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The Impact of Service Quality on Customer Satisfaction in Case of Selected

Insurance Companies in Bale Robe Town

Article · September 2020

DOI: 10.7176/RHSS/10-11-04

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Research on Humanities and Social Sciences www.iiste.org
ISSN 2224-5766 (Paper) ISSN 2225-0484 (Online)
Vol.10, No.11, 2020

The Impact of Service Quality on Customer Satisfaction in Case

of Selected Insurance Companies in Bale Robe Town
Biniam Getnet (MBA)
Bonga University, Department of Management

Abstract
The purpose of this study is to investigate impacts of service quality on customer satisfaction in selected insurance
companies on Bale Robe Town. Since, service quality model was especially developed to examine the quality
service of insurance; researchers selected this model to extensively test retail insurance industry. The current study
measured service quality and its relation with customer satisfaction in the selected public and private branch.
Exploratory method used as the research method of the study. The sample consists of 268 respondents’ selected
based on random sampling procedure. The dimensions of the study were tangibility, reliability, responsiveness,
assurance and empathy.Primary data were collected by using 5-point Likert scale questionnaire and interview with
customer service managers and customer service supervisors of the selected insurance companies. A total of 226
questionnaires were properly filled and returned. The empirical result shows that service quality dimensions;
assurance, empathy and reliability have strong influence on user’s satisfaction level respectively and weak impact
with tangibility and responsiveness to user’s satisfaction level in selected insurance companies in Bale Robe Town.
Correlation and multiple regressions were used to investigate the relationship between dependent and independent
variables. The correlation results indicate that there is a positive correlation between the dimensions of service
quality and customer satisfaction. The results of the regression test showed that offering service quality have
impact on overall customer satisfaction. The research proves that assurance, reliability and tangibility have strong
influence on user’s satisfaction level respectively and weak impact with empathy and responsiveness to user’s
satisfaction level in selected insurance companies in Bale Robe Town. Thus study concluded that service quality,
if managed effectively, can contribute significantly towards customer satisfaction.
Keywords: Service quality, Customer Satisfaction, Insurance
DOI: 10.7176/RHSS/10-11-04
Publication date:June 30th 2020

1. Introduction
Service quality means the difference between the customer’s expectation of service and their perception of
perceived service. Zeithaml, et.al., (1990). By purchasing insurance policies, individual can receive reimbursement
for losses due to car accidents, theft of property, and fire; medical expenses and loss of income due to disability or
death (William, etal, 1998). Most companies are now beginning to use quality management programs in order to
improve their performances, and that in turns leads to a customer satisfaction, Kotler et al, (2002). Insurance is
one of the risk management techniques that provide protection against a financial loss arising from the occurrence
of these unexpected events (Teklegiorgis Assefa, 2004)
Service quality is generally viewed as the output of the service delivery system, especially in the case of pure
service system. Moreover, service quality leads to customer satisfaction. (Jain et al, 2009).
Ethiopian insurance companies consider delivery of excellent service quality to customer a key to success
and survival, the finding from the study can provide them with the valuable insight in a way of enhancing service
quality to induce greater customer satisfaction. The research was conducted at Ethiopian insurance corporation
and United insurance company customers in Robe Town hence the study is to assess the impact of service quality
on customer satisfaction in the case of selected insurance companies.

Statement of Problem
Delivering quality service to customers is a must for success and survival in today’s competitive environment
(Samli and Frohlich, 1992). Insurance Companies in Ethiopia are in a tough competition to attract customers by
delivering various services. It is better for customers to have broad choices to select best Insurance Company for
them to satisfy their needs. In pursuit of round the clock customer services and keep abreast with the developing
global technology, some Insurance Companies in Ethiopia are fast moving toward launching new technology based
products and services. Likewise, provision of high quality services enhances customer retention rates, helps attract
new customers through word of mouth advertising, increases productivity, leads to higher market shares, lowers
staff turnover and operating costs, and improves employee morale, financial performance and profitability, Julian
and Ramaseshan, (1994); Lewis, (1989, 1993).
Insurance industries that excel in quality service can have a distinct marketing edge since an improved levels
of service quality are related to higher revenues, increased cross- sell ratios, higher customer retention, Bennett
and Higgins, (1988), and expanded market share, Bowen and Hedges, (1993). In a highly competitive and

