FACTORS AFFECTING CUSTOMER RETENTION IN INSURANCE INDUSTRY.

A
CASE STUDY OF BRITAM INSURANCE AND INVESTMENT GROUP, THIKA

CHEGE WACHUI SARAH

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF MANAGEMENT

AND LEADERSHIP IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR
THE AWARD OF THE DEGREE OF BACHELOR IN MANAGEMENT AND
LEADERSHIP OF MANAGEMENT UNIVERSITY OF AFRICA.

AUGUST 2019
 DECLARATION

Declaration by the Student

This research study is my original work and has not been presented for a degree in any other
university.

Signature..................................... Date: ..............................

Sarah Wachui Chege

ODL-BML/8/00356/1/2016

Declaration by the Supervisor

This proposal has been submitted for examination with my approval as University Supervisor.

Signature: ....................................... Date: .....................................

Dr. Isabella Sile

MANAGEMENT UNIVERSITY OF AFRICA

ii
 DEDICATION

This research project is dedicated to my family for their encouragement throughout my study.

iii
 ACKNOWLEDGMENTS

This research project has been possible owing to the support of several persons that I wish to
acknowledge. I would like to appreciate my supervisor Dr. Isabella Sile for her valued advice,
guidance, patience, and encouragement throughout the entire period. I would also like to
thank the Management University of Africa for granting me the opportunity to undertake my
studies at the institution and for the exhilarating intellectual discourse during the entire period
of my studies. I also extend this gratitude to my classmates and friends for all their support
and understanding during the period. Lastly, I would like to thank the management and staff
of Britam Insurance and Investment Group, Thika Branch for their support and cooperation
during my research work.

iv
 TABLE OF CONTENTS

DECLARATION................................................................................................................ii
DEDICATION....................................................................................................................iii
ACKNOWLEDGMENTS..................................................................................................iv
LIST OF TABLES............................................................................................................vii
LIST OF FIGURES..........................................................................................................viii
ACRONYMS AND ABBREVIATIONS .........................................................................ix
OPERATIONAL DEFINITION OF TERMS.................................................................x
ABSTRACT.......................................................................................................................xi
CHAPTER ONE…………………………………………………………………………1

INTRODUCTION ………………………………………………………………………1
1.0 Introduction....................................................................................................................1
1.1 Background of the Study...............................................................................................1
1.2 Statement of the Problem..............................................................................................4
1.3 Objectives the Study......................................................................................................5
1.4 Research Questions........................................................................................................5
1.5 Significance of the Study...............................................................................................5
1.6. Limitations of the Study................................................................................................6
1.7 Scope of the Study.........................................................................................................6
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction....................................................................................................................8
2.1 Review of Theoretical Literature...................................................................................8
2.2 Empirical Review..........................................................................................................10
2.3 Summary .......................................................................................................................22
2.4 Conceptual Frameworks................................................................................................23
2.5 Operationalization of variables……………………………………………………......25

v
CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.0 Introduction..................................................................................................................26
3.1 Research Design...........................................................................................................26
3.2 Target Population.........................................................................................................26
3.3 Sampling Design..........................................................................................................26
3.4 Data Collection Methods and Instruments...................................................................27
3.5 Reliability and Validity................................................................................................27
3.6 Data Analysis Methods and Procedures.......................................................................28
CHAPTER FOUR
DATA ANALYSIS PRESENTATION AND INTERPRETATION OF FINDINGS
4.0 Introduction.................................................................................................................30
4.1 Presentation of Findings.............................................................................................30
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction................................................................................................................49
5.1 Summary of Findings................................................................................................49
5.2 Conclusions...............................................................................................................50
5.3 Recommendations.....................................................................................................50
5.4 Suggestions for Further Study...................................................................................51
REFERENCES.................................................................................................................52
APPENDIX I: LETTER OF INTRODUCTION..........................................................55
APPENDIX II: RESEARCH STUDY QUESTIONNAIRE.........................................56

vi
 LIST OF TABLES

Table 4.1: Response rate………………………………………………………………....30

Table4.2: Gender of respondents…………………………………………………….......31

Table 4.3: Age bracket of the respondents…………………………………………........32

Table 4.4: Highest level of education…………………………………………………....33

Table 4.5: Years of Experience in the Insurance Industry………………...........……….34

Table4.6: Whether cost affects customer retention in the insurance industry……..........35

Table 4.7: Analysis on how cost affects customer retention in the insurance industry....36

Table 4.8: The extent cost affects customer retention in the insurance industry..............37

Table 4.9: Whether relations affect customer retention in the insurance industry...…....38

Table4.10: How relations affect customer retention in the insurance industry................39

Table 4.11: The extent relations affect customer retention in the insurance industry......40

Table 4.12: How communication affects customer retention in the insurance industry...42

Table 4.13: Importance of communication on customer retention in the industry……...43

Table 4.14: How communication affects customer retention in the insurance industry...44

Table 4.15: Whether service delivery affects customer retention in the industry.............45

Table 4.16: How service delivery affects customer retention in the insurance industry..46

Table 4.17: How service delivery affects customer retention in the insurance industry..47

vii
 LIST OF FIGURES

Figure 2.1: Conceptual framework………………….………..………………..................24

Figure 4.1: Response rate…………………………………………………………….......30

Figure 4.2: Gender of respondents………………………………………..………….......31

Figure 4.3: Age bracket of the respondents…………………………………………........32

Figure 4.4: Highest level of education………………………………….…………...........33

Figure 4.5: Years of Experience in the Insurance Industry…………………………….....34

Figure 4.6: Whether cost affects customer retention in the insurance industry……….....35

Figure 4.7: Analysis on how cost affects customer retention in the insurance industry.....36

Figure 4.8: Extent that cost affects customer retention in the insurance industry …….....37

Figure 4.9: Whether relations affect customer retention in the insurance industry……....39

Figure 4.10: How relations affect customer retention in the insurance industry……........40

Figure 4.11: Extent that relations affect customer retention in the insurance industry…..41

Figure 4.12: Whether communication affects customer retention in the industry.............42

Figure 4.13: Importance of communication on customer retention in the industry...........43

Figure 4.14: Extent communication affects customer retention in the industry................44

Figure 4.15: Whether service delivery affects customer retention in the industry............45

Figure 4.16: How service delivery affects customer retention in the insurance industry..46

Figure 4.17: Extent that service delivery affects customer retention in the industry….....47

viii
 ACRONYMS AND ABBREVIATIONS

ECT Expectation-Confirmation Theory

GDP Gross Domestic Product

IT Information Technology

IFIU Insurance Fraud Investigation Unit

LTV Lifetime Values

ROI Return On Investment

SDT Self-Determination Theory

ix
 DEFINITION OF TERMS

Customer Retention Refers to the activities and actions companies and organizations
take to reduce the number of customer defections.

Customer Relation Refers to the relationships that a business has with its customers
and the way in which it treats them.

Communication Refers to the imparting or exchanging of information by

speaking, writing or using other media.

Cost Refers to an amount that has to be paid or spent to buy or obtain

something.

