CHAPTER 3

Consumer Behavior and

Channel Partner Satisfaction
for Life Insurance Products
- A Review of Literature
 CHAPTER 3
Consumer Behavior and Channel Partner Satisfaction for
Life Insurance Products - A Review of Literature

3.1 Purpose
The purpose of this chapter is to review, the findings of available research on
the subject of consumer behavior and channel partner satisfaction for life
insurance products. To begin with a review has been done to understand the

concept of consumer behavior. Then the available literature on the subject of

customer preference and satisfaction, customer attitude and customer services
in life insurance is reviewed. Then after research relating to services marketing
is reviewed. Further research related to insurance distribution is presented
followed by literature on insurance agents and bancassurance. As SERVQUAL
is used as a tool to measure the service quality in insurance industry, the
literature of the same is also reviewed. Based on these evidences, implications
are drawn for the development of hypothesis.

3.2 Consumer Behavior - A Conceptual Understanding

The consumers’ buying behavior has been always a popular marketing topic,
extensively studied and debated over the last decades while no contemporary
marketing textbook is complete without a chapter dedicated to this subject. The
predominant approach, explaining the fundamentals of consumer behavior,
describes the consumer buying process as learning, information-processing
and decision-making activity divided in several consequent steps: (1) Problem
identification (2) Information search (3) Alternatives evaluation (4) Purchasing
decision and (5) Post-purchase behavior1. A distinction is frequently made

between high and low involvement purchasing, implying that in practice the
actual buying activity can be less or more consistent with this model, depending
on the buyer’s perceived purchasing risks.

1 Kotler, P., Keller Kevin Lane (2007), Marketing Management - A South Asian Perspective,
12th ed., Pearson Education, Inc., pp. 159-168.

45
High or low degree of involvement is also a question of buyer experience;
products purchased for the first time, in general, require more involvement than
frequently purchased products2.

Most academics and practitioners agree that demographic, social, economic,

cultural, psychological and other personal factors, largely beyond the control
and influence of the marketer, have a major effect on consumer behavior and
purchasing decisions3. Despite their incapacity to exercise any substantial
influence on the above factors, marketers can have some bearing on the
outcome of the buying process by engaging different marketing tools, the most
prominent being the 4Ps - product, price, place and promotion - also known as
the marketing mix. While the value and current standing of the mix as marketing
toolkit is frequently disputed4. Marketing practitioners nonetheless widely deem
the 4Ps as the tools that can influence the consumer’s behavior and the final
outcome of the buyer-seller interaction. Next to the personal and external
uncontrollable factors influencing the buying behavior, exposure, of customers
to the company’s marketing can affect the decision-making by providing inputs
for the consumer’s black box where information is processed before the final
consumer’s decision is made5.

Customer satisfaction has been used as one of the key constructs to predict
consumer behavior for decades. Customer satisfaction has many benefits - it
heightens customer loyalty and prevents customer churn, lowers customers’
price sensitivity, reduces the costs of failed marketing and new customer
creation, reduces operating costs as customer number increases6. Also the
connection between customer satisfaction and customer loyalty is not always a

2 Boyd, H.W., Walker, O.C., Mullins, J. and Larre che, J-C. (2002), Marketing Management, A
Strategic Decision-Making Approach, Tata McGraw-Hill, India.
3 Solomon, M.R. and Stuart, E.W. (2003), Marketing, Real People, Real Choices, 3rd ed.,
Prentice-Hall, India.
4 Gronroos, C. (1994), “From marketing mix to relationship marketing - towards a paradigm shift
in marketing”, Management Decision, Vol. 32 No. 2, pp. 4-20.
5 Kotler, P. and Armstrong, G. (2001), Principles of Marketing, Prentice-Hall, India.
6 Fornell Claes (1992), “A National Customer Satisfaction Barometer; The Swedish.Experience”,
Journal of Marketing, Vol. 56, No. 1, pp. 6-21.

46
linear relation, although it constitutes a positive relationship and hence there
should be negative relationship between customer satisfaction and customer
churnability7.

Customer satisfaction is the result of customers comparing their perception of

performance of the service with their expectations. Customer expectations are
beliefs about service delivery that function as standards or reference points
against which the performance is judged. Customers perceive services in terms
of the quality of the service and how satisfied they are with their expectations8.
Companies have become increasingly interested in hearing from their
customers. Dissatisfied customers, in particular, are often encouraged to
communicate their complaints to company service representatives over the
telephone9. Research suggests that in many cases, companies make good-faith
efforts to address the complaints, of these dissatisfied customers. Many
managers, for example, are often prepared to exceed consumer expectations in
striving to address complaints10.

Given the direct relationship between customer satisfaction and company

profitability*11, such efforts to resolve customer complaints make good business
sense. Unfortunately, the number of complaints received by a company may not
always be a good measure of customer satisfaction. This is because not all

7 Soderlund, Magnus (1998), "Customer Satisfaction and its Consequences on Customer

Behavior Revisited”, International Journal of Service Industry Management, Vol. 9, No. 2, pp.
169-188.
8 Valarie A. Zeithaml, Mary Jo Bitner (2003),”Service Marketing - Integrated customer focus
across the firm”, Tata McGraw-Hill, India.
9 Garrett, D.E. and Meyers, R.A. (1996), “Verbal communication between complaining
consumers and company service representatives”, The Journal of Consumer Affairs, Vol. 30
No. 2, pp. 444-75.
10 Resnik, A.J. and Harmon, R.R. (1983), “Consumer complaints and managerial response: a
holistic approach”, Journal of Marketing, Vol. 47 No. 1, pp. 86-97.
11 Gurau, C. and Ranchhod, A. (2002), “How to calculate the value of a customer - measuring
customer satisfaction: a platform for calculating, predicting and increasing customer
profitability", Journal of Targeting, Measurement, and Analysis for Marketing, Vol. 10 No. 3, pp.
203-19. '

47
disgruntled consumers complain12. Instead of complaining, a dissatisfied

customer may terminate the relationship or “suffer in silence confident that

things will get better soon”13. The decision not to complain may be situational14.

For example, a dissatisfied customer may not have the time to wait for a
manager and decide instead to leave the store.

Satisfying the customers is the primary objective of all the companies nowa­

days, especially the service sector. There are numerous studies that have
looked at customer satisfaction in the service industry. Satisfaction is equated

with the well or better performed function of a business to the expectation of the
customer15. The literature on satisfaction indicates that a satisfied customer will

create repeat purchase, favorable word of mouth recommendation, increased

loyalty, and therefore, profits to the company16. A satisfied customer is the

cheapest method of promotion as there is always hope that they will share with
others their experience of the service, thus promoting the service17.

Satisfaction from the customer’s point of view is similar to Gap 5, the difference
between perception and expectation of the service performed18. Satisfaction is

beyond the physical, situational and behavioral terms, to that of a state of mind.

This state of mind of the customer is the leading criterion for determining the
quality that is actually delivered to customers through the product/service and

12 Hupperts, J.W. (2003), “An effort model of first-stage complaining behavior", Journal of
Consumer Satisfaction, Dissatisfaction, and Complaining Behavior, Vol. 16, pp. 132-44.
13 Hirschman, A. (1970), Exit, Voice, and Loyalty: Responses to Declines in Firms,
Organizations, and States, Harvard University Press, Cambridge, pp -38.
14 Jacoby, J. and Jaccard, J.J. (1981), “The sources, meaning, and validity of consumer
complaint behavior: a psychological analysis”, Journal of Retailing, Vol. 57 No. 3, pp. 4-24.
15 Swan J E and Combs L J (1976), “Product Performance and Consumer Satisfaction: A New
Concept”, Journal of Marketing, Vol. 40, pp. 25-33.
16 Kadampully J and Suhartanto D (2000), “Customer Loyalty in the Hotel Industry: The Role of
Customer Satisfaction and Image”, International Journal of Contemporary Hospitality
Management, Vol. 12, No. 6, pp. 346-351.
17 Naumann R (1995), "Customer Satisfaction Measurement and Management: Using the Voice
of the CustomeiJ’, Thomson Executive Press, Cicinnati, Ohio, pp. 457.
18 Hill D J (1986), “Satisfaction and Consumer Services", Advances in Consumer Research, Vol.
13, pp. 311-315.

48
by the accompanying service19. The challenge is to offer the right quality of
service that is required by the customer20. Hence this study aims at studying the

consumer behavior in the life insurance industry and also how what the
consumers’ preference and perception is with regard to the life insurance

industry in India.

3.3 Life Insurance Industry

Security has been a universal desire right from the earliest civilizations. This

quest for security has led to the concept of insurance. Insurance is a contract in
which one party (the insurer) agrees to pay to the other party (the insured) or

his beneficiary, a certain sum upon a particular unforeseen event (the risk)
against which insurance is wanted21. Life insurance protects against the

economic loss in the event of death. A family is generally dependent for its food,

clothing and shelter on the income brought by the bread earner of the family. So
long as he lives, that family is secure but the death of the person may put the

family in a very difficult situation. Uncertainly of death is inherent in human life.

It is this uncertainty that gives rise to the necessity for some form of protection
against the financial loss arising from death. Life insurance substitutes this
uncertainty by certainty22.

The role of life insurance in the personal financial planning of an individual is

enormous. Personal financial planning can be considered as a process where

an individual or a family decides to develop and implement an integrated plan to

accomplish their financial goals. Life insurance has evolved from being a loss

protection tool to a wealth creation tool. The entry of private companies in the
life insurance sector saw significant innovations that redefined the way life

19 Vavra T G(1997), “Improving Your Measurement of Customer Satisfaction: A Guide to

Creating, ASQ Quality Press, Milwaukee.
20 Barsky J D and Labagh R (1992), “A Strategy for Customer Satisfaction", The Cornell Hotel
Restaurant Administration Quarterly, Vol. 35, No. 3, pp. 32-40.
21 Bodla B. S, Garg M.C and Singh K.P, “Insurance: Fundamentals, Environment and
Procedures”, Deep and Deep Publications Pvt. Ltd., New Delhi, pp. 15.
22 Bodla B.S and Sushma Rani Verma,”Life Insurance Policies in Rural Area: Understanding
Buyer Behavior”, The ICFAI Journal of Service Marketing, Vo. V, No. 4, pp. 18-27.

49
insurance was perceived by the common man. The core benefit of life
insurance is that the financial interests of one’s family remain protected from
circumstances such as loss of income due to critical illness or death of the
policyholder23.
♦

Due to some of the shortcomings of the Indian insurance industry, the

government of India decided to liberalize the insurance industry. The basic
factor behind most of the shortcomings pointed out in Indian insurance sector
pre-liberalization had been supposed to be lack of competition in Indian
insurance market. The nationalized insurance companies perceived themselves
to be extension of government and accordingly function in bureaucratic manner
without giving regard to emerging requirement of the economy. This reflected in
their lack of innovation with regard to designing of products. Appreciating these
concerns and realizing the utmost need of vibrant insurance industry
Government of India liberalized the industry to private players. Accordingly,
Insurance Regulatory and Development Authority Act, 1999 (IRDA, 1999) was
enacted. The IRDA has been assigned basically three functions: (1) The
protection of consumers’ interests (2) To ensure financial soundness of the
insurance industry and (3) To ensure healthy growth of the insurance market24.