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customer-centered market economy, service organizations are forced to provide high-quality services that generate
customer satisfaction, loyalty, enlarge market share and improve their performance results (Pantouvakis, 2010).
The application of customer relationship marketing is vital in today’s fierce competition because when there are
proper communication and smooth relationship with customers’ organization should retain their customers (Kotler
and Armstrong, 2010).
Service quality is an important tool to measure customer satisfaction (Hazlina et al., 2011). According to
Jamal and Anastasiadou (2009), reliability, tangibility and empathy positively related with customer satisfaction.
Sulieman (2011) found that reliability, tangibility, responsiveness and assurance have significant and positive
relationship with customer satisfaction.
Because service quality has been proven to be the best determinant of customer satisfaction and indirectly
customer loyalty when it comes to service sectors, Daniel et al (2012). Unsatisfactory service leads to a drop in
customer satisfaction, loyalty and willingness to recommend the service to a friend. This would in turn lead to an
increase the number of customers shifts to competitors. Therefore, the study is designed to examine the impact of
service quality dimensions on customer satisfaction and to show service quality limitations on dimensions to fill
the existing gap on service quality in case of selected insurance companies in Bale Robe Town.

Research Hypothesis
Providing high standard of service quality can result in high level of customer satisfaction (Suki & Suki, 2013)
and it five dimensions, including tangibility, reliability, responsiveness, assurance, and empathy, has been
conceptualized the hypothesis of the research which aim to identify the relationship of those five dimensions with
customer satisfaction construct (Zeithaml, et al., 1996).
The dimension tangibility of service quality model refers to appearance of physical facilities (Parasuraman,
et al., 1988), and in the hostel context, it can include reception desk, cleanliness of premises in general, promotion
documents and it factors are correlated to customer satisfaction (Lai, 2004; Kumar et al., 2010).
The dimension responsiveness refers to the willingness to help customers and to provide prompt service to
meet the customers’ needs (Parasuraman, et al., 1988) and it dimension is relate to the instant feedback and easy
access (Polatoglu & Ekin, 2001), and also is likely to have an important and positive effect on customer satisfaction
(Glaveli et al., 2006; Mengi, 2009; Kheng et al., 2010).
The dimension assurance represents the knowledge and courtesy of employees and their ability to convey
trust and confidence (Parasuraman, et al., 1988) being an important factor to the customers experiencing the service
(Mengi, 2009) and can affects customer satisfaction (Kheng et al., 2010).
Proposed hypothesis are: Null Hypothesis
H01: Tangibility has no significant impact on Customer Satisfaction.
H02: Reliability has no significant impact on Customer Satisfaction.
H03: Responsiveness has no significant impact on Customer Satisfaction.
H04: Assurance has no significant impact on Customer Satisfaction.
H05: Empathy has no significant impact on Customer Satisfaction.

Objectives of the Study

General Objective
The main objective of this study is to find the impact of service quality dimensions on customer satisfaction in
case of Selected Insurance Companies in Bale Robe Town.

Specific Objectives
Specific objectives of the study:
 To identify the major service quality dimensions that have impact on customer satisfaction
 To analyze the level of customer satisfaction on Service quality
 To find out the problems in Service quality dimensions to satisfy the customers

2. Research Design
To gain understanding of the major impacts of service quality on the level of customer’s satisfaction under
different contexts of research methodology was conduct for this study. Based on empirical research across different
industries, including pest control, fast food, dry cleaning, Insurance and bank, they provided evidences that support
the distinction over SERVQUAL model based on performance only, maintained the same items scale proposed by
Parasuraman et al. (1988). Moreover, as (Mark, Philip, & Adrian, 2009) stated, case study methodology uses both
explanatory and descriptive research design argues that multiple methods are useful for providing better
opportunities to test hypothesis and also allows to the research findings can be trusted and inferences made from
them. which was quantitatively analyze using multiple linear regression model and semi-structured interview
and qualitatively analyze and triangulate with the quantitative result.

