IMPACT OF QUALITY SERVICE DELIVERY ON CUSTOMER SATISFACTION

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IMPACT OF QUALITY SERVICE DELIVERY ON CUSTOMER SATISFACTION

ABSTRACT

This research examined the Impact of service quality on customer satisfaction in case of Oromia Insurance S.C. service. Service quality has been defined as a difference between customers’ service perception and expectations. To achieve the objectives of this study, data was collected through questionnaire from a sample of 319 major customers of Oromia Insurance S.C. These respondents were selected using judgmental sampling method. The data collected from the questionnaire were analyzed using Descriptive Statistical tools such as counts, percentage, mean, and standard deviation. The results of this study indicate that except tangibility the four service quality dimensions (reliability, responsiveness, assurance, and empathy) have negative and significant difference with customers’ expectations. Furthermore, customers were most dissatisfied with the reliability dimensions of service quality. On the contrary, customers were more satisfied with tangibility and empathy dimensions of service quality. Based on the findings of the study, the researcher forwards some recommendations for Oromia Insurance S.C. managements such as the company must improve its service quality and consistency of performance as well as on improvement of customer handling and service process.

IMPACT OF QUALITY SERVICE DELIVERY ON CUSTOMER SATISFACTION

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Customer satisfaction and service quality remain critical issues in most service industries, and are even more important for financial service providers that offer generally undifferentiated products. For example, in the insurance industry, the major approach to differentiation and the principal means by which one insurer can distinguish itself from another is service before and after the sale of the policy (Stafford and Wells, 1996). Otherwise, companies are generally unable to differentiate based on market offerings because insurance providers offer state-mandated standardized products.

In an increasingly competitive environment, service quality as an essential strategy for success and survival has attracted increasing attention in the past 20 years (Ismail et al., 2006). Thus, companies need to pay keen attention to their customers and must understand their customers‟ needs and wants so as to meet or exceed their expectations. In this context, customers are considered as kings since customer satisfaction is what guarantees for their success and survival. To remain competitive, especially, service providers must render quality service to their customers. Moreover, understanding and meeting customers‟ expectations and subsequently being different by providing best quality service are important in order to survive in today‟s globalizing world.

Defining service quality is not as simple as defining product quality because of the nature of services. Parasuraman et al. (1985) have developed service quality measurement tool (SERVQUAL) and defined service quality as the gap between customer expectation and perception based on five dimensions. They further define consumer‟s perception of service quality as a function of the difference between expectations about the performance of a general class of service providers and assessment of the actual performance of a specific firm within that class. The five dimensions of service quality identified by the authors are: tangibles, reliability, responsiveness, assurance and empathy.

The concept of customer satisfaction occupies a central position in marketing thought and practice. Many companies today are aiming for Total Customer Satisfaction (TCS). Although a variety of alternative definitions exist, the most popular definition of customer satisfaction is given by K. Douglas & John E.G (2008) which is a comparison of customer expectations to perceptions regarding the actual service encounter. Oliver (1981) who defined customer satisfaction as a judgment of product or service providing a pleasurable level of consumption-related fulfillment, including levels of under-or-over-fulfillment, gives the other definition of customer satisfaction. According to Kotler (2002), customer satisfaction is the levels of one‟s feelings after comparing the performance (results) are perceived as compared with expectations. Thus, this is the reason behind why companies direct their business activities to produce goods and services that can provide best satisfaction to consumers. Pertaining to the above, the focus of this study is to examine the level of service quality provision by Conia Insurance Company.

Oromia Insurance S.C was established and licensed by the National Bank of Nigeria to carry on general business on 26 January 2009 and commenced operation on 9 February 2009. It was established by 540 founding shareholders (now 815) with paid up capital of Birr 26 million (now 84.6 million) and subscribed capital of Birr 85.084 million (http://oromiainsurancecompany.com.et).

Currently the Insurance Industry in Nigeria is relatively in a high competition among insurance companies. The intense competition among the firms is mainly based on premium rate, market proximity, promotion and advertisement etc. to attract new customers and to retain the existing ones. In order to win the customer, companies should begin to devise mechanisms to attract new customers and to retain existing ones by improving their service quality level.

Moreover, like any business, insurance business need to attract and establish a customer market and would need to retain it through satisfaction. That is the key to its business performance (Johnson et al., 2000). In order to attain this goal, a company should have a high satisfaction rate from its clients. The increasing competition, is forcing the business sectors to pay much and more attention to satisfying customers (Management library, 2008). Therefore, exploiting the opportunities, maintaining and improving the service excellence and measuring the current level of customers satisfaction level is necessary.

1.2 Statement of the Problem

Insurance by its nature does not produce tangible goods but provides services which must meet the requirements of its customers. Measuring services by its intangible nature is very difficult. It is also often difficult to standardize or to make insurance services uniform because the quality of service perceived by each individual may be different depending on the circumstances of the type of cover needed, the nature of the risk, type of loss in the case of claims and also the level of professionalism displayed by employee specially in the front line officers.