With opening up of the insurance sector competition increased among the

public and the private players and with the increase in competition the business
in the sector also increased tremendously. Bhasin (2004)25 highlighted the pre­
post-liberalization performance of life insurance sector, though the private

insurers were grabbing the market share, but in fact the market was growing
and LIC coverage was also increasing. In 1999, India’s premium as a per cent
of GDP was a mere 1.39% as against 7% of US, 8.87% of Japan and 10.30%
of UK, but in 2002 the premium had increased to 2.7%. The surveys of 300

23 Bhargav Dasgupta, The Role of Life Insurance in PFP, IRDA Journal, February 2008, Vol. IV,
No. 3, pp. 26-27.
24 Bodla B. S, Garg M.C and Singh K.P, “Insurance: Fundamentals, Environment and
Procedures", Deep and Deep Publications Pvt. Ltd., New Delhi, pp. 286-287.
25 Bhasin S. (2004), “Ensuring Insurance", Insurance Chronicle, Vol. xxiv, No. 7, pp.25-28.

50
million urban population showed that 50 million had the capacity to pay
premium of US $ 300, 100 million had the capacity to pay US $ 200, and 150
million had the capacity to pay US $ 100. Hence insurance awareness and

insurance coverage could be increased through liberalization.

According to Mittal and Chandlok (2002)26 the pre and post-privatization

scenario indicated that the awareness of public towards insurance had grown.
Before privatization, most of the agents did the job on part time basis and only

10% of the agents procured 90% of the total Life Insurance business and the
remaining 90% of the agents procured the remaining 10% of the total Life

Insurance business. There was a lack of efficient services, competition, and

innovative products and there were so many complaints from policyholders. But

in the post-privatization scenario, private sector and LIC had been offering
efficient services for the benefits of the customers. The LIC branch offices were

interconnected through computers and Internet. The publicity campaigns were

launched to create awareness about the concept of Life Insurance and its
products. It was also observed that majority of people preferred LIC products

due to its credibility and efficient services. The study reflected that Life

Insurance business was mainly procured from the male segment of the
population while the female segment constituted only around 14-16% of the

total Life Insurance business.

Jagendra Kumar (2005)27, in his study, revealed that the life insurance

penetration in India is just about 2% of the GDP, while the life insurance

premium per capita is just Rs. 550. LIC is the largest player with over 2,000

officers. After liberalization, it has improved efficiently and customer services

among the private life insurance companies. ICCI Prudential Life Insurance and

Birla Sun Life are the first and second largest players. Other prominent

26 Mittal R. K. and A. Chandhok (2002), “Privatization of Life Insurance Sector in India - Impact
and Perspective”, Indian Journal of Marketing, Vol. xxxii, No. 11, pp. 5-6,14.
27 Jagendra Kumar (2005), “Innovative Environment in Renovated Insurance Industry”, The
Insurance Times, Vol. 25, No. 4.

51
companies in competition are Bajaj Allianz, HDFC Standard Life, Kotak
Mahindra, ING Vysya, Avivia Life, Met Life, etc. The scope of life insurance

business in India is enormous. Again the industry has immense profit making

potential.

The comparison of total income and expenditure for the year 1997-98 showed

that expenditure of LIC were hardly 12% of its total income. It was observed
that about 85% of the policyholders’ family members approached with the

claims due to the death of the policyholder. Private firms are risky for the

policyholders in the case of Life Insurance business, because of the various

scams and the cases of misappropriation on the part of the helm of affairs and

the private firms themselves. However opening up of Life Insurance business to

the private sector would be beneficial for a developing economy, as it would

help create a number of jobs and would bring in capital etc. but the innate

mischief of private competitors and the interest of the customers needed to be

kept under surveillance vigorously by the Government. As the scope of life

insurance in India is high all types if firms and business houses would survive in
the market and in the long run, the rtiost competent one would survive28.

3.4 Consumer Behavior in Life Insurance Industry

The need for study of consumer behavior in life insurance industry is essential.

With the opening up of the life insurance sector many private player has

entered the industry. All these companies are trying to understand the

preferences, satisfaction and attitude of the consumers to offer better services

and design better products for them. Various studies are conducted to know the
awareness level, preference, perception, satisfaction, attitude and consumer
services in life insurance industry. Raman and Gayatri (2004)29 conducted a

study to identify the level of customers’ awareness towards new insurance

28 Gahelot B. D. (2000), “Disquisition of Life Insurance Business", Monthly Public Opinion

Surveys, Vol. x/v, No. 10, pp. 35-39.
29 Raman N. and C. Gayatri (2004), “A Study on Consumers Awareness towards New
Insurance Companies”, Indian Journal of marketing, Vol. xxxiv, Vo. 1, pp. 6-8, 30.

52
companies and their preferences towards investment in insurance companies.
A sample of 250 respondents was taken to study the awareness level. It was

observed that 10% respondents had policies other than LIC and 75% of the
respondents had no interest in taking any policy in the future, because of low

returns and unattractive scheme. The maximum number of respondents was

aware of new companies through their friends and was interested in taking

policy in future. It was observed that risk coverage, the investors had a forced
attraction to invest in the new companies. They suggested that the new
companies as well as the existing companies should develop a suitable strategy
to attract and retain their customers.

Task Force (1997)30 conducted a study to understand the formation of public

attitude towards insurance fraud and to understand the factors that influenced

them. Quantitative and qualitative research was used to ( i ) understand the

public perception of unethical behavior and their attitude towards the insurance

industry; and ( ii ) measuring their attitude towards curtailing and punishing

insurance frauds.

Investment and Financial Services Association (2001 )31 conducted a

quantitative and qualitative research to (i) explore consumers’ understanding of

life insurance companies’ use of different factors in assessing risk; (ii)

understand consumers attitude towards different factors in assessing risk; (iii)

examine the attitude of consumers towards voluntary and involuntary

disclosure; (iv) gain an understanding of why consumers hold particular attitude;

(v) collect information on consumers current ownership of Life Insurance

products and demographic information; and (vi) determine if the use of genetic
test results by Life Insurance companies would deter consumers from having

such tests. The survey was administered using computer-assisted telephone

30 Task Force (1997), “Why Some Americans Do and Don’t Tolerate Insurance Fraud - A Study
on Public Attitudes”, Coalition Against Insurance Frauds, (www.lnsuranceFrauds.ora).
31 Investment and Financial Services Association(2001), “Genetic Testing and Life Insurance
Consumer Perception Research", Project Number 2662 (www.ifsa.com.au)

53
interviewing by NCS specialist Fieldwork Company. The sample size was 784
and the average interview length was eight minutes. Four qualitative group

discussions were conducted, two in Sydney and two in Parramatta with the
persons having and currently not having Life Insurance. It was found that only a

significant proportion of people had little knowledge about details of the policies
and they had negative perception for Life Insurance sales persons.

The study further highlighted the need of education regarding the

privacy/confidentiality were the main reasons for their objection to the use of
genetic test results by Life Insurance companies. It was found that the people

having voluntary cover were not aware of the operations of Life Insurance
companies and its insurance products. Saibaba et al. (2002)32 conducted a

study on LIC in Warangal Division of Andhra Pradesh to access the attitude of

women towards Life Insurance as a product. The study was restricted to urban

and rural areas of Warangal Division. Data was collected from 69 respondents

through interview. It was observed that 70% of the respondents interviewed

were satisfied with the services provided by LIC and 30% were dissatisfied

because of the inconvenience regarding the payment of premium, lack of

intensive advertisement and lack of knowledge about new policies. The study
further revealed that insurance had become popular only because of certain

factors like risk coverage, housing loans etc., but not as a source of getting

higher return on investment. It was concluded that there was a need to improve

the customer relation maintenance by LIC for increasing the satisfaction level of

the policyholders. It was suggested that efficient services, trained agents,

planned marketing strategies and low premium higher benefit policies must be

introduced.

32 Saibaba- R., Prakash B. and V. Kalyani (2002), “Perception and Attitude of Women towards
Life Insurance Policies”, Indian Journal of Marketing, Vol. xxxii, No. 12, pp. 10-12.

54
Harris Interactive Inc. (2003)33 conducted a study to know the perception of

respondents towards the life insurance policies and their satisfaction level. For

this purpose a telephone survey was conducted among a nationally

representative sample of 1009 adults comprising 505 men and 504 women
living in private households in the continental United States. The margin of error
for the total sample was plus or minus 3.1%. The unrestricted random sampling

procedure was used. Only one interview was conducted per household.
Completed interviews were weighted by four variables i.e. age, sex, geographic

region and race, to ensure reliable and accurate representation of the total
population. The raw data was weighted factor for each respondent. Each

respondent was assigned a single weight derived from eh relationship between

the actual proportions of the population with its specific combination of four

variables. It was observed that only 67% of females and 57% of male had
positive attitude towards business practices of Insurance Corporation. 4% of

male and female didn’t have any idea about the business practices of the

Insurance Corporations.

Tom Moormann (2003)34 explains the significance of tracking the customer

satisfaction at regular intervals in an Insurance Industry and suggests that it is

one of the very effective tools for the purpose. He says, for insurance,

companies that want to make the most of every opportunity to deliver superior
customer service, customer satisfaction surveys can be an invaluable tool.
Banumathy and Subasini (2004)35 examined and evaluated the attitude of LIC

policyholders towards Life Insurance business in Virudhunagar District. A

sample of 200 respondents was selected on random basis. A well-structured

questionnaire was prepared after a pilot survey. Likert Scale technique was
used to study the level of agreement and disagreement of policyholders

33 Harris Interactive Inc. (2003),"A Study about Life Insurance Policies", Public Relation
Research, Insurance Marketplace Standards Association (IMSA) (www.imsaethics.org
34 Tom Moormann, "Tracking Customer Satisfaction”, Insurance and Financial Services
Management, LOMA Resource Magazine.
35 Banumuthy S. and M. Subasini (2004), "Attitude of Policyholders towards Life Insurance
Business in Virudhunagar”, The Insurance Times, Vol. xxiv No. 7, pp. 34-37.

55
towards life insurance services. A total of 10 components, viz., premium rate,
location of branch, loan procedure,4 revival of policy, surrender procedure, rate

of bonus, services of agents, settlement of claims, advertisement and publicity,

safety and social security was decided to know the overall attitude of

respondents. A hypothesis was farmed to find out whether age and educational
qualification were the influencing factors in taking the LIC policies.

The study revealed that future safety was the main purpose for the respondents

while taking LIC policy. Most of the policyholders get the information about

various plans and schemes only through agents. It was concluded that the
educational level rather than the age factor was an influencing factor in taking

LIC policies. The study suggested .that: ( I ) advertisements of LIC should be

informative, efficient and effective; (ii) LIC should review, revise and propose
new plans and schemes from time to time; (iii) extraordinary facilities must be

provided to economically weaker and poor sections; and (iv ) loan procedures

must be simplified.

