Relationship between service quality and customer satisfaction in life insurance services in viet nam

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY
--- oOo ---

LÊ THỊ BÍCH ĐÀO

RELATIONSHIP BETWEEN

SERVICE QUALITY AND CUSTOMER SATISFACTION
IN LIFE INSURANCE SERVICES IN VIET NAM

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – 2012

1


MINISTRY OF EDUCATION AND TRAINING
ACKNOWLEDGEMENT
UNIVERSITY
OF ECONOMICS HOCHIMINH CITY
--- oOo --I would like to express my deepest gratitude to my research supervisor, Professor
Pham Quoc Hung for his intensive support, valuable suggestions, guidance and
encouragement during the course of my study.
I would like to express my sincere gratitude to all of my teachers at Faculty of
Business Administration and Postgraduate Faculty, University of Econimics
Hochiminh City for their teaching and guidance during my MBA course.

LÊ THỊ BÍCH ĐÀO

My sincere thanks is extended to Professor Nguyen Dinh Tho, Dr. Tran Ha Minh
Quan, Dr. Nguyen Thi Nguyet Que, Dr. Nguyen Thi Mai Trang, Dr. Nguyen Van
Ngai for their valuable time as members of examination committee. Their
comments and suggestions were of great value for my study.
I would also like to avail
this opportunity to BETWEEN
express my appreciation to Professor
RELATIONSHIP

SERVICE
QUALITY AND CUSTOMER SATISFACTION
English and Dr. Tran Ha Minh Quan for his support during the course.
Nguyen Dong Phong, UEH Board of Directors for creating MBA program in

IN LIFE INSURANCE SERVICES IN VIET NAM

I would like to specially express my thanks to all of my classmates, my friends, and
my colleagues for their support and encouragement.
I sincerely thank the management and staff of AIA Insurance, Prudential, Bao Viet,
MAJOR: BUSINESS ADMINISTRATION
Dai-ichi life, Manulife, and ACE Life insurance for contributing to this study.
MAJOR CODE: 60.34.05
Last but not least I must express my gratitude to my beloved parents, my husband
Nguyen Ngoc Minh and daughter Minh Anh who have always sacrificed to
encourage and support me during
these years
of study.
MASTER
THESIS

SUPERVISOR : PROFESSOR PHẠM QUỐC HÙNG

Ho Chi Minh City – 2012

2


ACKNOWLEDGEMENT
I would like to express my deepest gratitude to my research supervisor, Professor
Pham Quoc Hung for his intensive support, valuable suggestions, guidance and
encouragement during the course of my study.
I would like to express my sincere gratitude to all of my teachers at Faculty of
Business Administration and Postgraduate Faculty, University of Econimics
Hochiminh City for their teaching and guidance during my MBA course.
My sincere thanks is extended to Professor Nguyen Dinh Tho, Dr. Tran Ha Minh
Quan, Dr. Nguyen Thi Nguyet Que, Dr. Nguyen Thi Mai Trang, Dr. Nguyen Van
Ngai for their valuable time as member of examination committee. Their comments
and suggestions were of great value for my study.
I would also like to avail this opportunity to express my appreciation to Professor
Nguyen Dong Phong, UEH Board of Directors for creating MBA program in
English and Dr. Tran Ha Minh Quan for his support during the course.
I would like to specially express my thanks to all of my classmates, my friends, and
my colleagues for their support and encouragement.
I sincerely thank the management and staff of AIA Insurance, Prudential, Bao Viet,
Dai-ichi life, Manulife, and ACE Life insurance for contributing to this study.
Last but not least I must express my gratitude to my beloved parents, my husband
Nguyen Ngoc Minh and daughter Minh Anh who have always sacrificed to
encourage and support me during these years of study.

i

ABSTRACT

The present study investigated the subject of service quality and its relationship to
customer satisfaction in the context of life insurance industry service. A study of
238 respondents from six leading life insurance in Viet Nam was conducted in Ho
Chi Minh City. This research, using confirmatory factor analyses, proposes a six
dimensional service-quality instrument consisting of assurance, personalized
financial planning, competence, corporate image, tangibles and technology in life
insurance. A paired “t” test and the cross-tabulation procedure were also carried out
in this study to examine the relationship between service quality and customer
satisfaction. The result from this paper confirmed that the two constructs are
distinct, but are highly correlated, implying that an increase in one is likely to lead
to an increase in another.