Service Delivery Refers to the act of providing services to customers.

x
 ABSTRACT

This study was done with the main purpose being to investigate the factors affecting customer
retention in the insurance industry. The objectives of the study were to determine how cost,
relations, communication and service delivery affect customer retention in the insurance
industry. The government and other institutions involved in the country's policy formulation
cannot overlook the insurance sector as one of the major contributors to the country's GDP.
The findings from this study will, therefore, be of importance because they will be effectively
used to develop and create good fiscal policies which are relevant and sensitive to the forces
influencing the insurance sector performance and penetration in Kenya. To insurance
company management the realization that insurance business is one of the highly competitive
businesses locally and globally calls for a respective marketing department to adapt properly
formulated customer retention strategies for performance improvement and thus the success
of the company. To the insurance companies in the country, this study's findings will be of
great importance because through them, these firms will be better positioned to gauge their
performance and make improvements where necessary to boost their market performance and
overall ranking in the industry. The management will be better positioned in decision-making
process based on the understanding of what customer retention strategies they need to adopt
for their business and effectively deliver value to its policyholders. To those who have the
scholarly interest in the marketing of insurance companies and overall financial sector, this
study will provide a source of reference; literature review and basis upon which further
studies can be developed. Descriptive research design was used in the study. The study
targeted 70 employees of Britam Insurance and Investment Group, Thika Branch. Stratified
sampling technique was used to select a sample of 35 respondents. Data was edited, classified,
coded, tabulated and presented using tables, pie charts and graphs then analyzed using
Microsoft Excel. Findings indicated that 60% of the respondents agreed that cost to a very
large extent affects customer retention in the insurance industry, 24% said it affects to a large
extent, 13% to a moderate extent, 3% to a low extent and none to a very low extent. 58% of
the respondents agreed that relations to a very large extent affects customer retention in the
insurance industry, 27% said it affects to a large extent, 15% to a moderate extent, none to a
low extent and none to a very low extent. 55% of the respondents agreed that communication
to a very large extent affects customer retention in the insurance industry, 30% said it affects
to a large extent, 15% to a moderate extent, none to a low extent and none to a very low
extent. 52% of the respondents agreed that service delivery to a very large extent affects
customer retention in the insurance industry, 33% said it affects to a large extent, 15% to a
moderate extent, none to a low extent and none to a very low extent. Insurance companies
need to provide products with a favorable cost. This is a cost that enhances customer retention
due to customer satisfaction. Insurance agents also need to create a good relationship between
their company and the customers which will enhance customer welfare since the customers
will be able to express their views on products and services provided. The management of
insurance companies also needs to provide an effective communication strategy in their
organization and toward their customers which will lead to enhancing customer retention.

xi
 CHAPTER ONE

INTRODUCTION

1.0 Introduction

In this chapter, the background to the study, statement of, the objectives of the research,
research questions are to be presented. The significance of the study, the scope and the
limitation of the study have been discussed.

1.1 Background of the Study.

According to Sajeev (2007), customer retention refers to the activities and actions
companies and organizations take to reduce the number of customer defections. High
customer retention can thus be described as having clients of a particular product or
business constantly return to and use the business product or service, and not leave to go
to another enterprise or desert the current one entirely. On the agenda of many
organizations, therefore, is to find a way to reduce customer defections. A key way to
achieve this is to pay large attention to the first contact that a company has with a client
and to ensure that a good rapport is maintained throughout the business and customer
relationship. For customer retention to occur, therefore, it is necessary that these positive
efforts are maintained throughout their lifecycle. To retain customers, a company has to
ensure that it meets the clients’ needs by providing suitable and quality products and
services. This is not the only way, though, since in addition to this the company has to
identify exactly how the services are provided to the consumers, what benefits will a
customer obtain from investing in a company’s solutions and what kind of a reputation
the organization will or already has in the marketplace.

A lot of insurance agencies represent different products such as home, life, auto, business
and health insurance. Insurance companies thus make profits by providing these
insurance policies to clients and collecting premiums from consumers. They also pay out
policy claims when necessary. Customer retention is thus quite necessary for these
companies as it not only enables them to earn profits but also boosts their reputation, thus

1
attracting new customers and reducing advertising and marketing costs. Insurance
companies frequently feel like they are huge bodies without a personal connection with
their customers, mainly due to the fact that their consumers mainly interact with their
agents and representatives through means such as telephone or email. This personalized
interaction is required for customer retention. Companies can therefore increase retention
rates by improving this interaction through, for instance, assigning a single agent to a
single customer, which will grant the consumer the freedom to talk to them anytime they
can and air any concerns and issues concerning their policy and coverage options.
(Oliver, 2007).

Richard (2007) argues that another way in which insurance companies can potentially
increase retention rates is by giving clients who have invested in multiple policies with
the company certain discounts. For example, given a client who has a life, health and auto
insurance with a company, the customer is more than likely to renew their contracts if
given a discounted, affordable offer, as compared to customer who only has health
insurance, for instance. Encouraging customers to invest in more than one insurance
policy is an effective way of enhancing customer retention as it will help them to save
money. Moreover, customers with bundled policies in one company will most probably
stay there as they want to avoid the hassle of starting all over again with a different
insurer. This is based on the fact that many consumers have been troubled by some
companies who have given the consumers a hard time in filing and collecting their
claims. Customers will thus try all they can to avoid such situations.

A customer who experiences difficulty with a company either when they deny him or her
legitimate coverage or who has to struggle to get the benefits due to him may be more
likely to seek coverage through another agency in the future. To ensure the best
experience for your customers, ensure that you pay policy proceeds on qualified claims
quickly in order to help maintain a good relationship with the client. They may also have
difficulty understanding insurance jargon, therefore, take the time to educate clients about
their benefits, rights, and responsibilities, and be open and patient to answering questions
at any time, but particularly during policy renewal talks. Always update your clients on
any insurance industry changes that might have an impact on them and inform them

2
about rate changes and the advent of new products that may benefit them. This kind of
personal and quality service will help sustain your relationship for a very long time.
(Roland, 2007).

Judy (2003)says that loyalty plays a huge role in ensuring customer retention with
research finding that over half of consumers, (55%) regard loyalty schemes as one of the
most important things that they consider when deciding whether or not to stay in a
particular company. Unfortunately, nine in ten people are not aware whether their home
and motor insurance providers offer such programs. With the constantly changing
insurance landscape, the research points out that a lot of insurance companies could be
losing a lot of loyal customers while at the same time being unable to get new ones
mostly by not engaging in an effective retention and loyalty program. Insurance
companies should consider rewarding their loyal customers in this competitive market so
as to boost retention. Going this extra mile will help to maintain customer trust and then
avoid losing them for good.

These rewards given to customers should offer them a lot of benefits and should be quite
easy to use. One easy way to do this is by using a loyalty scheme such as the use of
points which can be easy to redeem and grant them various beneficial benefits. It is
important the customer sees a selection of rewards from which they can choose from
depending on personal taste. The driving force behind such a loyalty program should be
customer demographics, budget and program objectives. This will ensure that the
customer will be as satisfied as possible. Most importantly, they must be relevant to the
audience and something they really do want in order to keep their interest and stop them
from straying to your nearby competitor. (Burnham, 2003).

Thomas (2003) states that if companies are not careful, these loyalty schemes can end up
being boring or provide a sense of entitlement to the customer. This is based on the fact
that the only way that the rewards can be effective is by ensuring that the loyalty program
is in constant use, which, unfortunately, can cause the customer to get used to the idea
and become easily bored and disengaged. To prevent this, it is important that a reward
scheme does not become too familiar. This can be achieved by regularly changing the

3
program, using new program launches, changing the looks and just constantly ensuring
that there is something new for the customer. The key is to use the element of surprise,
which will always keep customers eager and expecting, and thus stay with the
organization. This will be a powerful tool to improve the value of the company and
ensure customer retention.

1.2 Statement of the Problem

Like any other industry, the insurance industry has undergone a lot of changes, some of
them being financial reforms, advancement of technology and economic development.
Those changes have had a considerable effect on efficiency, productivity change, market
structure and performance in the insurance industry. The stiff competition for the market
has led to many companies engaging in price wars leading to some insurers charging
unsustainable premiums. This has compromised service delivery as the insurers are not
able to fund infrastructure for efficient delivery of services and claims settlement.

In regard to the above challenges, insurance firms have to formulate competitive

intervention strategies for each to have a credible market share. Some of the strategies in
place to address the challenges the industry faces include: develop insurance sector image
management strategy; improve Insurance Fraud Investigation Unit (IFIU) visibility and
insurance companies to set clear fraud detection strategies; set intermediaries
development strategy and enhance insurance brokers' disclosure requirements; deepen
insurance consumer awareness and public education measures; enhance innovativeness in
product development and marketing; consolidate regulations, encourage compliance and
enhance enforcement. Lastly, to address the issue of low consumer demand, insurance
firms should improve the overall customer service and have a focus on strategy for
increasing customer retention ratio. Customer service is driven by organic renewal
growth strategy, customer needs focus and increased customer personal contact will
address the challenge of low market penetration.