Mittal Alok and Mr. Swapnil Dabli (2006)36 conducted a comparative study of

insurance through ICICI Prudential and Allianz Bajaj. The objectives of the

study were: (i) to compare the products and services offered by ICICI Prudential
and Allianz Bajaj, (ii) to identify the benefits accruing to the consumers as result

of services, products and schemes provided by ICICI Prudential and Allianz

Bajaj, and (iii) to help the consumers in selecting the products of the company
providing maximum returns. The study was conducted in Indore and nearby

regions. Convenient sample of 50 customers each of ICICI Prudential and

Allianz Bajaj was used to collect the data using a self-developed questionnaire
containing 19 statements based on Likert type scale. Nineteen hypotheses

were formulated to test the significant difference between the two companies

with reference to factors different factors. It was concluded that, there is

36 Mittal Alok, and Swapnil Dabhi (2006), “Insurance Through ICICI Prudential and Allainz Bajaj
- A Comparative Study”, ACRM Journal of Business and Management Research, Vol. 1, No. 1,
pp24-29.

> 56
significant difference in the products, services, schemes and working
procedures of ICICI Prudential and Allianz Bajaj on different parameters. T
Devasenathipathi, P T Saleendran and S Shanmughasundram (2007)37

conducted a study on consumer preference and comparative analysis of all Life

Insurance Companies. The major objectives were: (i) to compare and rate all
the life insurance companies by analyzing certain variables, (ii) to measure the
customer perception, purchase behavior, and consumer awareness regarding
the life insurance industry, (iii) to study the privatization, policy awareness and
life coverage awareness among the consumers, and (iv ) to create a basic
awareness about the policies and the other benefits of each life insurance
company among the public. The sample size was 500 respondents and
stratifies random sampling method was used. The study revealed that the
acceptance rate of the respondent is not independent of the age level of the
♦

respondent, i.e., null hypothesis rejected; hence the acceptance of privatization

depends upon the age level of the respondents.

Harris Chorney, Jill Goldman, Olivia S Mitchell and Anthony M Santorrierb

(1997)38 conducted a study on the competitive performance of life insurance

firms in the retirement asset market. The objectives were; (i) to better
comprehend consumer behavior relative to the accumulation and de­
accumulation of assets, (ii) to provide a macro view of retirement asset flow.

The major findings of the research were: (i) Large segments of the American
population have accumulated far less than needed to meet replacement rate
targets, (ii) The household sector has little understanding of retirement asset

needs and the complexities of the financial market, (iii) The retirement asset
market itself is growing rapidly, however, as “baby-boomers” appear to be

37 T. Devasenathipathi, P. T. Saleendran and A Shanmugasundram (2007), “A Study on

Consumer Preference and Comparative Analysis of All Life Insurance Companies", The ICFAI
Journal of Consumer Behaviour, Vo. Ii, No. 4, pp.7-16.

38 Harris Chorney, Jill Goldman, Olivia Mitchell S. and Anthony Santomera M., “The Competitive
Performance of Insurance Firms in the Retirement Asset Market”, Financial Institution Centre,
The Wharton School, April 1997.

57
saving more rapidly than their parents, (iv) The observed growth in mutual fund

market share had been primarily at the expense of depository institutions.

Patil (2003)39 conducted a study, to evaluate the LIC products and their

performance in Gulbarg District. The objectives were to (i) study the history of
LIC; (ii) make an attempt to measure and evaluate the performance of the LIC

branches; ( iii ) critically evaluate the performance of existing products and

evaluate the duties of agents; and (iv) know the transaction and precautionary

motives of the people. The study covered a period of five years from 1994-95 to
1998-99. A pilot survey was conducted to ascertain the opinion of various

groups of policyholders and agents. The sample included 1291 policyholders

representing 20% of the total population and 407 agents representing 25% of

the total agents in the district. An empirical survey was undertaken through a
mailed questionnaire to evaluate the opinion of the respondents with regard to

the products. A personal interview with a selected group of respondents was

also conducted.

The study revealed that the performance of children related policies was very

poor except the children money back policy, which too had not been
contributing significantly. The insurance products with lower premium and
covering more risk were the most preferred policies by the people. The share of

urban business was very high as compared to the rural segment. The study

further revealed that the demonstration of product features by the agents was

not satisfactory. Further it was concluded that the rapport between the agents

and development officers was not regular, which had an adverse effect on the

business of agents in particular and on the Corporation in general.

39 Patil K. S. (2003), “Life insurance Corporation of India, Its Products and Their Performance
Evaluation: A Special Reference to Gulbarg District”, Finance India, Vol. xvii, No. 3, pp. 1037-
40.

58
Dhanda (2004)40 analyzed the divisional performance of LIC business in

northern zone of India. A sample of 130 service providers and 163 service
users was taken. Data was analyzed with the help of average, percentage,
standard deviation, co-efficient of variation, various ratios, rank analysis, growth

rate, and average annual growth rate and total growth rate. The study period for
divisional performance evaluation was taken from 1990 to 2000. Divisional
performance of LIC was calculated on the basis of segmentation of

policyholders, mobilization of savings of people, operational efficiency and claim

settlement by LIC. It was revealed that first insurance business to new business

ratio was more than 60% in the northern zone. Introduction of computers would
certainly affect the efficiency level and improve the quality of services as
indicated by a majority of the respondents. Training programmes also affected

the performance positively. Expected rate of return on insurance products

ranges from 0 to 10%, as reported by majority of respondents. The highest

percentage of policyholders of different segments preferred the money back

policy. Only 30% of the respondents rated premium as high while 2/3 opined
that the amount of premium was reasonable. Dalai and Gupta (2004)41

conducted a comparative study of LIC and Tata-AIG. The objective of the study

was to examine the comparative profitability of same type of schemes

introduced by LIC and Tata-AIG. For the purpose of comparison, six sample

schemes (common in nature) were taken from both the companies. It was found

that the final additional bonus in case of LIC was lower as compared to the

terminal bonus of Tata-AIG.

LIC paid the final additional bonus consistently till date while Tata-AIG’s

tendency of payment of terminal bonus was yet to be seen. It was concluded

that the profitability of the comparable schemes of LIC and Tata-AIG varied

40 Dhanda R. L. (2004), “Divisional Perforamce Evaluation of LIC Business in Northern Zone”,

Financa India, Vol. xxiti, No. 1, pp. 229-33
41 Dalai R and A. Gupta (2004), “Profitability of Contemporary Life Insurance Schemes-A
Comparative Study between ICICI and Tata-AIG”, The Management Accountant, Vol. 39, No.
11, pp. 926-29.

59
from case to case. Sahoo (2004)42 made a comparative analysis of LIC’s

Komal Jeevan vs. ICICI’s Smart Kid and Tata-AIG’s Mahalife Junior. The
comparison showed that in the case of Tata-AIG’s Mahalife, the sum assured
was 4,00,000 and total benefits were 94,59,867 while in the case of LIC’s
Komal Jeevan, the sum assured was 2,00,000 and total benefits were
98,75,260. The investment in LIC’s Komal Jeevan was Rs. 4,15,393, which was
much more as compared to the Tata-AIG’s Mahalife Junior. The net financial
gain of LIC’s Komal Jeevan policy over ICICI’s Smart Kid was Rs. 33,24,265. It
was concluded that the benefits under LIC’s Komal Jeevan plan were more as
compared to the Mahalife Junior and ICICI’s Smart Kid. In case of falling
interest, the life assured under LIC’s Komal Jeevan would be fully protected
because of the contractual obligations as envisaged in the policy.

Mittal Alok and Kumar Akash (2005)43 considered eight factors in their study

which affects the selection of life insurance products. These eight factors were
product attributes, customer delight, payment mode, product flexibility, risk
coverage, grace period, professional advisor and maturity period. With the help
of factor loadings it was revealed that most important factor is product attributes
and it refers to the product features that customers take into consideration
prima facie before selecting an insurance product. Everyone will like to buy a
policy, which involves lesser procedural formalities, provides tax rebates, suits
to the requirements of an individual. Also the policy is bought from the
government service provider as people have more faith and trusts in it, located
in the close proximity of their residence.

42 Sahoo S. C. (2004), “Comparative Analysis: LIC’s Komal Jeevan vs. ICICI’s Smart Kid and
Tata-AIG’s Mahalife Junior", The Insurance Times, Vol. xxiv, No. 2, pp. 22-27.
43 Mittal Alok and Kumar Akash (2005), "An exploratory Study of Factors Affecting Selection of
Life Insurance Products”, Insurance Theory and Practice, Prentice-Hall of India Private Limited,
New Delhi, pp.72-81.

60
Shubhabrata Das (2004)44 conducted the survey on pension perceptions. The

survey was administered by the Insurance Institute of India through its various

associates spread across India. We conducted the survey to gather information

particularly on the unstructured and rural market and thus adequate emphasis
was given to ensure that we receive information from agriculturists, business
persons and professionals like Chartered Accounts, doctors, etc; we have
nearly 16,000 responses. The results revealed that about 10% of the workforce

expects complete support in their retired life from their children while another
35% expect partial support. These percentages are likely to decrease in time

with the change in social structure. The workforce itself is expected to increase,

as also savings for retirement and disposable income. While there was a

relatively high degree of awareness (65%) about the Voluntary Pension Plan

(VPP), only a small fraction (20%) had bought one already. There is a strong
investment preference for the conservative option. However ‘rate of return’ is

the most important factor for choosing a product. Advice is most sought from

qualified professionals as opposed to licensed representatives or friends. The

degree of pension awareness, as measured though the different awareness
parameters, depends significantly on the various demographics, excluding
possibly age and sex. Government institutions are preferred for buying pension

plans.

Capgemini and EFMA’s World Insurance Report (2006)45 is a study of over

10,000 insurance customers, insurers and distributors released by Capgemini,

one of the world’s foremost providers of Consulting, Technology and

Outsourcing services and the European Financial Management & Marketing

Association (EFMA) today. The report says that a satisfied insurance customer
isn’t necessarily a loyal one.

44 Shubhabrata Das, “Survey on Pension Preferences”, IIMB Management Review, September

2004, pp. 68.
45 Capgemini and EFMA’s World insurance Report, “The World Insurance Report: Customer
Satisfaction is no Guarantee of Loyalty", 2006. www.capqemini.com/worldinsurancereport

61
The report findings indicate that customer satisfaction does not equate with
customer loyalty. While very few customers surveyed in the report expressed
outright dissatisfaction over either the type or quantity of interactions they have
with insurers or agents. Rising Internet use is increasing transparency in the
industry, providing customers with better access to information on product
specifications and pricing — and increased bargaining power. As a result,
customers have become more self sufficient, price-sensitive and less loyal, said
Bertrand.Lavayssiere, Managing Director, Capgemini Global Financial Services.
To serve informed customers better and stem the loss of profitable customers,
insurers will need to hone their customer retention strategies and achieve a
comprehensive yet discerning view of what it is specifically that customers’

value.