Keywords: Service quality, customer satisfaction, confirmatory factor analysis,
measurement, life insurance services.

ii


TABLE OF CONTENTS
ACKNOWLEDGEMENT.................................................................................................... i
ABSTRACT ........................................................................................................................ ii
TABLE OF CONTENTS .................................................................................................. iii
LIST OF FIGURES .......................................................................................................... iv
LIST OF TABLES ............................................................................................................. vi
CHAPTER 1: INTRODUCTION ...................................................................................... 1
1.1 BACKGROUND ........................................................................................................ 1

1.2 RESEARCH PROBLEMS. ......................................................................................... 3
1.3 RESEARCH OBJECTIVES ...................................................................................... 6
1.4 RESEARCH METHODOLOGY AND SCOPE ......................................................... 7
1.5 STRUCTURE OF THE STUDY ................................................................................ 8
CHAPTER 2: LITERATURE REVIEW ........................................................................ 10
2.1 INTRODUCTION .................................................................................................... 10
2.2 SERVICE QUALITY ............................................................................................... 10
2.3 CUSTOMER SATISFACTION................................................................................ 13
2.4 THE LINK BETWEEN SERVICE QUALITY AND CUSTOMER
SATISFACTION....................................................................................................... .14
2.5. LIFE INSURANCE IN VIET NAM ........................................................................ 16
2.6. HYPOTHESIS AND EMPIRICAL MODEL .......................................................... 19
CHAPTER 3: METHODOLOGY ................................................................................... 22
3.1 INTRODUCTION ................................................................................................... 22
3.2 RESEARCH DESIGN ............................................................................................. 22
3.3 VARIABLES MEASUREMENT ............................................................................ 22
3.3.1. Scale to measure service quality .................................................................. 22
3.3.2. Scale to measure customer satisfaction ......................................................... 25
3.4 PILOT TEST ............................................................................................................. 26
3.5 MAIN SURVEY ..................................................................................................... 27
3.5.1. Brand selection ............................................................................................. 27
3.5.2. Sampling . .................................................................................................... 27
3.5.3. Sample size .................................................................................................. 28
3.5.4. Survey method .... ........................................................................................ 28
3.5.5. Data analysis techniques .............................................................................. 28
3.6 SUMMARY ............................................................................................................. 29
CHAPTER 4: EMPIRICAL RESULTS OF THE RESEARCH .................................. 30
4.1 INTRODUCTION ................................................................................................... 30
4.2 CHARACTERISTICS OF RESEARCH SAMPLES .............................................. 30
4.3 SCALES ASSESSMENT ........................................................................................ 33

4.3.1. RELIABILITY TESTING ............................................................................. 33
4.3.2. CONFIRMATORY FACTOR ANALYSIS (CFA) ..................................... 33

iii


4.3.3. CUSTOMER SATISFACTION WITH SERVICE QUALITY ..................
CHAPTER 5: CONCLUSIONS, RECOMMENDATIONS AND LIMITATIONS ...
5.1 INTRODUCTION. ..................................................................................................
5.2 CONCLUSIONS .....................................................................................................
5.3 RECOMMENDATIONS .........................................................................................
5.4 LIMITATIONS .......................................................................................................
REFERENCES.................................................................................................................
APPENDIX 1 .....................................................................................................................
APPENDIX 2 .....................................................................................................................
APPENDIX 3 .....................................................................................................................
APPENDIX 4 .....................................................................................................................

43
51
51
51
53
54
56
59
62
63
64

iv


LIST OF FIGURES

Figure 2.1: Research model ................................................................................... 21
Figure 3.1: Research Process ................................................................................ 23
Figure 4.1: Confirmatory factor analysis (CFA) – the initial model .................. 36
Figure 4.2: CFA modified model .......................................................................... 40

v


LIST OF TABLES

Table 4.1 : Response frequency of each brand ................................................................ 31
Table 4.2 : Demographic characteristics of the respondents ......................................... 31
Table 4.3 : Skew and Kurtosis Values of Variables ........................................................ 32
Table 4.4 : Reliability of the measurement instrument .................................................. 34
Table 4.5 : Modification Indices (Group number 1 - Default model) ........................... 37
Table 4.6 : Standardized Regression Weights of variables (factor loadings) ............... 39
Table 4.7 : CFA results – Construct loadings .................................................................. 41
Table 4.8 : Correlations matrix of variables.................................................................... 43
Table 4.9 : Matrices Correlations .... ................................................................................ 64
Table 4.10: Results of paired “t” test ............................................................................... 44
Table 4.11: Correlation between customer satisfaction and service quality ................ 45
Table 4. 12: Cross-tabulation results between service quality and customer
satisfaction with respect to assurance .......................................................... 46
Table 4. 13: Cross-tabulation results between service quality and customer
satisfaction with respect to personalized financial planning...................... 47

