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. 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. 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. 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. 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
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Form IV
1. Place of publication : Hyderabad
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Address : # 52, Nagarjuna Hills,
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6. Name and addresses of individuals who own the newspaper and holding more than one
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I, E N Murthy, hereby declare that the particulars given above are true to the best of my knowledge
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30 The Icfai Journal of Services Marketing, Vol. V, No. 1, 2007