B S Bodla and Sushma Rani Verma (2007)46studied Life Insurance policies in

rural area. The objectives were: ( i) to prepare the profile of life policyholders in
rural area of Haryana state, (ii) to examine the preference of the policyholders
towards various types of policies of insurance, and ( iii ) to probe into the
reasons or the casual factors behind the insurance product purchases in rural
areas. The study was conducted in Hisar District with the sample size of 200
*

policyholders with the help of convenience sampling technique. It was

concluded that agents are the most important source of information and
motivation as rural people just take a policy which the agent suggest to them. A
large number of respondents have got insured themselves for the life risk
coverage and for future contingencies. LIC has the maximum market share
(93%) among the various life insurance players. Money back is the most
preferred policy in rural areas followed by Jeevan Anand and Endowment
Policy.

46 B. S. Bodla and Sushma Rani Verma (2007), "Life Insurance Policies in Rural Area:
Understanding Buyer Behaviour", Vol. V, No. 4, pp. 18-27.

62
Sunanya Khurana (2008)47 conducted the study on customer preferences in

Life Insurance industry in India. The study was performed in Hissar city, with the
sample size of 192 respondents. The major findings of the study were: (1)
34.4% of the respondents have simple term plan, out of which 63.6% are of LIC
(2) 28.1% of the respondents have money back policy, out of which 77.8% are

of LC only, which means that the customers still prefer public sector companies

when compared to private sector companies (3) in the ULIP plan category,

55.6% of the total policies (28.1%) belong to LIC (4) Only 6.3% and 3.1% of the

total respondents have pension plans and child benefits plans respectively, and
all of them are of LIC only (5) Protection is the main purpose of buying an

insurance policy (6) Only 6.3% of the respondents faced problems, and all of

the have policies of LIC.

Pathank and Singh (2003)48 empirically examined the impact of opening up of

the insurance sector to the private players. An analysis was also done with

respect to the marketing strategies adopted by LIC along with its strengths and
weaknesses. The main objectives of the study were to ( i ) carry out SWOT

analysis of LIC in order to help it in formulating new marketing strategies;

and ( ii ) increase LIC market share by, giving suggestions for increasing its

competitiveness. A customer survey of 100 policyholders of LIC was conducted

through an open-ended interview to find out customers’ perception and

expectation towards LIC. Agents’ survey (20 from each group i.e. from top

agents, development officers and senior executives) was conducted to prepare

new and effective marketing strategies, to increase market share and to

improve the customers’ satisfaction by providing quality services. The study

showed that policyholders gave more preference to money back policies and
wanted to buy new products with lower premium. It was concluded that the
insurance companies were spending lot of money on publicity to attract the

47 Sunanya Khurana, “Customer Preferences in Life Insurance Industry in India”, The Icfai
University Journal of Service Marketing, September 2008, Vol. VI, No. 3, pp. 60-68.
48 Pathak P. and S. Singh (2003), “Increasing Competitiveness through Marketing - A Case
Study of Life Insurance Corporation of India”, The Alternative Journal of Management Studies
and Research, Vol. 2, no. 1, pp. 32-38.

63
customers’ attention, but there was no budgetary allocation for research and

development of the products. Agents didn’t take care of customers because

they were suggested that agents’ pre-recruitment training was essential to
provide efficient and effective customer services.

B K S Prakasha Rao and Bh Venkateshwara Rao49 have written a paper on

Buoyant Rural Markets - Immense Potential for Insurance. In his article he has

highlighted the opportunity for the insurance companies to penetrate in the rural

markets. He concluded that insurers should look upon rural insurance as an

opportunity and not as an obligation. A smaller bundle of innovative products in

tune with the rural needs and perceptions and an efficient delivery system are
to be developed in order to penetrate the vast rural markets. He also said that

generating awareness pays dividends only when steps are taken to ensure

constant availability of insurance plans. In rural India availability and

accessibility determine volumes and market share because people usually

purchase what is available and accessible.

Namasivayam et al. (2006)50 analyzed the socioeconomic factors that are

responsible for taking life insurance policies and examined the preferences of

the policyholders towards various types of policies of LIC. From the analysis, it

was found the factors such as age, educational level and sex of the

policyholders are insignificant. However, income level, occupation and family

size are significant while deciding on an insurance policy. From the analysis, it
is inferred that respondents belonging to the age group of 31 to 40 years are

much interested in taking a life insurance policy.

49 B K S Prakasha Rao and Bh Venkateshwara Rao, “Buoyant Rural Markets - Immense

Potential for Insurance, Insurance Chronicle, August, 2005.
50 Namasivdyan N, Ganesan S and Rajendran S ,(2006), “Socioeconomic Factors Influencing
the Decision in Taking Life Insurance Policies”, Insurance Chronicle, august, The IDFAI
University Press, pp. 65-70.

64
K M Chinnadorai, B Kalpana and B Sadhana (2007)51 conducted the study of

motivational factors and level of satisfaction of agents and development officers

of LIC of India. The study was conducted in the city of Coimbatore. A sample of

50 agents and 50 development officers were selected and data was collected
through interview. It was concluded that the development officers motivate
agents ad guide them to perform better as a team. It was inferred that the team

building can be enhanced by increasing commission of the agents, adopting

innovative training techniques and motivating officers through personal

approach. Despite various incentives provided to the agents, commission is the

most motivating factor for an agent to pursue the insurance career.

Tapen Sinha (2005)52 in his CRIS discussion paper series on an analysis on

evolution of insurance in India concluded that the major drivers of the increase
in life insurance business include sound economic fundamentals, a rising

middle-income class, an improving regulatory framework and rising risk

awareness. The fundamental regulatory changes in the insurance sector in

1999 will be critical for future growth. In the life sector, new private insurers are
bringing in new products to the market. They also have used innovative

distribution channels to reach a broader range of the population. There is huge

in the largely undeveloped private pension market. Finally, the rural sector has

potential for both life and general insurance. To realize this potential, designing

suitable products is important. Insurers will need to pay special attention to the

characteristics of the rural labor force, like the prevalence of irregular income
streams and preference for simple products.

3.5 Marketing in Life Insurance Industry

Service Marketing is different from goods marketing in significant ways and that
it requires different strategies and tactics than traditional marketing. There are

51 KM Chinnadorai, B Kalpana and B Sadhana, “A Study of Motivational Factors and Level of

Satisfaction of Agents and Development Officers of LIC of India”, The lefai Journal of Service
Marketing, March 2007, Vol. V, No. 1, pp. 45-53.
52 Tapen Sinha, “An Analysis of Evolution of Insurance in India", CRIS Discussion Paper Series,
2005.

65
several studies undertaken by various authors for marketing in life insurance
industry. Arora (1992)53 conducted a study to examine and analyze the

marketing of life insurance services of LIC in Jalandhar Division, which

consisted of seven districts of Punjab. The study was three dimensional in
nature. The marketing performance of LIC pertaining for the period 1980-81 to
1989-90 was also studied. The primary data was collected by interviewing 425
policyholders and 90 agents spread over the three districts and the additional
information was collected through observations, interviews, and discussions
with the marketing functionaries and officers at divisional as well as central
office of LIC. The data was analyzed by using simple frequencies, percentages,
averages and ranking/rating etc. The study revealed that most of the agents
preferred LIC agency because it was a good source of income and also
because of the employment problem. The majority of agents were dissatisfied
with the functioning of LIC, but were satisfied with the premium charged and
bonus declared by LIC. It was also observed that the product mix and pricing
system in LIC was very complex yet it ranked better than other private
companies from the risk protection and the tax-benefits point of view.

Private insurance companies have gained their momentum by focusing on

better service and marketing. Nageshwar S. B Rao and Madhavi C (2005)54 in

his study suggested that when private players plan schemes for different
segments the elderly people scheme must focus more on economic factor as
they attach more weight age to this factor compared to younger generation.
Private insurance companies have attractive schemes to gain the attention of
the public; it would be more effective if they could extend more varieties to
attract. Though awareness level created by agents contribute much, it is
necessary to increase the advertisements. When female respondents are found
to have a higher level of satisfaction relating to comfort, the advertisements can

53 Arora, R. S. (1992), Marketing of Services: A study of LIC in Jalandhar Division, Rh.D. Thesis,
Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar.
54 Nageshwar S. B Rao and Madhavi C (2005), "An Overview of the Private Insurance
Company’’, Insurance Theory and Practice, Prentice-Hall of India Private Limited, New Delhi,
pp.104-115.

66
be focused on targeting the female in this aspect. Trial purchase is also a

reason to a considerable extent. Thigh might be based on brand loyalty.

Companies must take steps to further improve the brand image through more
advertisements and also maintaining service level.
%

Murlidhar (2001 )55 conducted a study, which covered the analysis of marketing

operations and marketing strategies of LIC. The study was confined to

Bangalore Division-2 that covers three districts of the state of Karnataka with a

network of twenty branches. The main objectives of the study were to (I)
structure the profile LIC in Bangalore Division; (ii) study the working of LIC; (iii)

analyze the marketing strategies of LIC; and (iv) make an opinion study of
insurance agents of LIC during the year 1997-98. Sample of 80 agents as

respondents was collected at the rate of four progressive agents from each of
twenty branches and a sample of 240 policyholders was selected at random
from all’ the twenty branches. Pilot study was conducted to test the

questionnaires on policyholders and agents. Judgment based quota sampling

method was adopted to make an opinion study of the policyholders and agents.

The study highlighted the recent trends in LIC in the changed environment and

suggested effective implementation of marketing strategies, revision of premium

rates, promotion of LIC activities in rural areas, measures to implement

marketing approach throughout the organization and improvement in the quality

of services.

Sundar and Babu (2001 )56 in their article entitled “Marketing of Insurance

Services’.’ highlighted the various benefits of life insurance products in the form

of social security-, measure schemes or policies to encourage savings ad to

provide protection and safety to the policyholders. It was revealed that proper
care should be taken to determine financial insecurity of the customers, to

55 Murlidhar S. (2001), “A Study of Marketing Strategies of Life Insurance Corporation of India,

“Ph.D. Thesis, Bangalore University, Bangalore.

56 Sundar K. and R. R. Babu (2001), “Marketing of Insurance Services", Third Concept, Vol. 15,
No. 173, pp. 30-33.

67
design new schemes/policies and to satisfy the customer’s need. It was also

stated that marketing of Life Insurance companies must include a well-defined

marketing objective, segmentation of target customers and proper blending of
marketing mix elements. The paper further highlighted the usage of electronic

media as well as sponsoring f various entertaining events by the different

companies in order to achieve deeper penetration into the market.

G Radha Krishna, A Suryanarayana and A Srikant (2005)57 conducted the study

on effective promotional strategies in service marketing - a conceptual study.

The article explores the services industry and the role of marketing mix plays in

delivering the required services to customers. The article revealed that

promotional mix tool is a power tool for marketers to put across their service

offers in a most effective way. Choice of promotional tools, i.e. personal selling,

advertising, sales promotion and publicity depends on the characteristics and

preferences of the industries concerned. The content of the promotional

components must be deliverable to the customer.

