Impact Of Prompt Claim Settlement As A Marketing Strategy In Insurance Service Delivery

Project and Seminar Material for Insurance

Impact Of Prompt Claim Settlement As A Marketing Strategy In Insurance Service Delivery


Abstract


The rising sophistication of the world economic system in today’s industrial age has increased the importance of insurance in the process of manufacturing and profit-making dealings. Claims settlement is the monetary compensation that is paid to the policyholder in the event of a loss (Parsons, 2005). Insurers have been criticized for their cloudiness and twisted marketing methods for the fact that they would do anything possible not to pay claims. If a firm does not effectively handle its claims service, it can tarnish its image hence affect the repurchase intention of the customers or forced them to switch over to other competitors. Thus the aim of this study was to evaluate the effect of prompt claim settlement quality as a marketing strategy in the case of insurance companies in Nigeria. The study used purchase intention as a measure of the success of the marketing strategy. Convenience sampling method was applied to select 286 sample respondents from 17 insurance companies in Abuja, Nigeria. Data were collected through self-administered questionnaires distributed to each respondent. The results of the findings revealed that majority of the respondents have positive perception towards the functional quality (mean 3.79), company image (Grand mean 3.70) and repurchase intention (mean 3.78) but indifferent on technical qualities (mean 3.49). It implies that the insurance service providers had limitation in their prompt claim settlement processes to instil confidence on their customers. Moreover, all the independent variables had positive and significant effect on repurchase intention as well. The overall findings offer strong empirical support for the prompt claim settlement as a suitable strategy for insurance firms which ensure repurchase by the customers.


Chapter One


Introduction

1.1 Background of the Study

The rising sophistication of the world economic system in today’s industrial age has increased the importance of insurance in the process of manufacturing and profit-making dealings (Parsons, 2005). The absence of insurance will constantly subject the individual/organization to the fear of a huge financial loss in the event of a tragedy and so will affect their decision making course of action in diverse ways. It is therefore apparent that a viable economy is dependent on insurance companies being swift in compensating victims of an insurance claim (Sanchez, 2011).
High growth of the insurance industry contributes immensely to the growth of financial sector of the given economy. The sector’s potential to boost the economic growth is substantial even more if proper and better attention is given to the service delivery quality up to the industry standard. Major improvements in terms of decreasing the financial losses and relieve the burden of losses associated with risks promptly have been done since its evolution. Such prominent dexterity of the sector facilitates the conduct of business and awareness of more people to be willing to insure their lives and assets as well (Siddiqi, 2004).

Comparatively, unlike in developed countries where insurance awareness is deemed to have reached its peak, it can be said to be at its very infantry stage in Nigeria. According to the Central Bank of Nigeria (CBN, 2017) report, the awareness level of insurance in the economy has seen a significant increase since the last two decades although not as such encouraging. The latest study specifies that the public awareness boosts as a number of new policy holders emerge but rather at a slow pace (Elias, 2015). It is in fact the worry that a loss might occur persuades individuals and economic institutions to take up insurance policies (CBN, 2017).

There are 17 private and one public insurance company operating in Nigerian financial sector of which 9 composite insurers (i.e. transacting both general insurance and long term insurance) while the rest are general insurance companies. The number of branch offices has reached 426 showing a 13% growth over last year (2016) same period. Moreover, over 1,950 insurance sales agents, 53 insurance brokers, 97 loss assessors and two surveyors are operating in the market.

The service provision has been categorized under life and non-life insurance while the prompt claim settlement is segmented into residential and corporate beneficiary as a principal function.

Claims settlement is the monetary compensation that is paid to the policyholder in the event of a loss (Parsons, 2005). Insurers have been criticized for their cloudiness and twisted marketing methods for the fact that they would do anything possible not to pay claims. If a firm does not effectively handle its claims service, it can tarnish its image hence affect the sales and marketing of its insurance products. Their attitude to prompt claim settlement has in the past provoked a number of public criticisms and even attracted the attention of both federal and states (CBN, 2017).

Such inconveniences arise from persistent failure of the majority insurers in regards to recognizing the need for qualified staff or claims specialists to enhance their claims service (Elias, 2015). He criticized that typically claims department always seemed to be an afterthought, the last to get new equipment, modern facility and staff’s capacity development so as to provide prompt and reliable claim services up to the standards of the industry. The focus is utterly on sales, winning new business and retaining accounts. As the years passed there have been very few changes in the perception of claims. In this light the insurance regulatory body now seeks to recognize the need for a thorough review of the role of the claims professionals in the insurance industry in line with the demands of the existing market (Fortune, 2018).