Table 4. 14: Cross-tabulation results between service quality and customer
satisfaction with respect to competence ....................................................... 47
Table 4.15: Cross-tabulation results between service quality and customer
satisfaction with respect to tangibles ............................................................ 48
Table 4.16: Cross-tabulation results between service quality and customer
satisfaction with respect to corporate image ............................................... 48
Table 4.17: Cross-tabulation results between service quality and customer
satisfaction with respect to technology ......................................................... 49
Table 4.18: Degree of complete agreement and complete disagreement between
service quality and customer satisfaction ..................................................... 49
Table 4.19: Summary of the hypotheses testing results ................................................. 50

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Service Quality and Customer Satisfaction

CHAPTER 1: INTRODUCTION

1.1 BACKGROUND
Service quality and customer satisfaction have long been recognized as playing a
crucial role for success and survival in today’s competitive market. They are two
core concepts and crux of the marketing theory and practice (Spreng and Mackoy,
1996). A basic agreement emanating from the wide range of literature on service
quality and customer satisfaction is that service quality and customer satisfaction
are conceptually distinct but closely related constructs (Parasuraman et al., 1994;
Dabholkar, 1995; Shemwell et al., 1998; G.S. Sureshchandar, 2002).
Customer satisfaction is considered a prerequisite for customer retention and
loyalty, and obviously helps in realizing economic goals like profitability, market
share, return on investment, etc. (Scheuing, 1995; Reichheld, 1996; Hackl and

Westlund, 2000). Service quality has been described as a form of attitude -a longrun overall evaluation, and service quality and attitude constructs are viewed as
similar (Parasuraman et al., 1988; Zeithaml, 1988; Bitner et al., 1990; Bolton and
Drew, 1991a, b; Cronin and Taylor, 1992; Bitner and Hubert, 1994).
Perceptions of service quality could occur at multiple levels in an organization -e.g.
with the core service, physical environment, interaction with the service providers,
etc. (Bitner and Hubert, 1994). Besides that, the customer's overall satisfaction with
the services of the organization is based on all the encounters or experiences of the
customers with that organization. Similar to service quality, customer satisfaction
can occur at multiple levels in an organization, e.g. satisfaction with the contact
person, satisfaction with the core service and satisfaction with the company. In
today's world of intense competition, the key to sustainable competitive advantage
lies in delivering high quality service that will in turn result in satisfied customers
(Shemwell et al., 1998).

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Service Quality and Customer Satisfaction
The life insurance industry like many other financial services industries is facing a
rapidly changing market, new technologies, economic uncertainties, fierce
competition and more demanding customers has presented an unprecedented set of
challenges. Like other business domains, life insurance providers have started
realizing that their business depends on customer service and customer satisfaction.
With liberalization and internationalization in insurance, service quality has become
an important means of differentiation and path to achieve business success. Such
differentiation based on service quality can be a key source of competitiveness for
insurance companies.
With the increasing demands of customer, insurance sector has become competitive.
Customers are becoming increasingly aware of their expectations, and demand
higher standards of services, as technology is enabling them to make comparisons

quickly and accurately. Their perceptions and expectations are continually evolving
and they may readily change providers if they are not satisfied with service quality
they receive. This makes difficult for service providers to measure and manage
services effectively. Therefore, the life insurance providers need to reconfigure their
strategy and business to sustain or improve their competitive advantage. Moreover,
they need to consider how to create a satisfied customer base that will not be eroded
even in the face of fierce competition. The trend of insurance companies shifting
from a product-focused view to a customer-focused one has been developing
recently as insurance products become increasingly hard to differentiate in fiercely
competitive markets. Insurance companies in the world are consequently directing
their strategies towards increasing customer satisfaction and loyalty through
improved service quality.
Numerous researchers have made theoretical and empirical contribution to the study
of relationship service quality and customer satisfaction in various industries (like
banking, healthcare, education etc). However, the area of life insurance is not
adequately researched. In addition, the causal relationships between service quality
and customer satisfaction have been examined by a number of studies, but mainly at
the level of aggregate constructs. The conclusions that the two constructs are
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Service Quality and Customer Satisfaction
distinct though interrelated and that service quality is an antecedent of customer
satisfaction, when focusing on the assessment of service quality in the context of a
service relationship, is prevailing in the literature. However, little is known
regarding the relationships between the two constructs at the level of individual
dimensions. This is a literature gap that this research attempts to narrow by
reporting its findings from studying these links in a model of which the constituent
variables are the individual dimensions of service quality and customer satisfaction.
In addition, in Viet Nam, lack of empirical evidence about the relationship between

quality and customer satisfaction in life insurance factor, is an issue for both
academics and practitioners. There have not such study has been carried out in the
area of life insurance.
Given the importance of the life insurance industry in Viet Nam in terms of
increasing market size, growing competition and the share of the total insurance
premium market, this paper attempts to identify the service quality dimensions
which contribute to the maximum customer satisfaction in the life insurance
industry of Viet Nam. Besides that, it also attempts to represent and estimate the
interrelated causal relationships among these perceptual service quality dimensions
with the overall satisfaction with life insurance services. In addition, it has been
attempted to measure the complex and interdependent relationships between service
quality dimensions, satisfaction dimensions and overall satisfaction with life
insurance services.