4
1.3 Objectives of the Study

The main objective of the study was to investigate the factors affecting customer
retention in the insurance industry.

1.3.1 Specific Objectives

The specific objectives of the study were;

i. To determine how cost affects customer retention in the insurance industry.

ii. To establish how relations, affect customer retention in the insurance industry.
iii. To investigate how communication affects customer retention in the insurance
industry.
iv. To determine how service delivery affects customer retention in the insurance
industry.

1.4 Research questions

The following research questions guided the study;

i. How does cost affect customer retention in the insurance industry?

ii. To what extent do relations affect customer retention in the insurance industry?
iii. How does communication affect customer retention in the insurance industry?
iv. What is the effect of service delivery on customer retention in the insurance
industry?

1.5 Significance of the Study

The government and other institutions involved in the country's policy formulation
cannot overlook the insurance sector as one of the major contributors to the country's
GDP. The findings from this study will, therefore, be of importance because they will
have the capacity of being used to formulate positive fiscal policies which are relevant
and sensitive to the forces influencing the insurance sector performance and penetration
in Kenya.

5
To insurance company management the realization that insurance business is one of the
highly competitive businesses locally and globally calls for a respective marketing
department to adapt properly formulated customer retention strategies for performance
improvement and thus the success of the company. To the insurance companies in the
country, this study's findings will be of great importance because through them, these
firms will be better positioned to gauge their performance and make improvements where
necessary to boost their market performance and overall ranking in the industry. The
management will be better positioned in decision-making process based on the
understanding of what customer retention strategies they need to adopt for their business
and effectively deliver value to its policyholders.

To those who have a scholarly interest in the marketing of insurance companies and
overall financial sector, this study will provide a source of reference; literature review
and basis upon which further studies can be developed.

1.6 Limitation of the Study

Some questionnaires were left blank by some respondents. This put the researcher in a
position of not being able to deduce her position concerning the issues raised in the
questionnaire. The researcher assured respondents that the information was treated with a
lot of confidence. Some of the questionnaires were not returned thus the information
needed was not obtained. A reminder letter was written to respondents to remind them
about unreturned questionnaires. I persisted that the questionnaires be returned by
continuously reminding them. The management was not very cooperative because they
were suspicious that the research was used on their company by their competitors. The
researcher gave them an assurance that the information they gave was treated with the
ultimate confidence and used for academic purpose only.

1.7 Scope of the Study

The study focused on the factors affecting customer retention in the insurance industry.
The study was carried out in Kiambu County, Thika Offices. The following sub-topics
were used during the review. They include cost, relations, communication and service

6
delivery. The study targeted 70 employees. Stratified sampling technique was used to
select a sample of 35 respondents. The research was carried out between March 2018 to
May 2018.

7
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter contains the reviewed literature on the factors affecting customer retention
in the insurance industry. The following sub-topics will be used during the review. They
include cost, relations, communication and service delivery. Critical review and summary
of the gaps will be identified. Finally, the conceptual framework of study will be
presented.

2.1 Theoretical Review

Theories can be defined as statements formulated to explain, predict, enable one to

understand a certain phenomenon or occurrence, and, often, to challenge and add existing
knowledge within the limits of bounding assumptions. This particular research discusses
the following two research theories which are related with the study, which include,
Expectation Confirmation Theory and Self Determination Theory.

2.1.1 Expectation-Confirmation Theory (ECT)

The ECT has been widely used in consumer behavior literature studying satisfaction;
repurchase behavior, and services marketing. Oliver (1980) described the process by
which consumers reach their repurchase intention. The ECT framework proposes that
consumers form an initial expectation about the service, the service is accepted and used,
consumers perceptions are formed about its performance. The perceived performance of
the service is then assessed based upon their initial expectation to determine whether their
expectation was confirmed, they form a satisfaction or affect based on their confirmation
and expectation levels, and satisfied consumers form a repurchase intention or
dissatisfied consumers discontinue use of the service. Findings from the research of ECT
show that customers base their repurchase intent or service continuance upon their
satisfaction with the prior use of the service or product.

8
Bhattacharjee (2001) discussed a potential problem with ECT; first, ECT ignores the
potential for consumers to change their expectation after their consumption experience.
Since consumers pre-purchase expectations are often formed by other's opinions or
information shown from outside sources such as the media, they may vary from their
post-purchase expectation formed by the actual experience of the consumer firsthand. For
example, post-purchase expectations may be enhanced if consumers discover the product
or service has benefits beyond their initial expectations. However, their post-purchase
expectations may be lowered if the product or service is found to be less useful. These
changes can be explained by the self-perception theory which states that individuals
continually adjust their perceptions, or expectations, as they acquire new information
about loyal behavior.

2.1.2 Self-Determination Theory (SDT)

The second theoretical underpinning for this study is the self-determination theory. Self-
determination theory is being used increasingly to study motivation. SDT distinguishes
among three types of behavioral regulation with varying degrees of self-determined
motivation: intrinsic motivation, extrinsic motivation, and motivation. Intrinsic
motivation is the highest level of self-determined motivation and refers to situations
where individuals freely engage in activities they find enjoyable. Extrinsic motivation is
seen when individuals take part in an activity because they value the outcomes (rewards,
praise, etc.) more than the activity itself. Lastly, motivation represents the absence of
motivation when individuals lack the willingness to engage in a specific behavior. Social
factors can impact the types of motivation from the satisfaction received through the
fundamental human needs of competence, autonomy, and relatedness. Various types of
motivation can predict behavioral outcomes; intrinsic motivation predicts the most
positive outcomes, whereas motivation predicts the most negative outcomes (Vallerand,
1997).

A recent study by Lin, Tsai, and Chiu (2009) is one of the earliest to link expectation-
confirmation theory and self-determination theory when studying loyalty. It also
translates the self-determination theory from its usual use in educational services to the

9
commercial service industry. This research study obtained data from 207 part-time
students who had previously acquired services from a salon in Taiwan. The results of this
study show that loyalty is positively influenced by intrinsic motivation and service
expectation; service confirmation positively influenced all four dimensions of self-
determined motivation. These findings show that the proposed model helps to learn about
loyalty formation in service settings.

2.2 Empirical Review

Empirical review establishes the baseline for current knowledge on the topic of an article,
thesis or dissertation. In the literature review, the author presents published data, quotes,
and summaries from articles to show the current state of knowledge, and to create a
narrative for what comes next in the paper - a summary of the author’s original study and
analysis.

2.2.1 Cost

According to Francis (2001) cost refers to an amount that has to be paid or spent to buy
or obtain something. All the customers are always cost sensitive and concentrate
basically to buy products at cheap rates. However, cost sensitivity of a customer
substantially depends on the condition of the market. For example, if a product becomes
extraordinarily famous and demanding in the market and every company is tending
towards capturing this product then it becomes necessary to focus on technological
aspects rather than focusing on the cost. If they do so then the cost sensitivity of these
customers is least. Similarly, if a product becomes common in the market due to
emerging competitors coming up with similar but more prominent products, then in this
competition the value of the product decreases and the companies become rarely bothered
for them. In this scenario, the customers have the right to become highly cost sensitive as
they know that they can negotiate with the suppliers to a greater extent. This is when the
customers are called as high-cost sensitive customers.

It is important for the suppliers to understand how cost sensitive the customers are; so
that they should focus on some strategies always to keep their customers falling under

10
least price sensitive stage. For example, reducing one dollar on a towel’s price could put
that towel on sale and everybody rushes to buy it, but reducing one dollar on a car will
not make any difference and will not attract customers by any means. Hence the primary
challenge for all the organizations should be making certain that the change in price is
perceptible for all the customers. Price sensitivity strategy for suppliers also depends on
customer usage of products. There can be two categories of customers as per the buying
aspect; heavy buying users and light buying users (Buttle,2001).