On top of that, the need for dynamism in the financial business environment and growing competition among insurance companies in the sector has forced them to constantly evolve new ideas in order to succeed. To ensure sustainable relevance, they have constantly become innovative by evolving new procedures and products in a competitive business environment through efficient human resource utilization, modern facility implementation and periodic marketing assessments (Sanchez, 2011). Hence, the need for quality prompt claim settlement service through well trained staffs within well-equipped modern facility to exceed ever increasing demand for improved services from customers as well as the returns on investment by investors is undeniable. In these regards, a number of studies have been conducted on overall service quality, customer satisfaction and determinants of insurance buying behavior (Rediate, 2015; Melake, 2016) but there is a lack of addressing the impact of prompt claim settlement service quality as a marketing strategy in terms of their respective functional quality, technical quality and company image (Gronroos, 1990).

The purpose of this study is, thus, basically to determine the effect of prompt claim settlement as marketing strategy which affects repurchase intentions through conducting empirical study on private insurance companies operating in Nigeria.


1.2 Statement of the Problem

Claims settlement is the basic foundation block of the insurance companies and serves as a mirror through which the members visualize the overall performances and credibility of the insurers. The problem of running an effective claims administration that would satisfy the customers and earn their confidence which in turn cause them to repurchase and recommend insurance products to others has remained too pathetic in the insurance industry in Africa and the world at large. A Company, which keen to settle claims to the best interest of customers, would definitely attract more businesses, as it is likely to encourage clients to continue to insure with the firm. They might even advise their friends, colleagues and relations to patronize such a company (Sanchez, 2011).

However, even though corporate insurance customers are sources of high revenue, they are bitterly complaining on slow prompt claim settlement and increasingly demanding for high quality services and pursuit additional improvement of value from their chosen company. Disregarding the business ethics, treatment of all customers homogeneously may end up with poor sales performance in terms of sales target, volume and growth due to inconsistent customer’s satisfaction. The insurance companies in Nigeria, alike other parts of the world, have to pay claims as promised, yet they have a broken image in the eyes of the insurees (Lidetu, 2002). The consequent effects of the above service gaps could lead to downward trends in sales and marketing figures, low premium income, low capital formation (savings and loans) and minimal contribution of an insurance company to the gross domestic product (GDP) of a country at large.

On top of economic benefits, provision of quality service through intellectual assets of an organization can differentiate it from others and provide strong basis for its competitive position. Besides, segmenting and properly targeting the existing and potential customers so as to provide prudent claims administration strategy promotes customer loyalty as it helps to develop a perception of belongingness and instil confidence, thereby providing the company with opportunities to retain its customers while attracting new and profitable ones (Braers, 2004).
In this regards, a number of studies have been done focusing basically on both theoretical and practical gaps persisted in the industry (Bitadel, 2015; Getachew, 2011; and Lidetu, 2002). They tried to point out the overall effect of service quality on customer satisfaction but they didn’t specify the impact of impact of prompt claim settlement service quality as a marketing strategy as a marketing strategy on customer repurchase intention in Nigerian insurance industry’s context. Assessment of such specific issues of slow prompt claim settlement helps to shade light on the improvement of service quality of the insurers accordingly.

The aim of this research is, thus, to investigate the link between service quality and customers repurchase intention of insurance products and services along with the ways through which service firms can improve and manage the process of delivering quality standards to their customers. For this purpose, the study analyzes the effect of claims settlement quality on repurchase intention by discussing their relationship. The aim is achieved by addressing the following


1.3 Purpose of the Study

The purpose of the study of the study is to investigate the impact of prompt claim settlement as a marketing strategy in insurance service delivery.


1.4 Objectives of the Study

  1. To evaluate the effect of technical quality on repurchase intention of customers in Nigerian insurance industry
  2. To examine the success of prompt claim settlement service’s functional quality effect as a marketing strategy on repurchase intention of customers in Nigerian insurance industry
  3. To determine the effect of insurance companies’ images on repurchase intention of customers in Nigerian insurance industry

1.5 Research Questions

  1. How does technical quality of prompt claim settlement service affect the repurchase intention of customers in Nigerian insurance industry?
  2. What is the level of prompt claim settlement service’s functional quality effect on repurchase intention of customers in Nigerian insurance industry?
  3. How does the image of insurance companies affect the repurchase intention of customers?