Malliga (2000)58 studied the marketing of LIC policies in Tirunlveli Division of

Tamil Nadu. The objectives of the study were to ( I ) analyze the impact of

marketing strategies of the agents on their performance; ( ii ) identify the

association between socio-economic status of the agents and their

performance; (iii) study the association between personality traits of the agents

and their performance; ( iv ) assess the impact of agents’ attitude towards the
organization on their performance; and ( v ) analyze the performance of the

agents in terms of number of policies and the sum assured. The required data

was collected from the population of 2000 by selecting a sample of 100 at

random, using stratified random sampling technique. Multivariable personality
inventory was used for measuring the personality. It had nine dimensions from

57 Radha Krishna, A Suryanarayana and A Srikant, “Effective Promotional Strategies in Service

Marketing: A Conceptual Study”, The ICFAI Journal of Service Marketing, June 2005, Vol. Ill,
No. 2, pp. 21-34.
58 Malliga R (2000), “Marketing of LIC Policies - A Study on Agents of Tirunelveli Division”,
Indian Journal of Marketing, Vol. xxx, No. 8-10, pp. 6-9.

68
which five were used for the study. The level of significance was fixed at 5%.

The study showed that the performance of the agents was influenced by the

marketing strategies. It was found that the performance of agents in term of

number of policies sold, the sum assured and the total commission received
was independent of the personality traits except the self confidence, but
dependent on the socio-economic status and on the nature (part time and full

time) but not on the type (direct and supervised). It was concluded that the
marketing of LIC policies had been influenced by the agents’ performance

status. It was suggested that the LIC should take into consideration the
sociological, physiological and economic factors while recruiting agents. The

LIC should adopt special marketing strategies and modern sales techniques for
better performance of the agents.

J Rajesh, C Jampala and Bh Venkateswara Rao (2005)59 unveil the increasing

significance of sales promotion strategies which, in turn, influence the behavior

of consumers in a desired way. The paper attributes the reasons for the

phenomenal usage of sales promotional measures to increasing competition,

declining brand loyalty, consumer sensitivity and advertising clutter. The paper

discusses the various strategies adopted by LIC of India, which include

consumer promotion strategy, trade promotion strategy, and sales force
promotion strategies. Ramamurthi (1992)60 studied the contribution of Western

Zone of the LIC and observed that its contribution as a whole was bigger than

all the other zones. He discussed the total income and investment made by LIC
and pointed out that the share of Western Zone in terms of number of policies in

1991-92 abs 24.27% and total premium income was 24.35%. Over 67% of the

policies sold in 1991-92 were in the form of first insurance and the rural
business accounted for 27.71% of new policies.

59 J Rajesh, C Jampala and Bh Venkateswara Rao, “Sales Promotion in the Insurance Sector: A
Study of LIC”, Insurance Chronicle, April,2005.
60 Ramamurhty N. (1992), “Journey towards Complete Customer Satisfaction", Jogaksheema,
Vol. 36, No. 9, pp. 20-22.

69
It was analyzed that the customer satisfaction, publicity and public relations,
human resource development and the information technology were some of the
important aspects in the success of LIC. The study suggested that serious
efforts should be made to improve the performance, monitor activities and

expansion of life insurance business. A study conducted by Patil Kallinath S

(2003)61 aimed at critically evaluating the performance of existing insurance

products. It revealed that the insurance coverage of agricultural groups and

agricultural labor is very low. The performance of children-related policies like

Jeevan Kishore, Jeevan Balya, etc., is very poor, except the children money
back policy, which also has not been contributing significantly. The

demonstration of product features, by the agents, is unsatisfactory.

R Vaidhyanathan (2004)62 conducted a study on Pension Business in India. He

highlighted on Pension Regulatory and Reforms, Pension Regulatory Body

(Scope, Objectives, Structure and Role), Regulation on Occupational Pension,

Public Education on Pension and Pension System in India. He said that the

critical success factors in the Pension business are Investment Management,

Distribution (Building Distribution is the biggest challenge in the vast country like

India) and Capital and Asset Liability Management. Further he said people
consciously saving for old age benefits are extremely sensitive about the

trustworthiness of the institutions with whom they place their long term savings,
and the regularity of return that they will get added to the retirement saving kitty.

He said this is going to be crucial in our country, nurtured for the last five

decades by credible public sector institutions.

61 Patil K. S. (2003), “Life insurance Corporation of India, Its Products and Their Performance
Evaluation: A Special Reference to Gulbarg District”, Finance India, Vol. xvii, No. 3, pp. 1037-
40.
62 R Vaidhyanathan (2004), “Pensions, Business in India", IIMB Management Review,
September 2004.

70
Tripathy Nalini Prava (2005)63 conducted the study on brand positioning of

private insurance players. From the perceptual map of the private players in the
insurance industry it was observed that ICICI Prudential, HDFC, TATA AIG are
lying close which denotes a notable competition among them in terms of high
reputation and good customer relationship management. ICICI emerged as the

highest competent among other insurance companies. But Allianz Bajaj is

lacking good customer relationship management.

3.6 Customer Service in Life Insurance Industry

Banumathy and Manickam (2004)64 empirically examined the customer services

provided by LIC at three stages i.e. before the issue of policy, when the policy is
in operation and at the time of settlement of claims. LIC branch at Tirchi was

selected for the purpose of study. A sample of 150 policyholders was selected

on random basis from various segments of policyholders. In order to know the

opinion of policyholders towards LIC services, a well-structured questionnaire

was prepared on the basis of the pilot survey. The study found that before the
issue of policy, efficient customer services were provided through LIC agents. It

was concluded that LIC agents play a vital role in influencing the decision of

policyholders and providing services to them as per their needs. The study

suggested that LIC should try to enhance bonus rates, introduce new policy

schemes and provide status position once a year. It should open inquiry

counters to guide the illiterate and rural customers.

Reddy and Murthy (1996)65 empirically examined and evaluated the customer

services provided by LIC at the branch level. For the purpose of study,
Hanamhnnda Branch (Andhra Pradesh) was selected and a sample of 100
customers was selected on random basis from a group of professionals,

63 Tripathy Nalini Prava (2005), “Brand Positioning of Insurance Industries - A Study on Private
Piayef, Insurance Theory and Practice, Prentice-Hall of India Private Limited, New Delhi,
pp. 116-123.
64 Banumathy s. and S. Manickam (2004), “Customer Services provided by Life Insurance
Corporation of India - A Case Study”, The Insurance Times, Vol. xxiv, No. 6, pp.30-33.
65 Reddy V. A. and G. N. Murthy (1996), -“Customer Services in LIC - A Case Study," Indian
Journal of Marketing, Vol. xxv, No. 4, pp. 18-22.

71
agricultural labor, regular income group and self-employed people. The sample
policyholders were asked to rate the services on a five-point scale. In order to
collect the opinion on the policyholders, a structured questionnaire was
administered on the sample policyholders. It was observed that the majority of
policyholders were satisfied with the services of LIC. On the basis of survey

findings, it was suggested that LIC should use adequate publicity campaign and
required documents should be collected from the policyholders at the time of
registration of the policies. LIC should make arrangements company cash

instead of crossed cheques to the policyholders. An inquiry and additional cash

counters should be opened in the branch offices.

Gidhagen (1998)66 examined the importance of customer relationship

management in the insurance sector, particularly in terms of the relationship

between insurance companies and corporate customers. The areas studied

included how highly customers value; (i) the relationship in comparison to the

price level of the services offered; (ii) the perceived quality of the exchange
relationship; and (iii) the level of interdependency, mutual trust and

commitments. A survey of insurance customers conducted by independent

insurance agents of America showed that out of 1500 policyholders surveyed,

52% were more interested in forming a long-term relationship with their agents,

compared with the “Automatic Pilot” buyers. 26% of the respondents wanted

insurance matters to be handled without agent’s contact. It was concluded that

the customers’ level of comprehension was dependent on the insurance

manager’ experience in managing the complexity and intangibility of the service

provided.

Customer Service Center (2003)67 discussed the strategic importance of the

customer service center in building best performance for insurers. It was

63 Gidhagen M. (1998), “Insurance Marketing - Services and Relationships”, Working Paper,

No. 4, Department of Business Studies, Uppasaia University (www.ub.uu.se/wop/)
67 Customer Service Centre (2003), “The Under Development Asset for Customer Retention,
Loyalty and Revenue Enhancing Strategies”, Insurance White Paper (www.knowlaaent)

72
observed that between 1/5 and 1/3 Americans were unhappy with their

insurance companies. The research within insurance industry indicated that

customer loyalty was being challenged not by the product quality. The
insurance companies, which would use effectively the services of customer

service representatives, would gain an edge in the competitive market. It was

suggested that the insurance companies must focus on building the best

performance in the employees who hold primary responsibility for the customer

experience.

Banumathy and Manickam (2004)68 empirically examined the customer services

provided by LIC at three stages i.e. before the issue of policy, when the policy is
in operation and at the time of settlement of claims. LIC branch at Tirchi was
selected for the purpose of study. A sample of 150 policyholders was selected

on random basis from various segments of policyholders. In order to know the

opinion of policyholders towards LIC services, a well-structured questionnaire

was prepared on the basis of the pilot survey. The study found that before the

issue of policy, efficient customer services were provided through LIC agents. It
was concluded that LIC agents play a vital role in influencing the decision of

policyholders and providing services to them as per their needs. The study
suggested that LIC should try to enhance bonus rates, introduce new policy

schemes and provide status position once a year. It should open inquiry
counters to guide the illiterate and rural customers.

Jawaharlal and Pareek (2004)69 looked into the need for rendering and efficient

customer services in the life insurance sector. It was observed that due to

competition, Life Insurance players were adopting every possible strategy to

enhance the service quality. Some of the areas where Lie Insurance could
really make a critical appraisal with regard to their customer service function

68 Banumathy S. and S. Manickam (2004), “Customer Services provided by Life Insurance

Corporation of India - A Case Study”, The Insurance Times, Vol. xxiv, No. 6, pp.30-33.
69 Jawaharlal U. and N. Pareek (2004), “Customer Service in Life Insurance”, Insurance
Chronicle, Vol. iv, Issue 3, pp. 43-49.

73
were the need analysis, the lapse advice, the nominations and assignments,
loan against the policy values and transfer of policies especially those serviced

under the salary saving schemes. It was found that at the time of claim
t

settlement, agents and brokers didn’t concentrate on delivering quality

customer services. Lack of education and training of intermediaries were the

major constraints in providing quality services. It was recommended that the

companies should keep strong information technology infrastructure to support

both customers and its intermediaries.
U Jawaharlal and Sarthak Kumar Rath (2005)70 in their article “Customer-

Centricity in the Insurance Industry" urges on the necessity of customer centric

service by insurance industry with reference to the customer driven economy.

The article suggests innovative distribution channels like corporate

intermediaries, Bancassurance, and affinity groups, direct marketing channels,

internet, etc., which make the customer relationship management all the more

efficient. The article elucidates the role of IT in creating customer centricity.