1.2 RESEARCH PROBLEMS
Life insurance is designed to provide protection. Life insurance plays an important
role in individuals’ and families’ financial lives both covering the life risk and to
provide economic security to the dependent members of the family. Life insurance
serves as a means to guarantee income and wealth transfer to future generations.
Life insurance allows individuals and families to share the risk of premature death
with many others and to alleviate the financial loss from the premature death of the
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Service Quality and Customer Satisfaction
primary wage earner (Garman & Forgue, 2006). Thus, the main reason for the
purchase of life insurance is to provide financial security for the family.
When society grows, the service of life insurance also constantly increases. Indeed,
even though we live in a civilization and progressive society, and enjoy a
background of modern techniques, but we have to surrender before these threats and

unexpected risks. Life insurance is given to recover and reduce losses caused by
these risks.
It is said that the life insurance is never bought, it is always sold. In life insurance
industry, an insurance policy is almost always sold by an agent who, in 80% of the
cases, is the customer’s only contact (Richard and Allaway, 1993; Clow and
Vorhies, 1993; Crosby and Cowles, 1986). Therefore, customers are likely to place
a high value on their agent’s integrity and advise (Zeithaml et al., 1993). The quality
of the agent’s service and his/her relationship with the customer serves to either
mitigate or aggravate the perceived risk in purchasing the life insurance product.
Clearly, understanding consumers’ expectations of life insurance agent’s service is
crucial as expectations serve as standards or reference points against which service
performance is assessed (Walker and Baker, 2000).
In 1996 marked the launch of the life insurance sector in Vietnam by the Ministry of
Finance allows Bao Viet piloted life insurance activities. After the pilot period, the
Ministry of Finance has licensed orderly for the life insurance business as
Prudential, Manulife, Bao Minh - CMG - Daiichi Life, AIA, Prevoir, ACE Life,
Great Eastern Life, Kerean life, Cathay Life. At present, Vietnam's market has more
than 14 life insurance companies. As predicted, there will be more life insurance
companies licensed to operate in Viet Nam in the future.
Despite of developing in the long time period, but we can see that to date the life
insurance market Vietnam is very small and still in the formative stages, exploit
new markets. According to a survey of Vietcycle by TNS Vietnam made, in 2011,
with a population of 87,8 million people, the proportion of people owning insurance
in Vietnam is quite low, only 6.6%. And only 25% of people in three major cities of
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Service Quality and Customer Satisfaction
Vietnam, including HCM City, Hanoi and Da Nang have has insurance products. If
compared with the demand and market potential, the figure is still very modest.

However, with the source of life insurance premium, the life insurance industry has
provided a large amount of capital to the economy.
There are some researchers have studied about service quality and customer
services in life insurance sector as Authors Masood H. Siddiqui and Tripti Ghosh
Sharma (2010), Paromita Goswami (2007), Ms. Neetu Bala (2011), etc.
Authors Masood H. Siddiqui and Tripti Ghosh Sharma (2010) have studied and
analyzed customer satisfaction with service quality in life insurance at Indian
market. This study indicates six dimensions to measure service quality, they
including assurance, personalized financial planning, competence, corporate image,
tangibles and technology. This study reiterates that life insurance service providers
and managers should also be aware that customer satisfaction is primarily based on
service quality. They should have a clear concept of what constitute customer
satisfaction before they can attempt to measure it and its relationship with service
quality dimensions. So that, quality improvements by management should not just
focus on improving customer satisfaction but also target on improving the
customers’ perception of service quality. This research shows that service quality
dimensions influence customer satisfaction with agents, functional services and
with company. In practical terms, this means that improving service quality
increases satisfaction with agents, functional services and with company, all three of
which ultimately enhance the overall customer satisfaction in life insurance
services.
The author Paromita Goswami, 2007 also researched about customer satisfaction
with service quality in life insurance at Indian market. It concluded that the superior
service quality performance in certain dimensions will provide maximum customer
satisfaction to the life insurance industry in India. He requires life insurers should
emphasis on giving training to the insurance agents and establish the Customer
Relationship

Management.