Rizal (2001) argues that knowing about the customer's price sensitivity always helps
suppliers to entertain and satisfy them. If the customer is highly competitive and
perceives short-term projects, then it is not worth for suppliers to convince them for high
end or expensive products. The customer will anyway supercharge to reduce the cost or
cut the related frills as it may not be affordable or is out of budget for them to purchase.
So it is important for suppliers to sacrifice on cost or else he may leave the customer
unsatisfied, in the worst case he may lose that customer also. Making fruitful strategies
and positive analyzing cost sensitivity is one of the most important challenges that an
organization could face. On the other hand, it is desirable to deal efficiently with it. The
best practice is to re-evaluate the customer needs and make a fair offer to them according
to their requirement and budget.

Customer acquisition and customer retention are two metrics used mainly to determine
the return on investment (ROI) for efforts to monetize consumers. Both are essential
numbers to track since they will show shifts in the market or problems with a marketing
plan. The numbers are different in a few ways. Customer acquisition is the cost of
converting a person into a paying customer. Determining the cost of acquisition requires
dividing all expenses dedicated to acquisition by the number of new customers acquired
over the same period. Acquisition expenses include marketing, promotions like discounts,
labor and any advertising targeted at non-existing customers. High customer acquisition
numbers could indicate demographic shifts, ineffective marketing or problems with core
products and services (Ahmad, 2001).

11
Ayimey (2013) says that customer retention is the cost of keeping an existing customer
purchasing. Calculating retention costs is not easy. There is no commonly accepted
formula. Retention figures can be calculated using total purchases over a period mitigated
by retention expenditures, churn, acquisition costs and general overhead. Customer
retention directly affects lifetime values (LTV). High retention costs lower margins and
profits since each subsequent purchase is actually worth less overall. Every business
needs to balance acquisition and retention costs. The acquisition is important to draw in
new consumers and expand the base. Retention is normally less costly and builds loyalty
and the brand. Retention also often relies on far less price sensitivity from customers so
that the long-term costs are recouped through sales. It is essential to track the ROI for
both customer acquisition and customer retention. Poor ratios in either area are strong
indicators that more research is necessary to see what is changing in the market or what is
happening in the business.

Optimove combines predictive customer modeling and advanced multi-channel campaign

automation technologies to help businesses maximize customer loyalty, retention and
lifetime value. Contact us today – or request a Web demo – to learn how you can use
Optimove to acquire more customers, increase spending of existing customers and reduce
customer churn. Setting your prices right and retaining customers can be hard. However,
get your pricing strategy right and you’ll be able to see both improved customer retention
and increased revenue. More and more companies are realizing the importance of
retaining existing customers rather than focusing entirely on acquiring new ones.
Customer loyalty marketing is playing an even stronger role in corporate strategy.
Today, almost every industry offers a variety of loyalty schemes aimed at differentiating
themselves from competitors (Fornell, 2002).

Rao (2000) states that the lack of differentiation amongst benefits has made many loyalty
programs within an industry almost interchangeable and consequently loyalty programs
are losing their competitive edge. This is why the newer, value-oriented customer loyalty
programs attempt to establish an emotional relationship between company and customer
to create long-term loyalty. The main difference between value-oriented customer loyalty
programs and the historic loyalty programs is that they do not focus solely on simple

12
discounts but rather offer a powerful package of advantages consisting of hard and soft
benefits (i.e., financial and non-financial). The success of any loyalty program depends to
a large extent on the quality of the benefits on offer – and in order to be successful, they
should have a high perceived value from the customer’s perspective.

While discounts still have a high value for most customers (after all, everyone enjoys
saving money) they do not in themselves create loyalty. Long-term retention can only be
established on an emotional level. Customer loyalty must be earned over time with good
value for money, superior products or services, and through the shining integrity of your
company. You will be all too aware that giving discounts is really giving away your
profit with no certainty that any increase in sales volume will compensate for the discount
awarded. Smarter businesses use more sophisticated pricing methods that make
customers earn discounts rather than simply give them away (Brah, 2000).

2.2.2 Relations

According to Kumar (2003), customer relation can be defined as the interactions that a
business maintains with its clients and the manner in which it treats them. The number
one aspect of success in retail is and always has been customer satisfaction.
Unfortunately, the insurance sector hasn't picked up on this as well as they should have.
As such, a lot of the customers have had bad experiences and as a result, they have had a
negative perception of the industry in that area. Insurance is necessary, and it is thus
important for the industry to change and adapt its policies in dealing with their customers
so that the currently broken circle of trust between the consumers and the insurance
companies can be rebuilt. Insurance companies should give customers freedom to select
what they want and eventually grant them the chance to create their own customized
plans according to their own terms. This will give people a sense of control over what
they are investing in.

The rising expectations of customers have forced the insurance sector to introduce more
and more new customer relationship management initiatives as it has got a serious impact
on the sale of the insurance products, while the technological advances and decreasing

13
costs of technology have reduced barriers to adopting IT-based customer relation
initiatives. As the profitability of the insurance sector is mainly depend on the services it
offers and on meeting the customer demand on a regular basis, this suggests that a good
customer relation initiative must be the foundation of the insurance sector. The major
burden the industry faces is obtaining and keeping clients. This is due to the fact that it
has become increasingly difficult for this particular sector to gain profits while curtailing
costs (Reinartz, 2003).

Werner (2003) argues that worldwide, especially developed countries are characterized
by a stable insurance market with low growth potential and a high degree of
competitiveness, the focus in these areas being on creating and managing a portfolio of
profitable customers and maintaining it. The adopted strategies take into account
improving after-sales services (particularly in the field of damage management and
complaint resolution) and to develop attractive and complex product packages that
closely match the customer requirements. In this regard, an important role belongs to the
implementation of the customer relationship management concept in the insurance
industry. Compared to this situation, in the Central and Eastern European countries,
which have their insurance market in a developing stage, strategies are mainly focused on
attracting more customers (due to the important insurable potential) by developing
insurance products as accessible as possible and less on completely meeting the need for
insurance.

Insurance companies always have the upper hand of control in the business because
despite the fact that customers get to choose what they want or need, they cannot go
beyond the company rules and policies. This is a practice in customer satisfaction which
is often neglected in favor of the short-term goal of getting customers to invest as much
as possible. The approach, rather, should instead be on building a business reputation
which describes the company as open and flexible to accommodate all individuals.
Insurance companies need to get out of the non-premium income models as selling
customer data to generate added revenue is not acceptable to most customers. The entire
claiming process has to change and be less complicated especially in the area of customer

14
care services which is substandard. It is believed by industry experts that the introduction
of apps for smartphones that can assist buyers is the way to go (Roland, 2003).

Rust (2003) says that in motor insurance, for example, assessment applications are
gaining popularity. These are used to effectively assess the damage instantly before
deciding whether a claim would be wise, thus preventing the need for an engineer to
come on the spot and do the same. This saves time, resources and cost for both the
consumers and the insurer. This brings us to the most important aspect of improving
customer experience in the insurance sector; the service. Regardless of the kind of
insurance that a person has signed up for, the company must ensure that the customer gets
the best polite and helpful service. In that time of need, the customer should feel that the
company is a body that they can trust, which has the genuine intent to guide the customer
and meet their need of fulfilling a claim that it legitimate.

If a customer does not receive this kind of good service expected from their insurer, then
there is nothing stopping them from finding another company or business to get them
what they need. It is of utmost importance that a company does not let this happen, but,
instead, with the help of technology and a customer-oriented attitude, change their
perception in the eyes of the customer to a positive one. This process will take time as the
whole customer relation constitutes a wide range of activities starting with the
segmentation of customers in the database and actively acquiring new customers and
retaining the existing ones. Therefore, customer relation is not just a technology but
rather an intelligent system, a customer-centered approach to the organization's
philosophy in dealing with its customers. (Valarie, 2006).