3.7 Life Insurance Distribution

With customer demanding ever greater choice and control over their financial

affairs, it is customers rather than providers who now choose which channels
they use for different products and services. Leading insurers are responding

with more flexible distribution strategies, extending their brand strengths and
professional expertise to a new range of direct channels. Many authors have

contributed in the area of insurance distribution. With the opening up of the

Indian insurance market, the private sector was in unenviable position. It was

needed to establish itself not only in the consumer mindset but also in getting its
distribution network in place. Insurance companies should facilitate contact with
the customers through various other channels71.

70 U Jawaharlal and Sarthak Kumar Rath, “Customer-Centricity in the Insurance Industry”,

Insurance Chronicle, May, 2005.
71 Parasnis P. (2001), “Distribution of Life Insurance-An Industry in Transition", Monthly Public
Opinion Surveys, Vol. x1 vi, No. 11, pp. 27-31.

74
K Suresh (2003)72 in his article, Innovations on Indian Insurance Distribution,

sums up the latest trends pertaining to the sale of insurance through innovative

distribution channels. The article discusses the affinity channels such as

airlines, .credit cards, smart cards, movers and packers and others. It also
mentions the point-of-sale channels, which could be grocery stores,
supermarkets, post offices, hospitals, health clubs and others. His article further

covers the initiatives of players to tap the rural market. The article concludes
that with the growth in new channel and competition opening up more

alternative intermediaries, the share of agents’ contribution to insurance

companies’ sales will progressively comes down. Already, alternate channels

contribute as much as 25 percent for some players.

Sreedevi Lakshmikutty and Sridharan Bhaskar (2006)73 had written a paper

titled: Insurance Distribution in India - A perspective. The areas focused were:

(i) Challenging scenario demanding role transformation of intermediaries, (ii)

Distribution scenario in the Indian Market, and (iii) Focus of multiple distribution

channels by the companies. They concluded that the current state of insurance

distribution in India is still in flux. On one hand, insurers are awaiting regulations

to be approved for brokerages and bancassurance to be truly launched. On the

other hand they are trying the corporate model on intermediaries in addition to

the traditional models in the market. They said there is no right or wrong. The
success of marketing insurance depends on understanding the social and

cultural needs of the target population, and matching the market segment with

the suitable intermediary segment.

D Venkoba Rao (2006)74 did a survey on impact of Internet on Insurance

Distribution. The major objectives were: (i) to identify and analyze the factors

72 K Suresh (2003), “Innovations in Indian Insurance Distribution", Insurance Distribution - An

Introduction, The ICFAI University Press, pp. 106-172.
73 Sreedevi Lakshmikutty and Shridharan Baskar, “Insurance Distribution in India: A
Perspective, Knowledge Digest, MIB Group Inc., 2003.
74 D. Venkoba Rao (2006), “Internet Impact on Insurance Distribution”, The ICFAI Journal of
Services Marketing, Vol. IV, No. 4, pp. 35-42.

75
that the customers perceive are important in the Internet distribution channel, (ii

) to identify the awareness and usage levels of Internet channel by the

customers, and ( iii ) to identify the level of importance of various channels

placed by the customers. The sample size was 120. The study was conducted
in the city of Hyderabad. The study revealed that the Internet is still not a very

significant distribution channel for Insurance business. Customers are aware of

the Internet option and are browsing sites for information. However, the usage
levels are consistently low. Internet does not appear to be the choice as a
channel for the customer, nor is it a threat to other channels in the short-term.

The study indicates the customers perceive trust, support, information,

communication, and prospecting as significant factors affecting their decision of

choosing Internet channel for insurance products.

V G Chari (2005)75 in his article, Insurance - A Relook at the Distribution

Strategy, discusses various existing distribution channels and advocates the

need for innovative distribution channels in the present competitive scenario of
Indian Insurance Sector. The author advocates several essential steps an

organization should consider before finalizing distribution strategy which include

existing vision and mission of the organization, core competency analysis,

current customer profile, range of products etc. The article gives a suitable

distribution strategy to be implemented in rural India to harness the rural

populace.

3.8 Insurance Distribution and Agents

Agents are the most ancient channel members for the life insurance sector, to

be an insurance agent has become more difficult a job in the present market
situation. An agent needs to be mutli-skilled to attract the customer and sell the
*

products.

75 V G Chari, “Insurance - A Relook at the distribution Strategy”, Insurance Chronicle, March,

2005.

76
Vasanthi Srinivasan, Prakash P and S Sitharamu (2001 )76 in their article

focuses on the identification of competencies necessary for a successful agent,

and providing objective methodology for selecting the effective agents

considering the fact that an agent is someone who legally represents the

insurer and has the authority to act on insurer’s behalf. The research highlights
the analysis of industry and domain expertise in selection of effective agents,

managing agency, and development of effective competencies for an insurance

agent. The study concludes that a good selection process along with systems to
manage and developing the agents through better training, innovative rewards
and recognition can result in a strong, vibrant and effective life insurance sales

force in India.

D Varadarajan (2001 )77 analyzes the law governing insurance agents in India

and discusses all the laws relevant to agents’ regulation in India. The article
finds that there is no minimum capital requirement or categorization of agents

and a suggestion is made by the author to impose some minimum capital

requirement for the agents. In view of the varied functional requirements, the

author also suggests restricting the* eligibility of a person to act as an agent for
one type of insurance only. The author further questions the minimum
educations standards of the agents in the country. Agrawal Abhishek (2Q05)78

highlighted the ethical issues in insurance distribution. A major critical issue

confronting Indian insurers and regulations is the rebates offered by agents to

the customers. The commission structure of the agents is largely responsible

for the same, where first year commission is as high as 40 percent. Due to such

commission structure, insurance agents provide rebates to the customers on

76 Vasanthi Srinivasan, Prakash P and S Sitharamu, “Selection of Agents: A Challenge for the
Indian Insurance Industry", 5th Annual Asia Pacific Risk and Insurance Conference, July 15-18,
2001
77 D Varadarajan, “The Law Governing Insurance Agents", Insurance Distribution - An
Introduction, The ICFAI University Press, pp. 132-150.
78 Agrawal Abhishek (2005), "Ethics in insurance Distribution”, Insurance Theory and Practice,
Prentice-Hall of India Private Limited, New Delhi, pp.73-80.

77
first sale out of their commission in anticipation of the expected renewal every

year.

3.9 Bancassurance- A new distribution channel

One of the -most significant changes in the financial services sector over the

past few years has been the appearance and development of bancassurance.
Bancassurance is a business model in which insurance and investment

products’ are integrated into core retail banking business. Bancassurance

provides insurance and banking products and services through a common
distribution channel and for the same client base and refers to the retailing of

insurance policies through a bank’s established distribution network.

The reasons for entering into bancassurance are wide network of branches,
corporate clients, customer database, personalized services, rural penetration,
cross selling of the products and fee based service79.

Angus Hislop, Ole Peterson and Ralf Ziegler (2002)80 highlight the significance

of Bancassurance by taking a holistic approach with a comprehensive

programme to satisfy the needs of their customers thereby increasing their

revenues. The authors’ further state that successful bancassurers have been

competent at formulating and implementing an appropriate corporate strategy

based on the concepts of differentiation, niche selection and cost leadership.

The authors emphasize the need for a total revamping of the Bancassurance

strategies to be adopted in managing the organizational dynamics, which will

provide enhanced revenues at reduced costs. According to the authors there is

also a critical need for leveraging technology for harnessing the customer
database. The authors argue for a sincere effort to concentrate on the

79 Agrawal Vineet (2004), “Bancassurance Concept, Framework and Implementation”, The

Journal of Insurance Institute of India, Vol. No. XXX, July-December.
80 Angus Hislop, Ole Peterson and Ralf Ziegler, “Making Bancassurance Really Work: From
Product-Oriented Cross-Selling to Customer-Focused Cross-Buying", IBM Corp., 2002.

78
importance of customer-focused cross-buying should be used instead of the
time-honored concept of product-oriented cross-selling.

Abheek Barua (2004)81 wrote an article titled: Bancassurance - New concept

catching up fast in India. He said one of the most recent examples of financial

diversification is ‘Bancassurance’, the term given to the distribution of insurance

products through branches other distribution channels of the banks. The
concept that originated in France, now constitutes the dominant model in a

number of European and other countries and the same is fast catching up in

India as well. Further he added that in India the concept of Bancassurance

appears to be gaining ground quite rapidly both through commission based

arrangements and joint ventures between banks and insurance companies.

While Bancassurance does hot provide an apparently viable model for

diversification by banks and a cost-effective distribution channel fro insurers,

there are some potential areas of conflict between the two that need to be

ironed out.

A study conducted by Artikis Panayiotis G et al (2008) on a practical approach

to blend insurance in the banking sector revealed that a mixture of factors

determines the level of success in. the bank-insurance implementation. The

integration of global financial markets, the regulatory framework, the structure of

the particular market, the public’s preferences towards products/services are all

critical factors that interact to favor or hinder the development of the

phenomenon. Banks and insurance companies enter into this game when they
both judge it is advantageous. They both seek increased profitability, which they

expect to spring from the wider range of financial products marketing, the more
efficient use of their distribution networks, the strengthening of their market
image, and the improved services provided to their customers. From the

consumers’ perspective, lower distributions costs will benefit customers when

81 Artikis Panayiotis G., Mutenga Stanley and Staikouras Sotiris K. (2008), “A practical approach
to blend Insurance in the Banking Sector”, The Journal of Risk Finance, Emerald Group
Publishing Limited Vol. 9 No. 2, pp. 106-124.

79
they are translated to cheaper and more competitive products. The clientele will
also benefit from the easier and quicker access to a wider variety of financial
services provided a single business entity. Some of the critical factors for the
bancassurance failure relate to the diverse corporate cultures inherent in the
two sectors, improper regulatory and supervisory environment, as well as lack
of proper management.

V V Ravi Kumar (2005)82 describes how Bancassurance is becoming an

important component of the insurance company’s ales portfolio, especially for

the new insurance companies. The author states that while the Corporate
Agency model is increasing emerging as the most popular model of
Bancassurance in India, insurance products wrapped around the bank’s deposit
and loan products are also gradually gaining in popularity due to their simple
product design while the referral model tie-up has not been able to really take
off.

N D Vaishnav (2006)83 wrote an article on Bancassurance: A big Question

Mark? He said today, banks are doing so many financial activities like they deal
in trade finance both domestic and foreign, undertake money transfer, deal in
bullion, securities, forex and money market, etc. Distribution on insurance
products, is an extension of these of these activities. He concluded that the
concept of Bancassurance is very good for our country, where due to fall in the
interest rates, the revenues of the banks to diminishing day by day. To earn

more and more, the banks have opened so many avenues for the additional
income. Bancassurance is one of them. Bancassurance in many countries has
developed its form gradually where banks at first do not carry risks and
distribute insurance products for a free and product development is left to

82 V V Ravi Kumar,”Emerging Structure of Bancassurance in India”, Insurance Chronicle,

December, 2005.
83 N. D. Vaishnav (2006), “Bancassurance: A Big Question Mark?”, The Insurance Times, Vo.
Xxvi No. 6, pp.28-29.

80
insurance company. But gradually banks have assumed risks regarding
distribution assuming full responsibility.