Proper

Customer

Relationship

Management

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Service Quality and Customer Satisfaction
implementation would not only ensure increased customer satisfaction but also help
in acquiring new customers, at the same time retaining the old customers.
The subject of Ms. Neetu Bala (2011) was “measuring Life Insurance Service
Quality - An Empirical Assessment of SERVQUAL Instrument”. The aim of paper
is to test the reliability and to examine the dimensionality of SERVQUAL
instrument in the life insurance sector. Besides, the study has identified deficiencies
in the specific areas of service quality where concentrated efforts are required to be
made.
Author G.S. Sureshchandar (2002) researched the relationship between service
quality and customer satisfaction - a factor specific approach - in the banking
industry. His study indicates that service quality and customer satisfaction are
different constructs and they are closely related.
However, there is lack of empirical evidence about the relationship between quality
and customer satisfaction in life insurance factor, is an issue for both academics and
practitioners. This study attempts to identify the service quality dimensions which
contribute to the maximum customer satisfaction in the life insurance industry of
Viet Nam. Besides that, it also tries to represent and estimate the interrelated causal
relationships among these perceptual service quality dimensions with the overall

satisfaction with life insurance services. In addition, it has been attempted to
measure the complex and interdependent relationships between service quality
dimensions, satisfaction dimensions and overall satisfaction with life insurance
services.

1.3 RESEARCH OBJECTIVES
A research objective is the researcher’s version of a business problem. Objectives
explain the purpose of the research in measurable terms and define standards of
what the research should accomplish (Zikmund 1997, p. 89). The objective of this
paper is to investigate service quality structure for life insurance and then relative
importance of these service quality dimensions from customers’ perspective, so as
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Service Quality and Customer Satisfaction
to ensure optimal deployment of resources among these dimensions, and thereby
best value to the customers. It represents and estimates the multiple and interrelated
causal relationships among these perceptual service quality dimensions with the
customer satisfaction. It also has been attempted to understand and measure the
complex and interdependent relationships between service quality and customer
satisfaction dimensions in life insurance services. The last objective will be to
determine the significance of the relationship between service quality and customer
satisfaction in the life insurance services.

RESEARCH QUESTIONS
The research problems defined above leads to the following research questions:


What is the relationship between customer satisfaction and service
quality in life insurance services in Viet Nam market?



Are service quality and customer satisfaction two distinct constructs?
If so, are they correlated or not?

Two research variables of the topic:
• Service quality
• Customer satisfaction

1.4. RESEARCH METHODOLOGY AND SCOPE
Primary data is mainly used for analysis. A well structured questionnaire was used
to collect the primary data. The questionnaire was finalized based on the comments
and suggestions given by the insurance employees, development officers, agents.
Secondary data for the study were collected from reputed journals, magazines,
websites and insurance records.
234 policyholders from the six leading life insurance companies in Viet Nam
constitute as sample size for this study. For achieving the goals of this study, certain
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Service Quality and Customer Satisfaction
sampling factors needed to be under control to avoid meaningless data. Therefore, it
was decided that only customers who met the following criteria would be included
in the sample: (1) Purchased at least one policy in life insurance product (whole life
insurance policy and/or an endowment policy) in the past 3 years; (2) Over the age
of 25 (usually younger individuals in Viet Nam have their parents paying for their
bills); and (3) customers live at Ho Chi Minh City.
This study was conducted through two phases:
 Preliminary study: Using qualitative method. This step was carried out by

using group discussion techniques to revise and adjust the model in order to
match content of the research.
 Official study:

Using quantitative method. The survey instrument was a

SERVQUAL type questionnaire relevant to the life insurance sector. Data
were collected by interviewing face to face and sending email to life
insurance’s customers. The purpose of this phase was to re-assess the
reliability of the measurement scales using Cronbach alpha coefficient and
confirmatory factor analysis (CFA). SPSS software version 16 and AMOS
software version 20 were used for data analysis. Chapter 3 will discuss the
methodology for this study in more detail.

1.5 STRUCTURE OF THE STUDY
The structure of the study consist five chapters:
Chapter 1: Introduction
This chapter presents research background, research problems, research objectives,
research methodology and scope, as well as the structure of the study.
Chapter 2: Literature Review
This chapter summary the literature review and present the fundamental ideas on
service quality, customer satisfaction with emphasis on services, as well as the

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Service Quality and Customer Satisfaction
general about life insurance’s market in Viet Nam. This chapter also presents a
research model of the study.
Chapter 3: Research Design

Based on the research objectives and scope, research methodology concerned in
chapter 1, and literature review and empirical model presented in chapter 2, this
chapter particularly presents the research methodology, data, research design and
research process. The aims, the outline and the phases of this study are presented.
Further,

the

sampling

and

survey

administration,

research

instruments,

measurement of variables and statistical software and techniques are detailed.
Chapter 4: Empirical Results of the Research
Chapter 4 presents the characteristics of research samples and measures concepts of
the research. I use descriptive statistics to explore the features of explanatory
variables, as well as the relationship between each variable in the models.
Chapter 5: Conclusions, Recommendations and Limitations
Chapter 5 opens with a summary of findings followed by sections dealing with the
implications of this study. It continues with a section on the limitations of the study
and recommendations for further research. Finally, the chapter ends with a section
outlining the main conclusions of this research.

