adjustments were adjusted in the several questionnaires based on the recommendations of the participants The final version of questionnaire was made in Vietnamese and then was translated back into English

The survey instrument was a SERVQUAL type questionnaire relevant to the insurance sector The questionnaire was divided into two parts In the first part, respondents were asked to evaluate parameters on service quality relevant to insurance sector services (on a 7 point scale at ‘very strongly agree’ and ‘very strongly disagree’) This part consists of 26 statements for performance scores, regarding various aspects of service quality The second part related to different socioeconomic and demographic criteria like age, gender, profession, educational qualification and so on was collected

3.5 MAIN SURVEY

3.5.1 Brand selection

The leading six life insurance companies in Viet Nam constitute as sample size for this study: Prudential Viet Nam, Baoviet Life Corporation, Manulife Insurance Viet Nam, ACE Life Vietnam, AIA Viet Nam (American International Assurance), and

Dai-ichi Life Insurance Viet Nam (source: Association of Vietnamese Insurers)

Baoviet is the first company which piloting life insurance activities in Viet Nam Now, this company renames Baoviet Life Corporation Prudential Viet Nam, Manulife Viet Nam, ACE Life Viet Nam, AIA Viet Nam, and Dai-ichi Life Viet Nam are the 100% foreign owned companies operating in Vietnam

3.5.2 Sampling

For achieving the goals of this study, certain sampling factors needed to be under control to avoid meaningless data So, it was decided that only customers who met the following criteria would be included in the sample: (1) Purchased at least one policy in life insurance product (whole life insurance policy and/or an endowment policy) in the past 3 years; (2) Over the age of 25 (usually younger individuals in Viet Nam have their parents paying for their bills); and (3) customers live at Ho Chi Minh City

The next step is to identify the sampling method for this study The data was collected by using the non-probability sampling method, specifically, convenience sampling technique due to the limitations of time, budget and knowledge This is one of the least reliable sampling techniques, but it is the cheapest and easiest, and

is the most feasible for this study

Samples were selected from the policyholders of the leading six life insurance companies in Viet Nam

3.5.3 Sample size

A good sample should satisfy both accuracy and precision (Donald & Pamela, 2003) It should bring little or no systematic bias in variance, and the sampling error should fall within acceptable limits for purpose of the study

Hare et al (1998), caution that researchers should not factor analyze a sample of fewer than 50 observations, and recommend the sample size of at least 100 Additionally, they suggest that as a general rule there should be at least ten times as many observations as there are variables to analyze, and that a higher ratio may even be preferable In this study, the total number of observable variables in the model was 26 Applying the nine cases per observable variable criteria required a sample of at least 234 upwards This number was decided after considering some previous researches For example, see Tho & Trang (2008, p.350) or Trong & Ngoc (2005, p263)

3.5.4 Survey method

In this study, the author used face-to-face interviews and mail surveys in order to conduct the research To obtain the desired sample size of 234, a total of 320 self-administered questionnaires were distributed to the policyholders, in which 170 questionnaires by face to face interviews and 150 by mail

The interviews were conducted in September and October 2012 over a 8 period Prior to beginning the questions, participants were advised that their participation was voluntary and they were free to discontinue their participation any time during the completion of the survey In an attempt to encourage candidness and honesty in their responses, participants were instructed that their responses would remain confidential and would be reported in aggregate form only

week-3.5.5 Data analysis techniques

After data collection was completed, descriptive statistics were initially conducted

to provide an overview of the sample Secondly, the reliability tests and

confirmatory factor analysis (CFA) were applied to the data of the main survey in