Gupta (2006) states that for fair and effective customer segmentation, the customer
database needs to be quite rich in information. This includes demographic information,
information on lifestyle, family, needs, and preferences. The challenge for most
organizations is to collect this data given that the normal process of selling and carrying
out services collects very little information of this kind. In general, the segmentation and
analysis activities applied to the insurance products portfolio, according to customer
types or objectives types, in terms of gross written premiums, earned gross premiums,

15
premium reserves, paid indemnities, claim reserves are made in the Actuary Direction.
Any insurance company has in its structure an entity of this kind. The actuarial calculus
activity materialized in certain specific reports, depends heavily on the complexity and
performance of the IT system.

The actuarial calculation activity is closely related to the underwriting activity, having a
very strong technical character. Overall, the actuarial calculation activity primarily
involves collecting statistics on the probability of the insured damage to occur within the
specific category the insured objective belongs to. In life insurance, this task is not
complicated at all consisting of predictions of the mortality rate by age, combined with
other factors such as sex, occupation, smoking, etc. In non-life insurance, the
classification of the insured objectives involves a more complex activity due to the
diversity and the multitude of technical characteristics (Sunil, 2006).

2.2.3 Communication

According to Eugene (2000) communication refers to the imparting or exchanging of

information by speaking, writing or using another medium. Customer service and brand
loyalty go hand-in-hand. A consumer's experience can make the difference in where they
shop and how much money they spend, but most importantly, how often they come back
and how many friends they refer. When employees aren't treated fairly or don't receive
the training and support they need to be successful in their jobs, it often shows in the way
they treat customers. It's not hard to tell a company's business structure and gauge how
many healthy workplace practices they have in place just from interacting with their
employees. Happy employees lead to happy customers, which leads to more happy
customers.

Most people prefer to shop where they are comfortable and know they will receive
reliable service. A majority will even pay more for it. Organizations, retailers, and brands
that create a loyal following have customers who praise them openly and drive business
their way, for free. And with such abundant online reviews, blogs and rating sites,
customers who are not happy with the services or products they receive have many
avenues to share their woes. This goes for employees too. Treat employees well and they,

16
in turn, will treat customers well. Take care of employees and they will make the
organization's mission their own. Failing to communicate and leaving your customers in
the dark can have unintended consequences, much like that of an organizational leader
who changes direction without involving employees (Anderson, 2000).

Mittal (2000) argues that change is hard. People need time to adjust. Communicating
change and direction, especially changes that involve money is a big part of customer
service. Failing to communicate also hits at the heart of reliability and trust, and once you
lose customers’ trust, it’s hard to gain back. The same goes for the employees who you
trust with running your day-to-day operations. Including a communication strategy in
your overall business plan is essential to sustaining a loyal following, whether it’s your
employees or your customers. For most insurance companies, effective communication is
imperative in maximizing business. Poor communication can lead to major sources of
conflict, including professional misunderstandings, loss of trust, reduced cooperation,
personal attacks in the professional sphere and client mismanagement. Additional
consequences of inadequate communication also include reduced productivity, lack of
respect and, in some cases, resignation by employees, clients or vendors.

In the corporate world, effective communication plays a variety of roles in growing a

business. Effective communication can clear up misunderstandings and foster
straightforward business negotiations that are free of sarcasm, personal attacks,
inaccurate information, and assumptions. This is especially the case if you're looking to
maximize your overseas business. Effective communication is key if an organization
wants to buy and sell overseas, negotiate or consider joint ventures with international
firms or adapt products for an international client base. When properly used,
communication can be an effective tool for earning client, customer and vendor trust.
Depending on what product or service your company provides, chances are your business
needs to ensure reliability to clients and customers. One way to earn this trust through
communication is by demonstrating accessibility (Vikas, 2000).

Lassar (2008) says that effective communication can support business development by
increasing your customer and client retention. Creating a 24-hour customer service

17
hotline, for example, can help you retain more customers, along with earning their trust.
Increasing retention may include anticipating what your customers' needs are before they
voice them, which is a fundamental aspect of effective communication. As a small
business owner, you may run into communication barriers that can impact how much
business you bring in and retain. These barriers may include language, cultural
differences, distrust, inconsistency, and unfounded assumptions. Effective
communication not only earns customers' trust and retains business prospects, but it also
reduces the noise of distorted perceptions and suppositions made by clients or others who
do business with you.

When it comes to customer loyalty, the way to keep customers coming back is to keep
the lines of communication open, according to a report from Impact Learning Systems, a
provider of customer service, telephone sales, and field service training. It also doesn’t
hurt to deliver on the promises made. Loyalty requires not only building customer
satisfaction but also building customer engagement, the report said. There are so many
touch points that an insurance company can have with its customers, from marketing to
sales, customer service, accounting, and technical support. Loyalty is often determined by
the strength of the relationships and the interactions throughout a customer's lifecycle that
affect it. Brands create experiences that allow them to build deeper, more emotional,
more meaningful and sustainable bonds between customers and their brands (Banwari,
2008).

Mittal (2008) states that for many insurance companies, keeping the lines of
communication open means offering 24/7 services. More than half of companies in the
survey run around-the-clock contact centers. While this is a great way to serve customers
anywhere in the world, it can also be costly, depending on the size of the company, the
number of agents needed, and other factors. There are options for insurance companies to
maintain that level of coverage without incurring any extra costs. One is to allow agents
to work from home, thereby decreasing overhead. Another is to employ a follow-the-sun
model, contracting with contact center providers around the world to hand off operations
at different hours. And then, in some cases, costs can be mitigated by using contact

18
centers for more than just customer support. The contact center can generate sales, adding
revenue that offsets the cost.

Building loyalty also means more than just driving home a single corporate message.
Loyalty is rewarded with discounts at 36 percent of firms. Other insurance companies
build loyalty with points that can be converted to discounts, special customer events,
working with other companies to offer reciprocal benefits for customers, or providing
preferential services. When customers do slip away, companies are 62.5 percent more
likely to attempt to get them back by phone. This could backfire if not executed properly.
For one, not all customers want to be contacted by phone. However, for the companies,
dialing a dissatisfied customer can provide valuable insight. Having a one-on-one
conversation about a specific situation is much more beneficial for the company. They
can get to the bottom of any problem that might be holding them back from scoring better
in customer satisfaction or maintaining customer retention rates (Walfried, 2008).

2.2.4 Service Delivery

According to Richardson (2009) service delivery refers to the act of providing services to
customers. The positive relationship between quality service and customer satisfaction is
longstanding, and evidence of the collective influence of quality service and customer
satisfaction factors on customer loyalty, organizational competitiveness, and optimum
performance is widely acknowledged in the marketing literature. Consistently, numerous
studies have shown quality service delivery and customer satisfaction to be associated
with loyal customers, repeat purchase, and the organization's propensity to retain its
customers over a longer period of time. Notions of a positive relationship between quality
service, customer satisfaction, loyalty and hence organizational performance are therefore
widespread and long-held among researchers and marketing practitioners.

Driving the academic and industry interests in such linkages and relationships are three
perceptions. The first belief is that quality products and associated services designed
specifically to meet customer needs would lead to high customer satisfaction. Second, it
is deeply held that when customers are satisfied, they become loyal to the organization
and also engage in customer loyal behavior outcomes including repeat purchase, good

19
word of mouth propaganda for the organization, and third, that when such positive
behavior outcomes result in increased financial, organizational performance and
competitiveness. However, though this relationship between quality service, customer
satisfaction, and loyalty appears known among marketing and management scholars for a
long time, what is new and emerging is what level of service quality and customer
satisfaction leads to or is necessary for loyalty and retention of customers (Swan, 2009).