1.6 Significance of the Study

Although numerous researchers have made theoretical and empirical contributions to the study of service quality in various industries the area of insurance industry is not adequately researched. Particularly, there is an inadequate study conducted in the overall insurance industry in Nigeria, let alone on the service quality dimensions. For that reason, the research contribute a small amount of knowledge on customer satisfaction determinants such as perceived service quality (technical, functional and corporate image) dimensions’ effect on repurchase intentions in Nigerian insurance context.

This study help Nigerian Insurance companies identify and adopt the best ways to settle claims that ensure customer satisfaction, encourage repurchase intention and word-of mouth which will have the positive effect of improving the image of the insurance company in the country. This improved image will, in turn, increase demand for their insurance products and increase premium income generation/sales and marketing figures, capital formation and contribution to the economy of the country as well.

The payment of claims is not only a legal obligation but also a strong public relations instrument and a marketing strategy that has a lot of bearing on the sale of insurance products. This study aimed at identifying whether claims settlement affect the repurchase intention of the customers in terms of demanding for the insurance services regardless of the premium price and even recommend it to others. Meanwhile, the effective and efficient implementation of prompt claim settlement reduces overhead costs resulted in reducing the insurance premium. Thus, policy holders will be benefitted from low cost services. It can also be used as a reference for researchers who are interested in conducting studies in the area.


1.7 Hypotheses

  • H1 – Functional quality of insurance prompt claim settlement has positive and significant effect on repurchase intention in Nigerian Insurance Industry.
  • H2 – Technical Quality of prompt claim settlement service has positive and significant effect on customers repurchase intention in Nigerian Insurance Industry.
  • H3 – Image Quality of prompt claim settlement service has positive and significant effect on customers repurchase intention in Nigerian Insurance Industry.

1.7 Scope of the Study

The study was carried out on insurance industry in Nigerian based on active customers who claimed compensation at least once since they held the insurance policy. Since the entire prompt claim settlements are processed at head office level of respective insurance companies, the scope is geographically delimited to Abuja, the capital city of Nigeria, in which all head offices located.

Besides, the research specifically investigated the companies’ claims settlement service delivery quality verses their corresponding effects on repurchase intention. Since there are a number of other related factors that affect the behavioral intention of consumers, it focused only the service quality aspects. Service quality also has different theoretical concepts and models such as SERVQUAL, SERVPERF, GAP models. However, Gronroos (1982) model was applied for the reason that the study specifically intended to evaluate customer’s perception on functional and technical quality along with company image.

Regarding the Methodological delimitation, only customers were targeted to collect the required data since other stakeholders like garages, insurance brokers, trade associations, etc. are also excluded. However, due to time constraint, they are excluded from the study even though the researcher deeply believed that the generalizability of the study would be affected.


1.8 Limitation of the Study

A major constraint was time imposition, which forced the researcher to limit the study to a specific geographical location as just only targeted corporate insurance customers in Abuja. Other customers in regional state were also excluded. Again having strong (negative) stereotype regarding the image of insurance companies in the country may also affect the neutrality of customers’ attitude while filling the questionnaires. They might tend to show their discomforts while scaling the level of their perception. Another vital limiting factor was selecting the targeted respondents through convenient non-probability sampling which basically limited the generalizability of the findings.


1.10 Organization of the Study

As already noted the first chapter briefly gives a brief background study of the insurance market in Nigeria specifically the current state of the claim administration in the country. It goes further to state the problem, aims and objective of the study. Chapter two provides the theoretical basis for this research by reviewing the distinguishing characteristics of service quality measuring models, their dimensions, the relationship between prompt claim settlement and behavioral intentions, empirical studies as well as conceptual framework along with brief description of hypotheses formulated. Chapter three describes the methodology used in the research study. Chapter four details the primary data collected for the research as the findings and the analysis of these data. Finally, the fifth chapter presents the summary, conclusion and recommendation from the researcher.