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Data Source & Collection Method

The study used primary data source include semi structured interview and questionnaire. A questionnaire was
distributed to respondents who have service quality in the selected Robe Town insurance companies. The
questionnaire was design based on previous empirical literature and its consistency was pre- test using Cronbach
Alpha. The components of service quality dimensions and outcomes of customer satisfaction items was measured
on 5- point Likert - scale ranging from 1 (strongly disagree) to 5 (strongly agree).
The research respondent was asking to indicate the degree of agreement or disagreement on service quality
dimensions offering by their insurance companies. Some demographic questions were also forward. Every
questionnaire is personally handing and an instruction was given to each customer before completing the
questionnaire. Furthermore, for the semi structured interview, they were conduct for Operation Managers of
selected insurance companies.

Target Population
The population of this study was customers from of the selected public and private insurance companies, which
are Ethiopian Insurance Corporation and United Insurance Company active customers.

Sampling Method and Sample Size

The sampling method for the target population used simple random sampling. In random sampling, each individual
in the population has an equal probability of selected which is important for the external validity of the study
(Creswell, 2009).
Accordingly, the total study population 820 in the two insurance companies and Sample size of 268
respondents is taken from selected insurance companies. To calculate sample size, simplified formula provided by
Taro Yamane (1967) is used i.e.
n = N/1+N (e) 2 = 268

Insurance Name Active number of Percentage of Sample

Customers population Size
EIC 470 57.31 154
UIC 350 42.69 114
Table 1: Sample size from total population

Reliability of the study

Reliability refers to the degree to which a set of variables are consistent with what they are intended to measure
(Hacker et al., 2003). Accordingly, the reliability of the study survey is dependent on the extent of respondents
Satisfaction in using quality services. The Reliability of this research study was be categorized under five
dimensions of service quality determinant factors, which was compute by Cronbach Alpha value using statistical
package for social scientists (SPSS) version 23 software. According to Hair, et al., (2006), if α is greater than 0.7,
it means that it has high reliability.

Measurement and Scaling

The aim of this study is to examine the impact of five service quality dimensions on customer satisfaction by
insurance companies. The researcher was employee Multiple Linear Regression models to determine the
significance level of the variables for the customer satisfaction.
Customer satisfaction = f (business service quality dimensions)
Basically, CSEB = α + β1X1+ β2X2+ β3X3+ β4X4+ β5X5 + ε
Where, CS = Customer Satisfaction
X1= Tangibility, X2 = Reliability, X3 = Assurance, X4 = Responsiveness, X5 = Empathy
Here α is constant and β is coefficient of estimate and ε is the error term. Customer satisfaction is dependent
variable and X1 to X5 are independent variables.

Method of Data Analysis

In order to facilitate the interpretation, the finding of the study both quantitative and qualitative was use in
analyzing with SPSS version 23. To analyze and present the data the statistical tools use for this study, namely
descriptive analysis, correlation and multiple regression analysis.
The descriptive statistical results were present by tables, frequency distributions and percentages to give a
condensed picture of the data. This was achieving through summary of statistics, which includes the means, mode
and standard deviations values which are computed for each variable in this study. In this study Pearson’s
correlation coefficient was used to determine the relationships between service quality dimensions (Tangibility,

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Reliability, Responsiveness, Assurance and empathy) and customer satisfaction. Multiple regression analysis was
use to investigate the impact of service quality dimensions (Tangibility, Reliability, Responsiveness, Assurance
and empathy) on customer satisfaction.

3. Results and Discussion

Descriptive Statistics of the Service Quality Dimensions Composite scores
Descriptive Statistics
N Mean Std. Deviation
TANGIBILITY 226 3.1711 .72093
REALIBILITY 226 3.1980 .62832
RESPONSIVINESS 226 3.3606 .71526
ASSURANCE 226 3.3274 .67201
EMPATHY 226 2.3894 .83329
Table -2: Descriptive Statistics of the Service Quality Dimensions Composite scores
Responsiveness has the highest score of 3.3606 followed by assurance with a score of 3.3274. The least
important perception according to the finding on empathy with a score of 2.3894 is to do more on empathy. This
indicates that there are weaknesses in Insurance provide 24 hours’ services within a week, Insurance has employees
who give customers individual attention, Language to service delivery is easy to understand and applications
allows online insured service and payment.
The more composite scores are above average and less than the mean maximum score. The findings of the
study indicate that currently the service providers are perceived by the customers to be offering under satisfied.