Michael (2009) argues that satisfaction is not enough to keep customers loyal. Such
controversy should be expected because the environments within which organizations
compete for change often and customers themselves cannot be predicted for a long time.
What constitutes a satisfactory service today might not be so the next few years.
Customer expectations change significantly, and forces of competition, technology, and
demographic factors contribute heavily to this frequent customer changes. Increasingly,
business organizations are facing stark realities that satisfying customers at an ordinary or
basic level would be inadequate to ensure customer loyalty. Customer satisfaction is not
an adequate and satisfactory measure of future customer behaviors with findings showing
that almost 65%-85% of a firm's customers actually switched, though they had indicated
either receiving satisfactory or very satisfied service.

As cracks emerge in those long-held views coupled with growing difficulty of retaining
previously loyal customers, the rising trend in the industry and among researchers is to go
far beyond the mere satisfaction of customers through product quality and other related
offerings to satisfying them fully and completely. The gulf between satisfied customers
and completely satisfied customers can swallow a business underscoring an urgent need
for a paradigm shift in marketing, customer, and even marketing research orientations. In
response, higher, extraordinary, optimum or complete customer satisfaction leading to
customer delight has taken center-stage in recent times. Customer delight, a relatively
unknown concept until recently, focuses on positive emotions of high receptibility to an
organization’s service (John, 2009).

Bowers (2009) says that a service experience that is enhanced, unexpected, and touching
on customer positive emotions that elicit customer behaviors such as choosing to

20
purchase exclusively from one business and offering word-of-mouth support or
unsolicited advocacy of a service business. Customer delight is a combination of high
pleasure (joy, elation) and high activation or surprise. The emotional component of
delight differentiates it from satisfaction or even high satisfaction. Moreover, it is the
positive emotionality involved in the delightful experience that leads to future customer
behavioral outcomes including word-of-mouth advocacy for the company, repeat
purchase, and undoubtedly, true loyalty. These behavioral outcomes have important
implications for organization's profitability because defections would minimize or
eliminated.

Indeed, as customers would not be motivated to switch providers as it would not be

profitable to do so. Some studies have suggested that switching costs are one major
determinant in customer decision to stay with or leave a provider and therefore if
switching costs become a deterrent as a consequence of delight, then organizations may
be assured of a longer-term relationship with customers. When organizations overcome
customer defections by just 5% their profitability can be boosted by 100%. We
acknowledge ongoing discussions among scholars and practitioners to classify customer
satisfaction and delight on a continuum, and thereby position delights' extreme opposite,
outrage or disgust (Lynne, 2009).

Zahorik (2013) states that various studies, in service or goods sectors, have addressed
subsets and permutations of relationships between quality product, customer service,
satisfaction, value, loyalty, retention, and profitability. With customer delight now
gradually emerging as a concept with some promise for customer loyalty, retention, and
profitability, it requires heavy practitioner and research interest and attention to unravel
both the perceived promise and challenges associated with it, particularly when paired
with some of those variables. This is not to suggest that studies are completely absent on
the subject; rather available research on it appear somewhat limited calling for an
invigorated and urgent interest in the concept contextualized in a variety of sectors and
economies to extend knowledge and explain how customer delight holds promise for
customer loyalty, repeat purchase, and long-term profitability.

21
For decades and for a variety of reasons, customer satisfaction has received immense
interest from academics and practitioners alike. Underlining this interest is a large body
of literature that suggests a direct relationship between customer satisfaction and
customer loyalty, which equally lends credence to the decades of the preoccupation of
most business organizations with key customer satisfaction activities. Arguably, the high
research and practitioner interests in customer satisfaction are influenced by the
perceived relationship between the satisfaction of customers and organizational
profitability and also one the most well-understood statistic measures of assessing the
relationship between quality products (services), loyalty and organizational performance.
Whiles some of these perceptions about customer satisfaction appear to have empirical
support, emerging evidence from some studies suggest otherwise (Anthony, 2013).

2.3 Summary and research gaps

Reichheld (1990) past studies concluded that 5% improvement in customer retention can
cause an increase in profitability between 25% to 85% in terms of net present value
depending on the industry. It has been proven in the literature that there is a direct
relationship between customer loyalty and an organization’s profits. This is as a result of
reduced cost of retaining a customer and the achievement of a zero defection of profitable
customers. Quality of professional staff is a critical issue for ensuring that the company
has a competitive advantage and an increased organizational performance. A few percent
reductions in employee turnover rate may have an increase in profitability by 50%. Often
management decisions may generate feelings of anger, frustration, grievance, and
distrust, among employees, that may contribute to a potentially detrimental effect on the
general organizational performance.

Staffs in the service process, therefore, need to be empowered and skilled to deliver
services effectively (Sasser, 1990). Over time, the importance of customer service and its
impact on organizational performance has been highlighted in numerous studies;
customer service has been linked indirectly with organizational quality, customer
satisfaction and performance of the organization. Research shows that people possess a

22
strong drive to behave in whatever manner necessary to achieve future rewards. Loyalty
programs can prevent customers from switching to another supplier. Switching costs are
an important antecedent of customer loyalty.

Despite the theoretical arguments in favor of the positive effect of loyalty programs on
customer retention, several researchers have questioned this effect. Loyalty programs
have a significant, positive effect on customer retention. Sales promotions satisfy the
need for organizations to achieve short-term results since they produce quicker and more
measurable results. Kotler (2003) found in his studies that sales promotions are widely
being used by top management as effective tools to increase their current sales.

2.4 Conceptual Framework

A conceptual framework is also known as a theoretical framework. It explains either

geographically or in the narrative the things to be studied; the key factors, constructs or
variables are the presumed relationships among them. The research for this study uses a
conceptual framework for understanding the influence of the identified customer
retention strategies from the literature gathered on organizational performance. The
relationship between specific retention strategies and performance will be tested.

23
Figure 2.1 Conceptual Framework

Independent Variables Dependent Variable

Cost

Relations
Customer Retention

Communication

Service Delivery

Source: Author (2019)

24
2.5 Operationalization of variables

Operationalization of Variables

Variables Indicators Measurements

Cost Organizational Values Accountability

 Affordable  Measurement scale very
 Sustainable low extent – very large
extent.

Relations  Code of conduct  Measurement scale very

 Customer experience low extent – very large
extent.

Communication  Openness  Measurement scale very

 Answerable low extent – very large
extent.

Service Delivery  Customer satisfaction  Measurement scale very

low extent – very large
 Auditable
extent.

2.6 Summary of the chapter

This chapter contained; theoretical review, empirical review, critical review and summary
of the gaps, conceptual framework and operationalization of variables.

25
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter outlined discussions of the research methodology that was used in the study.
It discussed the research design, population of the study, data collection, and data
analysis techniques that was used in the study.

3.1 Research Design

The study was a cross-sectional descriptive survey design which used quantitative
methods. According to Cooper and Schindler (2003), a descriptive study is concerned
with finding out the what, where and how of a phenomenon. Descriptive research design
was chosen because it enabled the study to generalize the findings to a larger population.

3.2 Target Population

Mugenda and Mugenda (2003) define population as the entire group of individual’s,
events or objects having a common observable characteristic. The target population,
therefore, is the overall number that can be worked on in a research. The purpose of the
target population is to show the number of the larger group that the researcher intended to
manipulate so as to get the required information. In this research, the study population
was 70 respondents.

3.3 Sample and sampling techniques

According to Kothari (2004), a stratified sampling technique is generally applied in order

to obtain a representative sample. To get the respondents stratified random sampling
technique was used to group the population into strata that was easy to study. The
population was divided into several sub-populations that are individually more
homogenous than the total population and then items were selected from each stratum to
constitute a sample. The researcher derived a sample size of 50% of the total number of
the population. Therefore, the sample size of the study was 35.

26
3.4 Instruments

Data collection tools are the instruments which are used to collect the necessary
information needed to serve or prove some facts (Mugenda & Mugenda, 2003). The
study aimed to collect both primary and secondary data; primary data was collected using
a semi-structured questionnaire while secondary data was obtained from annual reports of
the Insurance Companies and the Insurance Regulatory Authority’s Insurance Industry
Outlook reports. Data was collected from marketing directors or operations directors due
to the role they played in strategic decision making. Data collection involved a self-
administered questionnaire issued to respondents at their places of work. The
questionnaires administered had both open and closed-ended questions so that they
provided enough and accurate information and gave the respondents a chance to give
their view freely without any limitations.