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Service Quality and Customer Satisfaction

CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION
Chapter 2 summaries the literature review and present the fundamental ideas on
service quality, customer satisfaction, relationship between service quality and
customer satisfaction, as well as the general about life insurance’s market in Viet
Nam. This chapter also presents a research model of the study.

2.2 SERVICE QUALITY
Although services contribute almost 80% to the world’s economy, the arrangement
on the definition of service is yet to be reached. Actually, more than 25 years of
study, scholars in the field of service management do not agree on what a service is.
Service quality takes a prominent position in the marketing management literature.
Before 1983, the definition of quality was defined primarily based on the concept of
quality control with corresponding standards focused completely on achieving
quality. Juran (1974) defined quality as “suitable use”. Crosby (1979) defined
quality as “conformance to requirement”, and assumed the existence of
correspondence between quality and operational standards. Cornell (1984)
considered that the service industry required a broader definition of quality than that
used by the manufacturing industry. Zimmerman (1985) took the quality control
concept of the manufacturing industry and applied it to service quality. Zimmerman
considered the components of service quality, including practicality, replication of
manufacturing ability immediacy, ultimate user satisfaction, and corresponding
standards.

Christian Grönroos (1982, 1984) considers services as products requiring to a large
extent the customer’s involvement in the process of simultaneous production and
consumption. He divides the customer’s perceptions of any particular service into
two dimensions, namely technical and functional quality. He proposes that
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Service Quality and Customer Satisfaction
customers’ expectations for a service are influenced by such factors as traditional
marketing activities by the firm, external influences and word-of-mouth. However,
the Grönroos’ service quality model does not offer explanations on how to measure
the different aspects of service quality, especially technical quality.
Parasuraman et al. (1985, 1988) introduced the American model of service quality,
known as the Gaps Analysis Model or simply the Gaps Model. In the original
model of service quality, they proposed ten dimensions that customers use in
forming expectations and perceptions of service quality, namely tangibles,
reliability,

responsiveness,

competence,

courtesy,

credibility,

security,

communication, understanding, and access. But in the subsequent study of
Parasuraman et al, these ten were later reduced to five through exploratory factor

analysis, including tangibles, reliability, responsiveness, assurance, and empathy.
Parasuraman et al proposed the gap model of service quality that operationalised
service quality as the gap between expectation and performance perception of the
customer. It is viewed as an attitude or global judgment about the overall excellence
of a service, with comparison of expectations and performance as the measuring
tools.
Further, Murfin et al. (1995) developed the service quality model for medical
services. Soteriou and Stavrinides (2000) developed the service quality model for
bank branch in order to optimally utilize its resources. Zhu et al (2002) and Seth et
al (2008) proposed the service quality model highlighting the information
technology-based service options to investigate the relationship between IT-based
services and customer’s perceptions of service quality.
The life insurance industry like many other financial services industries is facing a
rapidly changing market, new technologies, economic uncertainties, fierce
competition and more demanding customers has presented an unprecedented set of
challenges. Life insurance is a professional service characterized by high
involvement of the consumers due to the importance of specific needs, the
variability of products available, the complexity involved in the policies and
processes, and the need to involve consumer in every aspect of the transaction. With
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Service Quality and Customer Satisfaction
liberalization and internationalization in insurance, service quality has become an
important means of differentiation and path to achieve business success. The life
insurance industry has recognized that the quality of services and the achievement
of customer satisfaction are fundamental principles of successful marketing. In
particular, the quality of after sales services leads to customer loyalty, persistency,
cross-selling, and positive word-of-mouth communication. Some insurers define
insurance quality as the insurers’ willingness to compensate sincere customers