So the greatest challenges posed to insurance companies is setting standards and adopting appropriate parameter for measuring customer satisfaction performance over time. Each insurance company that wants to continually satisfy its customers‟ needs has to do customer satisfaction analysis. By doing so, a company can identify and understand the need of customers. In this regard, a study conducted on financial institution by Nigerian Economic Association (2012) shows that:

The insurance industry in the country is not dynamic as it should be the service is traditional, not differentiated. In addition to this, there are some common problems faced by consumers when it comes to service delivery. These are lack of creating awareness on the terms of the policy, prompt claims settlement method, poor risk assessment as a result insufficient recommendation by the service provider to the customer in order to minimize the happening of the loss, delay in communication, unprofessional conduct, inflexible service, in availability of staff for advise at time of claims due to rigid working hours which leads to dissatisfaction (Nigerian Economic Association (2012: p. 84).

In relation to this, the main purpose of this study is also to assess service quality of Oromia Insurance S.C using the five dimensions of SERVQUAL model and its subsequent effect on customer satisfaction. SERVQUAL is selected for this study because of the nature of the research title which best fits and also in order to bring out the best result out of this study. Moreover, it is a widelyaccepted quality assessment tool (Hemmasi et al., 1994, p. 25; Jensen and Markland, 1996, p. 39). Pertaining to the above, the researcher of this study will attempt to investigate the perceptions of customers towards the quality of insurance service of Oromia Insurance S.C and attributes that customers used to judge service quality of the company.

1.3 Research Questions

In order to assess the level of satisfaction of the customers the study anticipates finding possible and relevant responses for the following questions;

  1. What is the level of service quality of Conia Insurance Company?
  2. What meaningful difference exists between customers‟ expectations and their perceptions regarding Conia Insurance Company service?
  3. What is the relationship between service quality and customer satisfaction of Conia Insurance Company?
  4. What challenges do customers face in relation to Conia Insurance Company service quality and how to overcome it?

1.4 Objectives of the Study

1.4.1 General Objective

The main purpose of this study is to assess and know the current satisfaction/dissatisfaction level of customers with regard to insurance service provided to them and also to recommend possible remedial solutions that should be undertaken by the concerned working unit in order to improve the service quality.

1.4.2 Specific Objectives
  1. Assess the level of service quality of Conia Insurance Company.
  2. Identifying the extents of differences exist between customers‟ expectation and their perception.
  3. To describe the relationship between service quality and customer satisfaction of Conia Insurance Company service.
  4. To assess the impact of customer dissatisfaction with respect to the provided service and provide recommendations which enable the company to improve its service quality.

1.5 Significance of the Study

In general, customer satisfaction studies provide formal means of customer feedback‟s to the insurance service received, which may also help to identify existing and potential problems. It also conveys a message to customers that the company cares about their well-being and values customer input concerning operations. In specific terms, this study is believed to have the following importance:

  1. It helps to identify the level of satisfaction/dissatisfaction in the prevailing insurance operation and to recommend possible solutions on the cause(s) or dissatisfying factors.
  2. The research is important to Conia Insurance Company to recognize the gap between customer‟s expectation and their perception towards the service.
  3. The study will enhance the understanding level of management about the level of customer satisfaction/dissatisfaction and in turn give more emphasis to the outcome of the study.
  4. The finding of the study might be used as source document for further similar study.

1.6 Scope of the Study

With an aim to explore the level of customer satisfaction and service quality at Conia Insurance Company, the scope of the thesis was delimited to major customers who were registered in Addis Ababa city branches. Addis Ababa city branches were selected since the majority of insurance service users were found in the city branches. In addition, the researcher limited the respondents to major customers of the company owing to their attachments to the company understudy; In fact, they are already labeled as major customers.

Besides, it was practically unattainable to include all customers across branches of Conia Insurance Company due to the huge number of customers. If all customers in all of the branches the company operates had been included, the study would have not been realized, because of inability of data management and resource limitation (i.e., time and financial resources).

1.7 Limitation of the Study

Although Conia Insurance Company operates throughout the regions of the country, this study is limited to the level of service quality and customer satisfaction of major customers of the company in Addis Ababa. However, the findings of this study would have had paramount importance if more customers had been included in the research, for customers who live in different regions may have different expectations and perceptions towards customer services.

However, due to time and financial constraints, it was not possible to broaden the study to see the relationship between city branches and outlying branches customer satisfaction level in terms of their expectation and perception with respect to the need for insurance service. As a result, all the major customers in the city branches only were taken as the subject of the study.

IMPACT OF QUALITY SERVICE DELIVERY ON CUSTOMER SATISFACTION

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