3.5 Pilot study

According to Burg and Gall (1989), the term pilot studies can be defined as to mini
versions of a full-scale study as well as the specific pretesting of a particular research
instrument such as a questionnaire or interview schedule. A pilot study was conducted at
Madison Insurance Company respondents where 10 questionnaires were distributed. This
enabled the researcher to make alterations where necessary and improve the instruments.
Reliability refers to the consistency of measurement result and the extent to which they
are accurate, error-free and stable.

3.5.1 Validity

The study’s content validity will be attained through expert opinion by the supervisors,
identification of relevant indicators through a thorough research of the literature on the
idea to be measured, while the validity of the criteria will be achieved through good
knowledge of information relating to the idea so that the researcher can decide what
variables will be expected to be predicted by and related to it and a measure of the
relationship between the measure and the factors.

27
3.5.2 Reliability test

Reliable measurement results are reproducible and generalizable to other measurement

occasions. Reliability evidence most often is reported as a correlation coefficient.
Traditionally, reliability has been categorized into several different types, including
stability equivalence, homogeneity aid scorer reliability. Reliability of research
instrument is its level of internal consistency or stability over time.

3.6 Data Analysis and Presentation

According to Perttinger, (2001); data analysis is a process of gathering, modelling, and

transforming data with the goal of highlighting useful information, suggesting
conclusions, and supporting decision making. Toney (2003), indicated that data analysis
is the process of breaking a complex information or substance into smaller parts to gain a
better understanding of it.

The purpose of the data analysis, however, it's to prepare the crude data into interpretable
designs. Data were analysed using statistical methods by use of tables, charts,
frequencies, and percentages. It is envisaged that these comparative methods were the
best since the data was qualitative in nature. Prior to the summarization of the data, the
questionnaire was checked to ensure that they are fully completed and accurate.

3.7 Ethical considerations

The study ensured ethics in the entire process by ensuring the following: Respondents
were assured that the given information would solely be used for the objective of
achieving the research purpose. Any personal information meant for research purposes
was kept strictly confidential. The researcher also sought prior consent from participants
before embarking on the research. They were guaranteed that their privacy will be
protected by strict standards of anonymity. The researcher ensured the use of the right
procedure during the data collection through introducing himself as a student through a
letter of authorization from Management University of Africa.

28
3.8 Chapter summary

This chapter provided discussions of the research methodology, research design, target
population to the study, sample and sample design, instrument, pilot study, data
collection procedures, ethical considerations and data analysis techniques that were used
in the study.

29
 CHAPTER FOUR

RESEARCH, FINDINGS AND DISCUSSION

4.0 Introduction

Data analysis and presentation refers to the findings that were deducted from the
questionnaires distributed to the employees with special focus on the study objectives.
The analysis was presented in form of tables and charts for easy interpretation.

4.1 Presentation of research findings

4.1.1 Response rate

Table 4.1 Response rate

Category Frequency Percentage

Questionnaire returned 33 94
Questionnaire not returned 2 6
Total 35 100

Source; Author (2019)

6%
key
Questionnaire returned
Questionnaire not returned

94%

Source; Author (2019)

Figure 4.1 Response rate

30
The research was done by sending out 35 questionnaires out of which 33 (94%) of them
were received and analyzed which was considered a success. In addition, it has
sufficiently surpassed the minimum threshold sample size of 10% suggested by Gay
(2005), 30% considered acceptable by (Stanley & Gregory, 2001; Kothari, 2004). The
results are shown in table 4.1 and figure 4.1. Although the researcher would have
intended to get 100% response, a response rate of 94% was considered sufficient and
representative. It was not possible to get back all the responses.

4.1.2. Gender of respondents

The researcher asked the respondents to indicate their gender

Table 4.2 Gender of respondents

Category Frequency Percentage

Male 21 64
Female 12 36
Total 33 100

Source; Author (2019)

36% key
male
64% female

Source; Author (2019)

Figure 4.2 Gender of respondents

31
Table 4.2 and figure 4.2 show that 64% of the respondents were male while 36% were
female. From the findings, there was gender imbalance in which male were more than
female and had an unequal representation.

4.1.3 Respondents’ age bracket

The researcher asked the respondents to indicate their age bracket

Table 4.3 Age bracket of the respondents

Category Frequency Percentage

Below 25 years 4 13
26-35 years 11 33
36-45 years 10 30
Above 46 years 8 24
Total 33 100

Source; Author (2019)

35%

30%

25%
Percentage

20%

15%

10%

5%

0%
Below 25 years 26-35 years 36-45 years Above 46 years
Age Bracket

Source; Author (2019)

Figure 4.3 Age bracket of the respondents

32
The researcher asked the respondents to indicate their current age. The findings are
presented in table 4.3 and figure 4.3.13% of the respondents were below 25 years, 33%
were between 26-35 years, 30% were between 36-45 years and 24% were above 46 years.
This shows that majority of respondents were above 26 years.

4.1.4 Respondents’ highest level of education

The researcher asked the respondents to indicate their highest academic qualifications

Table 4.4 Highest level of education

Category Frequency Percentage

Master’s degree 5 15
Degree 13 39
Diploma 12 36
Certificate 3 10
Total 33 100

Source; Author (2019)

40%
Percentage

30%
20%
10%
0%
Master’s
Degree
degree Diploma
Certificate

Highest Level of Education

Source; Author (2019)

Figure 4.4 Highest level of education

The study sought to establish the highest level of education of the respondents. The
findings are presented in figure 4.4 and table 4.4. 10% had certificates, 36% had

33
diplomas, 39% had degrees and 15% had masters’ degrees. Majority of respondents had
degrees. These findings agree with Anderson & Miller (2003) who argue that knowledge
gained from education and experience represents a resource that is heterogeneously
distributed across individuals and in effect central to understanding differences in
opportunity identification and exploitation.

4.1.5 Respondents’ years of experience in the Insurance Industry

The researcher asked the respondents to indicate years of experience in the Insurance
Industry

Table 4.5 Years of Experience in the Insurance Industry

Category Frequency Percentage

Below 1 year 6 19
1-4 years 10 30
5-10 years 10 30
Over 10 years 7 21
Total 33 100

Source; Author (2019)

30%
Percentage

20%

10%

0%
Below 1 year
1-4 years
5-10 years
Over 10 years
Years of Experience

34
Source; Author (2019)

Figure 4.5 Years of experience in the Insurance Industry

Table 4.5 and figure 4.5 indicated that 19% of the respondents had worked in the
insurance industry below 1 year, 30% between 1-4 years, 30% between 5-10 years and
21% over 10 years. This shows that majority of respondents had an experience of over an
year.

4.1.6 Analysis on whether cost affects customer retention in the insurance industry.

The researcher asked the respondents to indicate whether cost affects customer retention
in the insurance industry.

Table 4.6 Analysis on whether cost affects customer retention in the insurance
industry.

Category Frequency Percentage

Yes 25 76
No 8 24
Total 33 100

Source; Author (2019)

24% key
Yes
76% 24%
No

35
Source; Author (2019)

Figure 4.6 Analysis on whether cost affects customer retention in the insurance
industry.

Table 4.6 and figure 4.6 show that 76% of the respondents agreed that cost affects
customer retention in the insurance industry while 24% disagreed. Majority of the
respondents agreed that cost affects customer retention in the insurance industry.