(Anderson and Skogh, 2003); some others confuse quality with generosity which is
insurers’ readiness to compensate more than a court would order (Roos, 1981).
In insurance sector, there have been several studies, such as Stafford et al. (1998);
Leste and Vittorio (1997); Westbrook and Peterson, 1998; Mehta et al. (2002);
Evangelos et al. (2004); Goswami (2007); Gayathri et al. (2005); Siddiqui et al.
(2010); Paromita Goswami in India (2007); Ms. Neetu Bala (2011), etc.
A review of the relevant literature also reveals that the principal focus of service
quality research has been twofold: Firstly, the identification of service quality
dimensions being of primary interest to researchers (Parasuraman et al., 1985, 1988,
1991b); and secondly, the development of measurement instruments of service
quality being the focus of subsequent research efforts (Parasuraman et al., 1988,
1991a, 1993; Cronin and Taylor, 1992, 1994; Asubonteng et al., 1996, Buttle,
1996).
However, the most widely used service quality measurement tools include
SERVQUAL (Parasuraman et al., 1988) and SERVPERF (Cronin et al., 1992). The
SERVQUAL scale measures service quality based on difference between
expectations and performance perceptions of customers using 22 items and five
dimensional structures. In the SERVPERF scale, service quality is operationalized
through performance only scores based on the same 22 items and five dimensional
structure of SERVQUAL. SERVQUAL is appreciated by researchers for its robust
and well defined structure. However, some authors found the SERVPERF scale to
outperform the SERVQUAL scale in terms of both reliability and validity. But
SERVQUAL has more and diverse applicability.
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Service Quality and Customer Satisfaction
2.3 CUSTOMER SATISFACTION
Customer satisfaction is commonly considered a prerequisite of customer retention
and loyalty, as well as increased profitability and market share. Nowadays,

achieving customer satisfaction is a important goal for most service companies
(Jones and Sasser, 1995) because it leads to improved profits, word-of-mouth, and
less marketing expenditure (Reichheld, 1996; Yeung et al., 2002). Satisfaction is
not a universal phenomenon and not everyone gets the same satisfaction because the
different customers have different needs, different objectives and different past
experiences that influence their expectations. Therefore, it is important to gain a
clear idea of the customer needs and objectives that correspond to different kinds of
satisfactions. Service firms focus on achieving customer satisfaction and loyalty by
delivering superior value, an underlying source of competitive advantage
(Woodruff, 1997). For service firms, especially life insurance firms, the challenge is
to identify the critical factors that determine customer satisfaction and loyalty.
There are many definitions of customer satisfaction. Customer satisfaction is
generally defined as a feeling or judgment by customers towards products or
services after they have used them (Jamal and Naser, 2003). Customer satisfaction
is a psychological concept that involves the feeling of well-being and pleasure that
results from obtaining what one hopes for and expects from an appealing product
and/or service (WTO, 1985). Davis and Heineke, 1998 proposes that customer
satisfaction in service industries has been approached in two ways; satisfaction as a
function

of

disconfirmation,

and

as

a

function

of

perception.

The

confirmation/disconfirmation paradigm views customer satisfaction judgments as
the result of consumer perceptions of the gap between their expectation and
perception of actual performance (Parasuraman et al., 1994; Oliver, 1981).
Further, Terry G. Vavra, 2002 indicates that satisfaction is a customer’s emotion
response to customer evaluation of the perceived discrepancy between his or her
prior experience with and expectation of product and organization and the actual
experienced performance as perceived after interacting with organization and
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Service Quality and Customer Satisfaction
consuming product. He also shows that customer’s satisfaction will influence their
future reactions toward organization such as readiness to purchase, willingness to
recommend, willingness to pay price without haggling or seeking a lower-cost
providers. Customer satisfaction is defined as an emotional response (Cadotte et al.,
1987), a cognitive response (Churchill and Surprenant, 1982) or as comprised of
both cognitive and affective dimensions (Westbrook and Reilly, 1983). It is also
define as a customer’s process of perceiving and evaluating a consumption
experience (Yi 1991).
While there are a variety of approaches to the explanation of customer
satisfaction/dissatisfaction, the most widely used model of customer satisfaction is
based on Oliver’s (1980) expectancy disconfirmation theory. According to this

theory, customers purchase goods and services with pre-purchase expectations
about anticipated performance. Once the product or service has been purchased and
used, outcomes are compared against expectations. When product/service
performance matches expectations, confirmation occurs. Disconfirmation occurs
when there are differences between expectations and actual performance. Negative
disconfirmation occurs when product/service performance is less than expected.
Positive disconfirmation occurs when product/service performance is better than
expected. Satisfaction is caused by confirmation or positive disconfirmation of
consumer expectations, and dissatisfaction is caused by negative disconfirmation of
consumer expectations.

2.4. THE LINK BETWEEN SERVICE QUALITY AND CUSTOMER
SATISFACTION
Service quality and customer satisfaction play an important role for success and
survival in today’s competitive market. Considerable research has been conducted
on these two concepts. However, there has been some confusion regarding the
difference between service quality and customer satisfaction. Conceptual and