Analysis of Customer satisfaction items

Descriptive Statistics
N Mean Std. Deviation
Say positive things about the insurance 226 3.46 .874
services to other people
Encourage friends and relatives to select insurance companies that have 226 3.42 .897
online service
Intend to continue doing with the insurance companies that have applications 226 3.54 .693

Have strong preference on your insurance company 226 3.60 .731

Table -3: Analysis of Customer satisfaction items
According table above, say positive things about the insurance services to other people item of Customer
satisfaction has mean score of 3.46. This indicates that most of the clients agree to say positive things about the
insurance. Encourage friends and relatives to select insurance companies that have online service item of Customer
satisfaction has mean score of 3.42. This indicates that most of the clients agree to encourage friends and relatives
to select insurance companies that have applications. Intend to continue doing with the insurance companies that
have applications item of Customer satisfaction has mean score of 3.54. This indicates that most of the clients
agree to say to continue doing with the insurance companies that have applications. The item Have strong
preference on your insurance company of Customer satisfaction has mean score of 3.60. This indicates that most
of the clients agree to say strong preference on their insurance company.

Inferential Findings
Reliability and validity Test
Constructs Number of items Cronbach's Alpha
Tangibility 3 0.863
Reliability 4 0.723
Responsiveness 4 0.811
Assurance 5 0.840
Empathy 4 0.942
Customer satisfaction 4 0.762
Table – 4: Reliability and Sample Characteristic
In this research were conducted the reliability test using the Cronbach’s alpha in order to identify the
consistency of the items in the data instrument. The use of the Cronbach’s alpha has become common practice in
empirical research when multiple-item measures are applied as data instrument (Tavakol & Dennick, 2011).
The reliability coefficient applied in this research allowed to identify the stability, consistency and also
enhance the accuracy of assessment of the data instrument used in this research and it coefficient varies between

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0 and 1 (Tavakol & Dennick, 2011), where Bryman & Bell (2011) considered acceptable internal reliability when
greater than 0.80, and others authors considered as excellent internal reliability when the Cronbach’s alpha is
greater than 0.9, good between 0.8 and 0.9, acceptable between 0.7 and 0.8, questionable between 0.6 and 0.7, and
the others results lower than 0.5 can be explained by a low number of items, poor inter-relatedness between items
or heterogeneous constructs.
Analyzing the five constructs of service quality dimensions and the customer satisfaction based on reliability
test show that all the constructs has presented good internal reliability.

Hypothesis Testing
The following two tests were done to determine the correlations: -
- Person correlation
- Regression analysis

The Relation of Service Quality dimension on Customer Satisfaction

In this analysis the five dimensions’ service quality were tested against customer satisfaction as the dependent
variable. A Person correlation analysis was done to determine this relationship.
Person Correlation analysis (Overall service quality dimensions)
Correlations
Tangibility Realibility Responsiviness Assurance Empathy Cust_Satisfaction
Tangibility Pearson 1
Correlation
Sig. (2-
tailed)
Reliability Pearson .754** 1
Correlation
Sig. (2- .000
tailed)
Responsivene Pearson .688** .746** 1
ss Correlation
Sig. (2- .000 .000
tailed)
Assurance Pearson .722** .702** .711** 1
Correlation
Sig. (2- .000 .000 .000
tailed)
Empathy Pearson .583** .608** .446** .401** 1
Correlation
Sig. (2- .000 .000 .000 .000
tailed)
Customer Pearson .642** .638** .583** .786** .280** 1
Satisfaction Correlation
Sig. (2- .000 .000 .000 .000 .000
tailed)
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
Table – 5: Person Correlation analysis on overall service quality dimensions on customer satisfaction
Correlation matrix is used in this study to show the strength of relationship among variables considered in the
hypothesis. The correlation matrix further indicates that all service quality dimensions were positively correlated
with customer satisfaction. The results indicate that most important service quality practice on customer
satisfaction was Assurance (i.e. with highest scores of correlation), which goes to prove that assurance was
perceived as a dominant service quality. The findings displayed that the respondent who perceived a greater
awareness of service quality practice exhibited the more positive reactions in favor of customer satisfaction.
Multi linearity Test:
The correlation coefficient between the independent variable and dependent variable were less than 0.90,
indicating that data was not affected by a collinearly problem (Hair et al.,1998) and suggested that a correlation
coefficient above 0.8 between explanatory variables should be corrected because it is a sign for multi linearity
problem (Cooper & Schindler, 2009). Therefore, as table 11 indicates that the correlation coefficient between
explanatory variables have no collinear and multi linearity problem.

