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FACTORS THAT
DETERMINE THE CHOICE OF INSURANCE COMPANIES AMONG CORPORATE INSURANCE BUYERS
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The advent
of insurance industry in Nigeria could be traced to the British colonial
trading companies that established agency offices in Nigeria, on behalf of
insurance companies in UK. After the Nigerian political independence of 1960,
indigenously owned insurance companies sprang up with lot of inadequacies, like
lack of capital, valuation of risk selection and poor claims management. These
inadequacies of capital coupled with lack of technical and managerial skill,
poor service delivery, poor insurance regulatory framework, brought confidence
crisis and strong apathy to insurance purchase in Nigeria as corporate buyers
of insurance look for better service (Augustine and Bamidele, 2013).
The services
provided by the insurance companies are almost similar in nature and type and
thus the customers are exposed to diversified choices. This means that there
are unlimited switching choices and /customers will choose the alternative that
gives him maximum satisfaction in references to different factors that
differentiate insurance benefit from each other (Mathur and Tripathi, 2014).
High level
of competition is the most important factor in influencing the structure and
activities of the insurance system around the globe. More and more insurance
facilities are made available in every part of the country even to small
cities, towns and rural areas. With the growing awareness among the people and
businesses about insurance, various services provided by the companies and
availability of insurance facilities across the globe, the insurance sector is
emerging very rapidly and there is a need to identify the main factors that
affect customer’s choice for a particular insurance company (Mathur and
Tripathi, 2014).
Moreover,
the success of a service company is immensely dependent on the availability and
quality of their services to the consumers and thus is inextricably bound up
with price/cost (Rajkumar and Kannan, 2014). According to insurance marketing
theory the choice of insurance companies or products to be adopted by buyers
could be influenced by many factors. Petra (2012) posited that factors, like
cost, service quality, customers’ satisfaction, products’ features, payment of claims
are some of the factors that influence corporate buyers to pick an insurance
company.
In view of
this, an insurance company designing its marketing strategy must be based on
the full knowledge of factors influencing consumers' purchase behavior and the
factors that affect consumers' decisions on the selection of an insurance
company (Rajkumar and Kannan, 2014).
Literature
has shown that the quality of services and the achievement of customer
satisfaction and loyalty are fundamental for the survival of insurers. The
quality of after sales services, in particular, can lead to very positive
results through customer loyalty, positive word-of-mouth, repetitive sales and
cross-selling. However, many insurers appear unwilling to take the necessary
actions to improve their image (Wang & Lo, 2002). This creates problems for
them as the market is extremely competitive and continuously becomes more so
(Taylor, 2001).
Understanding
the factors that determine the choice of insurance companies among corporate
insurance buyers and creating demand is essential in facilitating the success
of insurance services (Razak and Kasim, 2014). Hence, this research study will
examine the factors that determine the choice of insurance companies among
corporate insurance buyers in Lagos State Nigeria.
1.2 Statement of the Problem
Making a
choice or choosing an insurance company by corporate insurance buyer may be
affected by a number of factors depending on the nature of the product and the
considered utility derivable from it. And for a corporate insurance buyer, the
demand for insurance arises from the satisfaction that a consumer gains from
the increase in financial security achieved by transferring the risk of loss to
an insurer.
Delivering
quality service is considered an essential strategy for success and survival in
today's competitive environment (Dawkins and Reichheld, 1990). Insurance sector
is one of the most important entities which have been growing relatively in the
past decade in Nigeria. With a greater choice among corporate insurance buyers
in Lagos State and an increasing awareness, there is now a continuous increase
in the customers’ expectations and they demand better quality service.
Therefore, for insurance companies to sustain in the market, service quality
andcustomers’ satisfaction becomes the most critical component of
competitiveness for insurance companies in Nigeria.
With
increasing demands among corporate insurance buyers, insurance sector has
become competitive. Customers are becoming increasingly aware of their
expectations and thus demand higher standards of services, as technology is
enabling them to make comparisons quickly and accurately. Their perceptions and
expectations are continually evolving, making it difficult for insurance
providers in Nigeria to measure and manage services effectively. It has been
observed that there is widespread customer dissatisfaction in the insurance
industry (Omar, 2005), arising from poor service design and delivery, and
inferior quality of services largely account for this.
Researches
linking quality of service and choice of insurance companies among corporate
insurance buyers in developing countries, Nigeria inclusive have shown that
insurance services seem not to have been so accepted enthusiastically in
developing countries. The abysmal level of consumers’ perception and ultimate
demand for insurance products in developing economies has attracted relative
interests among researchers and practitioners alike.
It is
against this backdrop that this study seeks to examine the factors that
determine the choice of insurance companies among corporate insurance buyers in
Lagos State Nigeria with a special reference to First Bank Nig Plc and Union
Bank Plc.
1.3 Objectives of the Study
The major
objective of this study is to explore the factors that determine the choice of
insurance companies among corporate insurance buyers. While other specific
objectives include;
1. To examine the effect of service quality on
choice of corporate insurance buyers.
2. To assess the impact of price on demand for
insurance policy.
3. To investigate the relationship between
customers’ satisfaction and business purchase of insurance products.
1.4 Research Questions
The
undertaking of this study will be guided by the following research questions;
1. What is the effect of service quality on
choice of corporate insurance buyers?
2. To what extent is price related to demand
for insurance policy?
3. What is the relationship between customers’
satisfaction and business purchase of insurance products?
1.5 Research Hypotheses
In the
course of this study the following research hypotheses will be tested:
Ho1: There is no significant relationship between
service quality and choice of corporate insurance buyers.
Ho2: There is no significant relationship between
price and demand for insurance policy.
Ho3: Customers’ satisfaction is not related to
business purchase of insurance products.
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