1.11 Definition of Terms

Claim Settlement

Is the process by which an insurer pays money to the policyholder as compensation for an accident or vehicle injury

Repurchase Intent

Is defined as the customer’s decision to engage in future activities with the retailer or supplier

Insurance Company

A financial institution that provides a range of INSURANCE policies to protect individuals and businesses against the RISK of financial losses in return for regular payments of PREMIUMS

Marketing Strategy

A plan of action designed to promote and sell a product or service.


Chapter Five


Conclusions and Recommendations

5.1 Conclusions

The purpose of this study was to investigate the impact of impact of prompt claim settlement service quality as a marketing strategy as a marketing strategy on customers repurchase intentions. This study entails that insurance company marketing managers have to develop or improve the existing prompt claim settlement strategy and processes to provide guaranteed quality services to their respective customers. The analysis of results revealed the quality of prompt claim settlement service has significant positive effect on customers repurchase intention. It is evident that majority of the respondents were found to be policyholders of same insurance company for more five years.

Prompt claim settlement bureaucracy was found to have significant and positive influences on customers repurchase intention. Failure to provide quality claim services to customers may cause negative impact on their behavioral intentions. Furthermore, the findings of the study have shown that technical quality of prompt claim settlement service has relatively highest effect on repurchase intention of the policy again. It is a mere logic that the underlying principle of insurance policy is utterly risk sharing amongst members. It is, thus, expected that the compensation matters more than other auxiliary services. In this research, inferential statistics was employed for further analysis of the results. The relationship amongst variable were found to be positive and strong. Besides, the predictors explained the dependent variable significantly and well-fitted to the regression model. The proposed regression model was tested for predictions and explore the relationship between prompt claim settlement and repurchase behavioral intentions. Furthermore, identified those variables which have relatively highest effect on repurchase intention for prioritizing and further improvement. The model developed could be accurately considered as a useful tool for selecting the most efficient items to reach or exceed corporate customer’s expectation to maximize efficiency with optimal cost.

The overall findings offer strong empirical support for the intuitive notion that improving service quality can increase favorable behavioral intentions and decrease unfavorable intentions. The findings demonstrate the importance of strategies that can steer behavioral intentions in the right directions, including striving to meet customer’s desired-service levels (rather than merely performing at their adequate-service levels), emphasizing the prevention of bureaucratic services, and effectively resolving problems that do occur. A salient issue on the service quality research agenda of many companies is understanding the impact of service quality on consumer’s satisfaction resulted in repurchase behavioral intentions.


5.2 Recommendations

The purpose of measuring the quality of prompt claim settlement and its influence on the behavioral intention of customers towards repurchasing of the service is to take corrective actions. The insurance industry faces numbers of challenge to build loyal and quality customer relationships. The biggest challenge is meeting customer requirement or demands of claim as for the agreement. The underwriting as per the foggy contractual agreement is the main source of unnecessary argument. Based up on the analysis conducted the following possible recommendations can help the company in improving its customer satisfaction level.

It is evident from the findings that customers gave due emphasis on technical quality (compensation) of the prompt claim settlement service but the insurance companies failed to exceed their expectation. Thus, insurances should mitigate or enhance their bureaucratic underwriting procedures to settle claims either inducing high calipered employing or train the existing claim evaluators (accident investigators) well.

The functional quality of the prompt claim settlement is also problematic area which needs to be addressed properly. The responsiveness, assurance and reliability attributes are accounted for customer handling staffs’ competency in the underwriting and claims process. As insurance is a contract agreement it is important for both parties to enter the agreement after they understood the contract terms and provisions. The insurance company should not take advantage in the ignorance of its customers or it will lose the confidence of its customers. Therefore, the agreement should be written in local languages, free of jargons, and easily understandable.

Customers were indifferent towards staffs’ tendency to help and give accurate and relevant information even though the overall functional quality of prompt claim settlement was perceived positively. Employee motivation strategy should be designed and implemented based on employee’s perception to improve their attitudes so as to instill confidences on customers.

The overall companies’ image towards their reputation in prompt claim settlement was considered slightly satisfactory implying that there are considerable stereotyping regarding insurance companies’ hesitation to pay or settle compensation. Assessment of policyholder’s perception against the companies should be carried out periodically to figure out areas for further improvements. Besides, creating awareness through marketing promotional mixes is also mandatory.

Further research areas are suggested on determination of prompt claim settlement quality on customer’s behavioral intention through mediation or middling factors such as premium prices and compensation amounts.


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