V V Ravi Kumar (2006)84 in his article, HR and Operational Challenges in

Bancassurance - An Indian Perspective, focuses on the HR and operational

issues which need to be addressed on a priority basis to enable.the concept of

Bancassurance to succeed. Foreign Banks, due to their aggressive sales

orientation, compensation, shaping behavior to cross-sell aggressively and

becoming multiskilled are some of the HR issues discussed. Banks are required
to put their employees through a mandatory process of training and licensing.
Banks need to evolve a suitable compensation reward structure recognizing the

individual’s contribution rather than a “one size fits all” approach. Insurance

products are seldom bought and therefore need to be sold aggressively for
which Bank employees, highly oriented towards the counter based selling need

to change their mindset. The Bank personnel need to show a willingness to

become multi-skilled. The individual agent though not strong in offering need

based solutions is able to interact with the prospects on a continuous basis and
is therefore able to offer a better quality of service.

3.10 Service Quality

Organizations that sell products without transferring its property, are debating

with two interdependent competitive challenges: the differentiation and the

continuous improvement of the quality85. Quality is considered to be one of the

management’s topmost competitive priorities and a prerequisite for sustenance

and growth of firms. The quest for quality improvement has become a highly

desired objective in today’s intensively competitive markets. Quality

management has been reckoned as the prime mover towards enhanced

84 V V Ravi Kumar, "HR and Operational Challenges in Bancassurance - An Indian

Perspective”, Professional Banker, January, 2006.
85 Kotler, Philip e Armstrong, Gary, "Principles of Marketing", 10 Edition, Prentice-Hall, 2003,
ISBN: 0131018612.

81
business performance and several researchers have underlined the quality
improvement initiatives resulting in a sustainable competitive advantage86.

The indicator value of customer and organizational performance has been the
reason why both academicians and practitioners alike have been interested in

the construct “service quality”. Even though the number of articles about service
quality is huge, there is no agreement about what service quality is and how it
should be measured. Assessment of quality in service industries, unlike

traditional physical product industries, becomes more complicated - “it is not a

function of statistical measures of quality, including physical defects or

managerial judgments. Rather, it is a function of customers’ perceptions about

the services87. Service quality stems from the comparison of what consumers

feel service firms should offer, to perceptions of the performance of firms

providing the services.

Gronroos (1984)88 defined service quality as the outcome of an evaluation

process, where a consumer compares his expectations with the service he

perceives he has received and argued that customers’ overall evaluations of

service quality are a result of their assessment of two dimensions: (1)

Functional Quality; and (2) Technical Quality. Parasuraman et al. (1985)89

suggested three key themes after reviewing the previous research on service
quality: (1) service quality is more difficult for the consumer to evaluate than

goods quality; (2) service quality perceptions result from a comparison of

consumer expectations with actual service performance; and (3) quality

86 Sureshchandar, G.S., Rajendran, C. and Anantharanab R N, (2002), “The Relationship

between Management’s Perception of Total Quality Services and Customer Perceptions of
Service Quality”, Total Quality Management, Vol. 13 No. 1, pp. 69-88.
87 Cunningham, L F, Young, C E, “Cross-Culktural Perspectives of Service Qqaulity and Risk in
Air Transportation”, Journal of Air Transportation, Vol. 7, No.1, 2002, pp. 3-26.
88 Gronroos, C, “A Service Quality Model and Its Marketing Implications”, European Journal of
Marketing, Voi. 18, Issue 4, 1994, pp. 36-44.
89 Parasuraman, A., Zeithaml, Valarie A. e Berry, Leonard L. (1985), "A Conceptual Model of
Service Quality and Its Implications for Future Research", Journal of Marketing Vol. 49, pp.41-
50.

82
evaluations are not made solely on the outcome of service but also involve
evaluations of the process of service delivery.

The service quality as defined by Parasuraman (1988)90 is the difference

between the expectations that the customers have relative to the performance
of the service and the perceptions of the received service. The model of "Gaps"
for evaluation of the quality of services was originally called: Service Quality
Gap Analysis, but it is known as SERVQUAL, and had its origin in the
Department of Marketing of the University of the Texas, in the 80’s. The
marketing research team, made up of Parasuraman, Valarie Zeithaml and
Leonard Berry, considered MSI (Marketing Science Institute) the
accomplishment of a preparatory study on the quality of services. SERVQUAL
is an instrument of diagnosis, used in innumerable service industries and
classified as a summarizing instrument of multiple scales with a high level of
reliability that allows us to understand the expectations and perceptions of the
customers for the service.

The SERVQUAL instrument consists of two sets of 22 statements (variables),

the first set aims to determine customer’s expectations and the second one
determine customer’s perceptions. These sets of 22 variables were reduced to
five dimensions (using principal components analysis - PCA): tangibility,
reliability, responsiveness, assurance and empathy. The difference between
perceptions and expectations ratings in the 22 items identifies the Gap variable.
Positive score to Gap variable shows better than expected service while
negative scores show poor quality. A zero score implies that quality is
satisfactory.

SERVQUAL is most valuable when it is used periodically to track service quality

trends. The results show the chronological variation of the differences between

90 Parasuraman, A., Zeithaml, Valarie A. e Berry, Leonard L. (1988), "SERVQUAL: A Multiple-

Item Scale for Measuring Customer Perceptions of Service Quality", Journal of Retailing,
Vol.64, pp. 12-40.

83
the expectations and the perceptions. If an organization wants to compare the
quality of its service with the one of its competitors, it is enough to add one

more section to the questionnaire SERVQUAL to ask them to classify their

perceptions of the services given for the two competitors besides classifying the

organization in cause. The received data allows the construction of a

comparative graph of the global quality of the service for the three
organizations; identical graphs could, be constructed to compare the
organizations with the level of dimensions. In this way the strong and weak

points of an organization in relation to its competitors over time can be

identified. One another application of SERVQUAL is the classifying of

customers of the organization in differentiated segments according to its

perceptions of the quality of the service. For example the obtained segments
can be analyzed in function of psychological characteristics91. While some

researchers have doubts concerning the SERVQUAL gap as the difference

between the perceptions and expectations.

Cronin and Taylor (1992)92 argue that the conceptualization of service quality as

a gap between expectations and performance is inadequate. They point out the

confusion in pertaining literature over the relationship between service quality

and consumer satisfaction. According to them, the concept of service quality

should be consumer’s attitude towards the service, since the concept of

satisfaction is defined as a gap between expectations and performance or

disconfirmation of expectations. Teas (1993; 1994)93,94 also criticizes citing the

theoretical impossibility that those performance levels that exceed a consumers’

ideal standard should be evaluated higher than those that are “ideal”. Teas
developed alternative models of perceived service quality based on evaluated

91 Parasuraman, A., Zeithaml, Vaiarie A. e Berry, Leonard L. (1991), "Refinement and

Reassessment of the SERVQUAL Scale", Journal of Retailing, Vol.67 (4), pp.420-450.
92 Cronin J. Joseph, Jr. and Taylor, Steven A. (1992), "Measuring Service Quality: A
Reexamination and Extension", Journal of Marketing, Vol.56 (July), pp.55-68.
93 Teas, R.K., 1993. Expectations, performance evaluation, and consumers' perceptions of
quality, Journal of Marketing, 57(4), 18-35.
94 Teas, R.K., 1994. Expectations as a comparison standard in measuring service quality: An
assessment of a reassessment, Journal of Marketing, 58(1), 132-140

84
performance and norm quality, concluding that the evaluated performance
model could overcome some of the problems associated with the performance-

expectations gap conceptualization of service quality.

Johns and Tyas (1996)95 argued that SERVQUAL only focuses upon the

process dimension or the functional aspect of service quality. And that it does
not focus on the outcome dimension or the technical aspect of service quality96.

Moreover the inclusion of outcome dimension to the service quality is

suggested97.

Although the critics, the SERVQUAL continues to be the more used instrument
in the area of the Marketing. Fisk, Browns and Bitner (1993)98 applied

SERVQUAL instrument in seven studies in the area of the Marketing,

concluded that the instrument is a good pointer of the global quality of services.

SERVQUAL has been criticized by different authors for diverse reasons, such

as the operationalization of expectations, the reliability and validity of the

instrument’s difference score formulation and the scale’s dimensionality across
disparate industrial settings99, while many other researchers have used the

SERVQUAL dimensions as the basis for their research, and consequently

SERVQUAL has undoubtedly had a major impact on the business and

academic communities100.

The most widely used framework is of Parasuraman et al. (1988) which consist

of the five dimensions of the service quality - Tangibility, Reliability,

95 Johns N and Tyas P (1996),"Use of Service quality Gap Theory to Differentiate between
Foodservice Outlets”, Services Industries Journal, \/o\. 16, No. 3, pp. 321-346.
93 Johns N and Howard A (1998), “Customer Expectations Versus Perceptions of Service
Performance in Foodservice Industry”, International Journal of Service Industry Management,
Vol. 9, No.3, pp. 248-265.
97 Carman J (2000), “Patient Perceptions of Service Quality: An Assessment of the SERVQUAL
Dimensions”, Journal of Retailing, Vol. 66, Spring, pp. 33-35.
98 Fisk Raymond P., Brown Stephen W. e, Bitner Mary Jo (1993), “Tracking the Evolution of the
Services Marketing Literature”, Journal of Retailing, 69 (1), pp.61-103.
99 Sureshchandar, G.S., Rajendran, c; and Kamalanabhan, T.J. (2001), “Customer perceptions
of service quality: a critique”, Total Quality Management, Vol. 12 No. 1, pp. 111-24.
100 Buttle, F. (1996), “SERVQUAL: review, critique, research agenda”, European Journal of
Marketing, Vol. 30 No. 1, pp. 8-32.

85
Responsiveness, Assurance and Empathy. However there are seven major
gaps in the service quality concept, which are shown in Figure 1. The model is
an extension of Parasuraman et al. (1985). According to the following model
(ASI Quality Systems, 1992; Curry, 1999; Luk and Layton, 2002), the three
important gaps, which are more associated with the external customers, are
Gap1, Gap5 and Gap6; since they have a direct relationship with
customers101,102'103.

Gap1: Customers’ expectations versus management perceptions

This gap is a result of the lack of a marketing research orientation, inadequate
upward communication and too many layers of management.

Gap2: Management perceptions versus service specifications

This gap is a result of inadequate commitment to service quality, a perception of
unfeasibility, inadequate task standardization and an absence of goal setting.

Gap3: Service specifications versus service delivery

This gap is a result of role ambiguity and conflict, poor employee-job fit and
poor technology-job fit, inappropriate supervisory control systems, lack of
perceived control and lack of teamwork.

Gap4: Service delivery versus external communication

This gap is a result of inadequate horizontal communications and propensity to
over-promise.

101 ASI Quality Systems (1992), Quality function deployment - Practitioner workshop, American
Supplier Institute Inc., USA.
102 Curry, A. (1999), "Innovation in public service management", Managing Service Quality,
Vol.9, No.3, pp. 180-190.
103 Luk, Sh.T.K. and Layton, R. (2002), "Perception Gaps in customer expectations: Managers
versus service providers and customers", The Service Industries Journal, Vol.22, No.2, April,
pp. 109-128.