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Linearity Test:
Linearity refers to the degree to which the change in the dependent variable is related to the change in the
independent variables. To determine whether the relationship between the dependent variable CSEB and the
independent variables X1 (Tangibility), X2 (Reliability), X3 (Responsiveness), X4 (Assurance) and X5 (Empathy)
is linear plots of the regression residuals through SPSS version 23 software had been used.

Figure- 1 : Normal Point Plot of Standardized Residual

The scatter plot of residuals shows no large difference in the spread of the residuals as you look from left to
right on figure 1. This result suggests the relationship we are trying to predict is linear.
Normality Test:
As Per the Classical Linear Regression Models assumptions, the error term should be normally distributed or
expected value of the errors terms should be zero (E(ut)= 0).

Figure- 2: Frequency Distribution of Standardized Residual

Frequency distribution of the standardized residuals compared to a normal distribution. As you can see,
although there are some residuals (e.g., those occurring around 0) that are relatively far away from the curve, many
of the residuals are fairly close. Moreover, the histogram is bell shaped which lead to infer that the residual
(disturbance or errors) are normally distributed. Thus, no violations of the assumption normally distributed error
term. Thus, from an examination of the information presented in all the three tests concluded that there are no
significant data problems that would lead to say the assumptions of multiple regressions have been seriously
violated.

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Multiple Regression Analysis

In this part of the analysis includes a regression model to test the hypotheses. Five extracted dimensions were taken
as independent variables against overall satisfaction of the customers as dependent variable in a multiple regression
model. For all the hypotheses of the study below hypothesis test was used at 95% confidence level.

Regression Summary of Service Quality to Customer Satisfaction (N=226)

Model Summary
Model R R Square Adjusted Std. Error of the Change Statistics
R Square Estimate R Square F Change df1 df2 Sig. F Change
Change
1 .866a .749 .744 .31103 .749 131.464 5 220 .000
Predictors: (Constant), EMPATHY, ASSURANCE, TANGIBILITY, RESPONSIVINESS, REALIBILITY
Dependent Variable: Customer satisfaction
Table – 6: Regression Summary of Service Quality to Customer Satisfaction
From table above, it has been seen that R value is 0.866. Therefore, R value (0.866) for the overall service
quality dimensions suggested that there is a strong effect of these five independent variables on customer
satisfaction. It can also have observed that the coefficient of determination i.e. the R-square value is 0.749, which
representing that 74.9% variation of the dependent variable (Average Customer Satisfaction) is due to the
independent variables, which in fact, is a strong explanatory power of regression.
ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 63.588 5 12.718 131.464 .000b
1 Residual 21.283 220 .097
Total 84.871 225
a. Dependent Variable: CUSTOMER SATISFACTION
b. Predictors: (Constant), EMPATHY, ASSURANCE, TANGIBILITY, RESPONSIVINESS, REALIBILITY
Table – 7: Anova Multiple regression presentation
From the table above-, it is identified that the value of F-stat is 131.464 and is significant as the level of
significance is less than 5% (p< 0.05). This indicates that the overall model was reasonable fit and there was a
statistically significant association between service quality dimension and customer satisfaction. Additionally, this
also indicated that the null hypothesis is rejected or accepted.
Coefficientsa
Model Unstandardized Standardized T Sig. 95.0% Confidence
Coefficients Coefficients Interval for B
B Std. Error Beta Lower Upper
Bound Bound
(Constant) 1.056 .111 9.498 .000 .837 1.275
TANGIBILITY .186 .047 .218 3.931 .000 .093 .279
REALIBILITY .325 .146 .332 2.225 .027 .037 .613
1
RESPONSIVINESS -.865 .107 -1.008 -8.053 .000 -1.077 -.654
ASSURANCE 1.183 .085 1.295 13.844 .000 1.015 1.352
EMPATHY -.087 .039 -.118 -2.210 .028 -.165 -.009
a. Dependent Variable: CUSTOMER SATISFACTION
Table – 8: Coefficients of dependent varies with independent variable
In the table above, unstandardized coefficients indicated how much the dependent variable varies with an
independent variable, when all other independent variables are held constant. The beta coefficients with significant
p value < 0.05 indicated that how and to what extent SERVQUAL dimensions such as tangibility, reliability,
responsiveness, assurance and empathy influence customer’s satisfaction of insurance companies. It has been
found that, Assurance (β =1.295, t=13.844, p<0.05), Reliability (β =.332, t=2.225, p<0.05) and Tangibility (β
= .218, t= 3.931, p<0.05) have positive impact and significant on customer’s satisfaction but Empathy (β = -1.18,
t=-8.053, p<0.05) and Responsiveness (β = -1.008, t= -8.053, p<0.05) have negative impact and significant on
customer’s satisfaction.