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Service Quality and Customer Satisfaction
empirical overlap between the two concepts has been debated among service quality
researchers (Rust and Oliver, 1994).
Oliver (1981) asserts that satisfaction is a summary psychological state resulting
when the emotion surrounding disconfirmed expectations is coupled with the
consumer's prior feelings about the consumption experience. In an effort to integrate
the service quality and customer satisfaction literatures Oliver (1993) proposed a
model which posits that service quality is formed by a comparison of ideals and
perceptions of performance along quality dimensions, whereas satisfaction is a

function of the disconfirmation of predictive expectations regarding both quality
and non-quality dimensions.
Parasuraman et al. (1988) in essence agree with Oliver's assessment and ascribe
similar criteria to service quality - informing that perceived service quality is a
global judgment like an attitude, whereas satisfaction is encounter specific and thus
more related to individual transactions. They also proposed that the instances of
satisfaction over a time period lead to a perception of general service quality. In the
subsequent study, Parasuraman et al. (1994a) pointed out that conflicting arguments
might result from the holistic focus of research on service quality contrary to
satisfaction research which is mainly based on specific transactions. They proposed
that service quality and customer satisfaction should be examined under both
viewpoints. The prevailing general conclusion is that when the term service quality
is used to refer to a global, long-term attitude about a service provider, then
customer satisfaction is generally recognized as an antecedent of service quality.
Cronin and Taylor (1992) observe that the distinction between satisfaction and
service quality is important to both managers and researchers, in that service
providers must determine whether their primary objective should be to deliver a
high level of service quality to satisfy customers with their performance. They
reported that, in their analysis for the causal relationships between satisfaction,
service quality, and purchasing intentions, the coefficients of the path: service
quality → satisfaction → purchasing intentions were all significant while the ones
of the path: satisfaction → service quality → purchasing intentions were not. On the
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Service Quality and Customer Satisfaction
contrary, service quality researchers tend to consider service quality as a more longterm and general evaluation as opposed to satisfaction which is a transaction
specific assessment.
Bitner and Hubbert (1994) conducted an empirical test to determine whether
customer satisfaction and service quality are separate constructs or, one in the same.

Their study investigated three factors; service encounter satisfaction, overall
satisfaction, and perceived service quality. The conclusion from three separate
factor analyses was that customer satisfaction, associated with individual service
encounters, is interrelated and often highly correlated with both the customers’
overall satisfaction as well as their perceived service quality of a particular service
provider.
Perceptions of quality affect satisfaction for individual transactions and the
aggregate of multiple satisfying service experiences can affect future perceptions of
service quality. The perceived service quality as an antecedent to satisfaction model
had the better fit, thus indicating the causal direction to be a perceived service
quality – customer satisfaction. Once this relationship is established, satisfaction
will not remain constant, even decrease because the increase in large part of
customers in expectations over time. So, continual improvements in service quality
performance must be made for satisfaction to increase as well.

2.5 LIFE INSURANCE IN VIET NAM
In 1996 marked the launch of the life insurance sector in Vietnam by the Ministry of
Finance allows Bao Viet piloted life insurance activities. At present, Vietnam's
market has more than 14 life insurance companies. As predicted, there will be more
life insurance companies licensed to operate in the future.
With the accession of the foreign life insurance companies, the life insurance
market in Vietnam has strong growth in size, product, service quality and

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Service Quality and Customer Satisfaction
professionalism. Some interesting figures and information in 2011 as follows
(source: Association of Vietnamese Insurers):
The number of contracts: The number of new contracts reached 880,928 contracts

(major product), up 7%. The number of reinstatement was 84,538 contracts,
increased 15% over the same period last year. The total number of valid contracts is
4,459,771 contracts (primary products), up 5%.
Amount of insurance: The total level of responsibility that life insurance
companies holding is 465 thousand billion VND, up 24% over the same period last
year. In which, the responsibility of the primary products reached 343 trillion VND,
up 35%, the responsibility of the rider products reached 122 trillion VND, up 7%.
Revenue premium: Yearly premium for the first year reached 4,565 billion VND,
up by 23.5%. Total premiums of new contracts reached 4, 617 billion, up 23%
compared with 2010. The total premiums in the life insurance market were 16,025
billion, up 16.2%. Life insurance market also showed a clear differentiation. The
number of new contracts increased at a low level, the premiums increased at a high
level. This showed that the life insurers also concentrated to design the products
with high value, big par value and high premiums to offer into the market.
Payment of insurance: The total amount that life insurance companies paid
benefits to customers in 2011 was 6029 billion VND. Total reimbursement amount
is 2379 billion VND.
The number of agents: The total number of agents in the life insurance market was
202,956 people, up 25%. The number of new agents was 134,106 people, up 24%.
Despite of developing in the long time period, but we can see that to date the life
insurance market Vietnam is very small and still in the formative stages, exploit
new markets. According to a survey of Vietcycle by TNS Vietnam made, in 2011,
with a population of 87, 8 million people, the proportion of people owning
insurance in Vietnam is quite low, only 6.6%. And only 25% of people in three
major cities of Vietnam, including HCM City, Hanoi and Da Nang have has

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