86
Gap5: The discrepancy between customer expectations and their
perceptions of the service delivered
This gap is a result of the influences exerted from the customer side and the
shortfalls (gaps) on the part of the service provider. In this case, customer
expectations are influenced by the extent of personal needs, word of mouth
recommendation and past service experiences.

Gap6: The discrepancy between customer expectations and employees’

perceptions
This gap is a result of the differences in the understanding of customer
expectations by front-line service providers.

Gap7: The discrepancy between employee’s perceptions and

management perceptions
This gap is a result of the differences in the understanding of customer
expectations between managers and service providers.

3.11 Service Quality - Applied in Other Industry

The literature on service quality in industries like banks, tourism, hotel, hospital
and telecommunication, education is seen more. Lam Siew Yong and Jamil
Bojei (2007)104 in their study on relationship of service quality, satisfaction and
trust with customers’ commitment towards their personal banks conducted in
Malaysia revealed that technical quality has stronger influences on satisfaction
and trust relative to functional quality. This is probably due to the busy lifestyles,
of people residing in the Klang Valley (Malaysia) and the sophistication of the
technology. The number of people visiting banks has dropped because there is
a growing number of customers rely on a banking having the facility of paying
bills automatically. In other words the growth of technology-based service

104 Lam Siew Yong and Jamil Bojei (2007), “Relationship of Service Quality, Satisfaction and
Trust with Customers’ Commitment towards their Personal Banks”, The ICFAI Journal of
Services Marketing, March, Vol. V, No. 1, pp — 06-24.

87
delivery services reduces the personal contact between retail banks and their
customers.

A study conducted by Blanchard R. F. and Galloway R. L. (1994)105 on Quality

in Retail Banking in UK revealed that customers overwhelmingly consider the

process elements of the service when evaluating quality. They are seeking a
responsive service with a high level of assurance, one that gives an impression

105 Blanchard R. F. and Galloway R. L (1994), “ Quality in Retail Banking” International Journal
of Service Industry Management, MCB University Press, Vol. 5, No. 4, pp - 5-23.

88
 L--------------------------------------►

Figure 1. Model of service quality gap (ASI Quality Systems, 1992; Curry,
1999; Luk and Layton, 2002)

89
of competence and credibility, one that can be trusted. What is of interest is that
the staff, at least in this bank, demonstrated a clear and accurate perception of
customer expectations and recognized the need to meet these. A study on

service quality perspectives and satisfaction in private banking by

Lassar Walfried M. et al (2000)106 suggested that the functional quality is not

only more important than once thought, but also more complex. In contrast to
the other quality dimensions, the functional dimension influenced significantly

each of the satisfaction measures - even the technical oriented measure. Thus

customers of high level service firms may ultimately rely on functional quality to
distinguish between alternative service providers.

William Johnson C. and Sirikit Anuchit (2002)107 conducted a research on

service quality in Thai telecommunication industry and the results indicated that
perceptions and expectations of service quality level showed no significant

difference. A post hoc analysis found that the telecommunication industry

received excellent ratings on tangibles, particularly customer service staff dress

and low ratings on empathy, particularly on service provider’s interest

differences. Tangibles are an aspect of service quality which is extremely

important to the Thai telecommunication customer.

Lai Funjan et al (2007)108 conducted a research on SERVQUAL in mainland

China’s mobile communication industry. Based on the results of this study, the

authors found that SERVQUAL may be a valuable tool for China’s mobile

106 Lassar Walfried M., Monalis Chris and Winsor Robert D. (2000), “Service Quality
Perspectives and Satisfaction in Private Banking”, International Journal of Bank Marketing,
MCB University Press, Vol. 14, No. 3, pp - 244-271.

107 William Johnson C. and Sirikit Anuchit (2002), “Service quality in Thai Telecommunication
Industry: a tool for achieving a sustainable competitive advantage", Management Decision,
Emerald Group Publishing Limited, 40/7, pp - 693-701.
108 Lai Funjan, Hutchinson Joe, Li Dahui and Bai Changhong (2007), “An Empirical assessment
and application of SERVQUAL in mainland China's mobile communication industry”,
International Journal of Quality and Reliability Management, Emerald Group Publishing Limited,
Vol 24, No. 3, pp - 244-262.

90
communications industry to measure service quality. In addition to traditional
five dimensions of service quality, the additional dimension of “convenience”
also was found to contribute to overall service quality. The dimension of
“convenience” measures how easy it is to access the business office, how easy
it is to change service options (like call-waiting, call-forwarding), and how
convenient it is to pay bills or reach customer service representatives. This
finding implies that providing convenience may be a critical aspect for
customers in judging the quality of mobile communication services. Based on
factor analyses, the authors found a three-tier structure of SERVQUAL
dimensions for the company surveyed in this study. The three most critical
dimensions in the first tier are “responsiveness”, “assurance”, and “empathy”.
The second tier includes the “reliability” and “convenience” dimensions, while
the third tier includes only “tangible” dimension.

An Indian study on service quality in Punjab telecom circle conducted by Arora

Parvinder et al. (2007)109 revealed that Airtel is able to meet the customer

expectations on most of the parameters.! While on the items of providing error

free bills, SMS delivery, employee knowledge and handling customer queries
Airtel is able to meet customer expectations quite considerably. Life Airtel,
Spice is able to considerably meet customers’ expectation sonly on the
parameter of SMS delivery. On the rest of the items, the gap is very negligent
and could thin down in future leading to lower quality levels. According to the
study Hutch clearly stands as the winner in the race. There is a mean difference
scores for most of the parameters and it is highly negative. Thus on 12
parameters Hutch had been able to comprehensively meet the customer’s
expectations.

109 Arora Parvinder, Garg Ajay and Singh Amrita (2007), “Service Quality in Punjab Telecom
Circle”, The ICFAI Journal of Service Marketing, ICFAI University Press, June, Vol. V, No. 2, pp
-19-40.

91
Stanley Hii Geng Hing and Ernest Cyril de Run (2007)110 studied hotel guest

satisfaction and service quality and the study revealed that responsiveness

dimension significantly influenced guests’ satisfaction. Responsiveness is the

willingness to help customers and provide prompt service. The key issues are

staff training and programming. The managerial challenge is to train employees

to deal with customers’ request, questions, needs and complaints. The quality
of response dimension and the time that the customers have to wait to get
attention to their requests, specific needs or problems are examples of

programming related aspects that affect responsiveness.

Muslim Amin and Zaidi Isa (2008)*111* conducted a study on examination of the

relationship between service quality perception and customer satisfaction in

Malaysia. The results confirmed that the six dimensions (tangible, reliability,

responsiveness, assurance, empathy, and compliance with Syariah) are distinct

constructs. The results indicated that Islamic banking service quality consisting

of six dimensions has appropriate reliability and each dimensions has a positive

significant relationship with Islamic banking service quality. For Malaysian

Islamic banking service quality, reliability was the key driver of service quality,

followed by empathy, tangible, responsiveness, assurance, and compliance,

respectively. Reliability had the highest regression coefficient (0.999). It means

that Muslim and non-Muslim customers are looking for banks that provide

services at the promised time, are able to solve problem and cooperative, and

offer a wide range of products and services. In other words, Malaysian Muslim

and non-Muslim customers more concerned with the reliability dimension than

other dimensions as a key factor in establishing relationship with their banks.

110 Stanley Hii Geng Hing and Ernest Cyril de Run (2007), “Hotel Guest Satisfaction: A Gap 5
Study in Sibu", The ICFAI Journal of Services Marketing, The ICFAI University Press,
September, Vol. V, No. 3, pp-18-38.
111 Muslim Amin and Zaidi Isa (2008), “An examination of the relationship between service
quality perception and customer satisfaction,International Journal of Islamic and Middle
Eastern Finance and Management, Emerald Group Publishing Limited, Vol. 1, No. 3, pp -191-
209.

92
3.12 Service Quality - Applied in insurance Industry
Although the literature on application of service quality in the life insurance

industry is limited, few authors have done contribution in the same. To

maximize customer satisfaction, different players in the competitive life

insurance industry in India needs to concentrate on the responsiveness

dimension of the service quality. The responsiveness dimension indicates that

promptness and timeliness in service as well as willingness to help the

customers, satisfies the customer the most. The challenge for the life insurance

company is not only to gain new customers, but also 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 the financial service sector, word-of-mouth is a very effective mode of

communication as credibility is a major concern. Satisfied customers

recommend the company and the insurance agent to friends and acquaintances
thus bringing in further business for the company112. Also assurance has the

highest influence on the satisfaction of consumers in the life insurance industry

as compared to other dimensions113.

A study conducted by Rand Graham K. (2004)114 on service quality in insurance

industries of Greece and Kenya concluded that in both Greece and Kenya

reliability had the severest deficiency of all dimensions in the two industries,

which is consistent with the relevant literature. Any sound quality intervention
strategy should thus prioritize closing the gaps between expectations and

perceptions in the dimensions beginning with empathy/reliability,

responsiveness, assurance and tangibles respectively. However, due

112 Paromita Goswami (2007), “Customer Satisfaction with Service Quality in the Life Insurance
Industry in India", The ICFAI Journal of Service Marketing, Vol. V, No. 1, pp.25-30.
113 H. Gayatri, Vinay M. C. And Lakshmisha K. (2006), “A Pilot Study on the service Quality of
Insurance Companies”, Journal of Services Research, Vol. 5, No. 2, pp. 123-138.
114 Rand Graham K. (2004), “Diagnosis and Improvement of Service Quality in Insurance
Industries of Greece and Kenya”, Lanchester University Management School Working Paper,
2004/046.

93
consideration should be placed on the amount of resources required to fix

deficiencies in each of the five dimensions.

3.12 Conclusion
From the literature review on Customer Services and Customer Buying
Behavior in Life Insurance Industry, it is observed that, majority of the authors
studied only one company, that is, LIC. Few of them have done comparative

analysis of two Life Insurance Companies. In some studies only service quality

is studied and hence the scope of these studies becomes limited. In this

research sixteen Life Insurance Companies are selected for the study. Also
factors affecting the preference and satisfaction of the customers are studied. In

addition to that analysis on Service Quality model given by Parasuraman et al.

is also included which highlights the important dimensions of services which the

Life Insurance Companies need to focus on.

Also many studies were reviewed based on Service Quality model given by

Parasuraman et al. The sectors in which this model is used by various authors

in and outside India are Banking, Hotel, Tourism, Education, Hospital, etc. The

use of this model in Insurance Sector especially in India is very rare. Again the
same model is not used for Insurance Sector in the state of Gujarat, which

makes this study different from others.

From the literature review on Insurance Distribution, topics studied by various

authors are, how to select insurance agents* laws governing insurance agents,

innovations in Indian insurance distribution, significance of Bancassurance, role

of brokers in insurance distribution, impact of internet on insurance distribution,

etc. Studies on preference and satisfaction of agents with regard to their Life
Insurance Company are not found. In this thesis research is conducted to know

the preference of agents while selecting the Life Insurance Company and to
know their satisfaction on the preferred factors.

94
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