4. Conclusion and Recommendation

Conclusion
The importance of measurement of service quality offered by companies has been recognized as one of the most

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important area of study for professionals of marketing with the purpose to understand the service quality
performance from the customer perspective (Al Khattab & Aldehayyat, 2011).
The main objective of this research was to identify the impact of the five dimensions of service quality,
including tangibility, reliability, responsiveness, assurance and empathy, on customer satisfaction. The conceptual
model proposed in this research states that service quality have a significant impact on customer satisfaction based
on SERVQUAL model Parasuraman et al. (1988).
Globally the results of the present research were supported by the conceptual model that the service quality
has impact on customer satisfaction. The results from multiple linear regression also conducted that service quality
can be used to predict customer satisfaction and based on all factors, P-value indicated that how and to what extent
SERVQUAL dimensions such as tangibility, reliability, responsiveness, assurance and empathy influence
customer’s satisfaction on insurance companies. It has been found that, Assurance (β =1.295, t=13.844, p<0.05),
Reliability (β =.332, t=2.225, p<0.05) and Tangibility (β = .218, t= 3.931, p<0.05) have positive impact and
significant on customer’s satisfaction but Empathy (β = -1.18, t=-8.053, p<0.05) and Responsiveness (β = -1.008,
t= -8.053, p<0.05) have negative impact and significant on customer’s satisfaction.
Thus, the service quality and customer satisfaction has been considered very important to help to improve the
overall performance of business especially, for insurance industries. According by the literature review and the
finding in this research is possible to state that the used to improve the services offered to customers with the
purpose to reach the customer satisfaction and also build the competitive advantage against the competitors based
on service differentiation.

Recommendations
Customer satisfaction is a critical business requirement. Customer value is an asset to the organization; While,
application is essential in today’s competitive market. The objective of this study was to find out customer
satisfaction on service quality dimensions. A list of recommendations has been presented based on the findings of
the research conducted on customers of selected insurance companies.
 The management needs to improve quality services so as to satisfy customer’s needs. The insurance needs to
pay much attention on the Tangibility, Reliability, Responsiveness, Assurance and Empathy in order to satisfy
the customer’s satisfaction by using different methods rather narrowly conceptualized in terms of five
dimensions’ service quality. Although 74.9% of the variation in customer’s satisfaction was explained by the
five service dimensions studied here, the remaining 25.1% is explained by other factors that were not
examined in this study. For example, customer’s satisfaction might be influenced by such factors as price,
and service variety. It might be desirable for future studies to include these (and other) factors.
 Insurance should work on integrating with bank to resolve in case of premium and other financial issues to
save time and cost of customers by contacting branches.
 Insurance companies should work with Ethio-Telecom & Ethiopian Electric Power to resolve service
interruptions and minimize the brunt of the consequences of unreliable services.
At last, this study investigates the dimensions of service quality that has major impacts on customer
satisfaction on insurance industries in Ethiopia. But, the variables included in the study were not exhaustive
variables which are not included under this study. Future researchers could include other variables which are
not included under this study.

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