4.1.7Analysis on how cost affects customer retention in the insurance industry

The researcher asked the respondents to indicate how cost affects customer retention in
the insurance industry

Table 4.7Analysis on how cost affects customer retention in the insurance industry

Category Frequency Percentage

Positively 26 78
Negatively 6 19
No effect 1 3
Total 33 100

Source; Author (2019)

80%

60%
Percentage

40%

20%

0%

Positively
Negatively
No effect

Category

36
Source; Author (2019)

Figure 4.7Analysis on how cost affects customer retention in the insurance industry

Table 4.7 and figure 4.7 indicated that 78% of the respondents agreed that cost affects
customer retention in the insurance industry positively, 19% said it affects negatively and
3% felt no effect. Majority of respondents agreed that cost affects customer retention in
the insurance industry positively.

4.1.8 Analysis on the extent cost affects customer retention in the insurance industry

Table 4.8 Analysis on the extent cost affects customer retention in the insurance
industry

Category Frequency Percentage

Very large extent 20 60

Large extent 8 24
Moderate extent 4 13
Low extent 1 3
Very low extent 0 0
Total 33 100

Source; Author (2019)

70%
60%
50%
Percentage

40%
30%
20%
10%
0%
Very large extent Large extent Moderate extent Low extent Very low extent
Category

Source; Author (2019)

37
Figure 4.8 Analysis on the extent cost affects customer retention in the insurance
industry

Table 4.8 and figure 4.8 indicated that 60% of the respondents agreed that cost to a very
large extent affects customer retention in the insurance industry, 24% said it affects to a
large extent, 13% to a moderate extent, 3% to a low extent and none to a very low extent.
Majority of respondents agreed that cost to a very large extent affects customer retention
in the insurance industry.

4.1.9 Analysis on whether relations affect customer retention in the insurance

industry.

The researcher asked the respondents to indicate whether relations affect customer
retention in the insurance industry.

Table 4.9 Analysis on whether relations affect customer retention in the insurance
industry.

Category Frequency Percentage

Yes 24 73
No 9 27
Total 33 100

Source; Author (2019)

38
 27%
key
Yes
No

73%

Source; Author (2019)

Figure 4.9 Analysis on whether relations affect customer retention in the insurance
industry.

Table 4.9 and figure 4.9 show that 73% of the respondents agreed that relations affect
customer retention in the insurance industry while 27% disagreed. Majority of the
respondents agreed that relations affect customer retention in the insurance industry.

4.1.10 Analysis on how relations affect customer retention in the insurance industry

The researcher asked the respondents to indicate how relations affect customer retention
in the insurance industry

Table 4.10 Analysis on how relations affect customer retention in the insurance
industry

Category Frequency Percentage

Positively 27 82
Negatively 4 13
No effect 2 5
Total 33 100

39
Source; Author (2019)

100%

Percentage 80%
60%
40%
20%
0%
Positively
Negatively
No effect
Category

Source; Author (2019)

Figure 4.10Analysis on how relations affect customer retention in the insurance

industry

Table 4.10 and figure 4.10 indicated that 82% of the respondents agreed that relations
affect customer retention in the insurance industry positively, 13% said it affects
negatively and 5% felt no effect. Majority of respondents agreed that relations affect
customer retention in the insurance industry positively.

4.1.11 Analysis on the extent relations affect customer retention in the insurance
industry

Table 4.11 Analysis on the extent relations affect customer retention in the
insurance industry

Category Frequency Percentage

Very large extent 19 58

Large extent 9 27
Moderate extent 5 15
Low extent 0 0
Very low extent 0 0

40
Total 33 100

Source; Author (2019)

60%
Percentage

40%
20%
0%
Very large
Large extent
extent Moderate
extent Low extent
Very low
extent
Category

Source; Author (2019)

Figure 4.11Analysis on the extent relations affect customer retention in the

insurance industry

Table 4.11 and figure 4.11 indicated that 58% of the respondents agreed that relations to
a very large extent affects customer retention in the insurance industry, 27% said it
affects to a large extent, 15% to a moderate extent, none to a low extent and none to a
very low extent. Majority of respondents agreed that relations to a very large extent affect
customer retention in the insurance industry.

4.1.12 Analysis on whether communication affects customer retention in the

insurance industry.

The researcher asked the respondents to indicate whether communication affects

customer retention in the insurance industry.

41
Table 4.12 Analysis on whether communication affects customer retention in the
insurance industry.

Category Frequency Percentage

Yes 23 70
No 10 30
Total 33 100

Source; Author (2019)

30%
key
Yes
No
70%

Source; Author (2019)

Figure 4.12 Analysis on whether communication affects customer retention in the

insurance industry.

Table 4.12 and figure 4.12 show that 70% of the respondents agreed that communication
affects customer retention in the insurance industry while 30% disagreed. Majority of the
respondents agreed that communication affects customer retention in the insurance
industry.

4.1.13 Analysis on how important communication is on customer retention in the

insurance industry

42
The researcher asked the respondents to indicate how important communication is on
customer retention in the insurance industry

Table 4.13 Analysis on how important communication is on customer retention in

the insurance industry

Category Frequency Percentage

Very important 28 85
Important 3 10
Not important 2 5
Total 33 100

Source; Author (2019)

100%

80%
Percentage

60%

40%

20%

0%
Very important Important Not important
Category

Source; Author (2019)

Figure 4.13 Analysis on how important communication is on customer retention in

the insurance industry

Table 4.13 and figure 4.13 indicated that 85% of the respondents agreed that
communication is very important on customer retention in the insurance industry, 10%
said it is important and 5% said t is not important. Majority of respondents agreed that
communication is very important on customer retention in the insurance industry.

4.1.14 Analysis on the extent communication affects customer retention in the

insurance industry

43
Table 4.14 Analysis on the extent communication affects customer retention in the
insurance industry

Category Frequency Percentage

Very large extent 18 55

Large extent 10 30
Moderate extent 5 15
Low extent 0 0
Very low extent 0 0
Total 33 100

Source; Author (2019)

60%
Percentage

40%
20%
0%
Very Large
large extent Moderate Low
extent extent Very low
extent
extent

Category

Source; Author (2019)

Figure 4.14 Analysis on the extent communication affects customer retention in the
insurance industry

Table 4.14 and figure 4.14 indicated that 55% of the respondents agreed that
communication to a very large extent affects customer retention in the insurance industry,
30% said it affects to a large extent, 15% to a moderate extent, none to a low extent and
none to a very low extent. Majority of respondents agreed that communication to a very
large extent affects customer retention in the insurance industry.

4.1.15 Analysis on whether service delivery affects customer retention in the

insurance industry.

44
The researcher asked the respondents to indicate whether service delivery affects
customer retention in the insurance industry.

Table 4.15 Analysis on whether service delivery affects customer retention in the
insurance industry.

Category Frequency Percentage

Yes 22 67
No 11 33
Total 33 100

Source; Author (2019)

key
Yes
67% 33% 33%
No

Source; Author (2019)

Figure 4.15 Analysis on whether service delivery affects customer retention in the
insurance industry.

Table 4.15 and figure 4.15 show that 67% of the respondents agreed that service delivery
affects customer retention in the insurance industry while 33% disagreed. Majority of the
respondents agreed that service delivery affects customer retention in the insurance
industry.

4.1.16 Analysis on how service delivery affects customer retention in the insurance
industry

45
The researcher asked the respondents to indicate how service delivery affects customer
retention in the insurance industry

Table 4.16 Analysis on how service delivery affects customer retention in the
insurance industry

Category Frequency Percentage

Positively 29 90
Negatively 2 5
No effect 2 5
Total 33 100

Source; Author (2019)

100%
Percentage

50%

0%
Positively
Negatively
No effect

Category

Source; Author (2019)

Figure 4.16 Analysis on how service delivery affects customer retention in the
insurance industry

Table 4.16 and figure 4.16 indicated that 90% of the respondents agreed that service
delivery affects customer retention in the insurance industry positively, 5% said it is
affects negatively and 5% no effect. Majority of respondents agreed that service delivery
affects customer retention in the insurance industry positively.

4.1.17 Analysis on the extent service delivery affects customer retention in the
insurance industry

46
Table 4.17 Analysis on the extent service delivery affects customer retention in the
insurance industry

Category Frequency Percentage

Very large extent 17 52

Large extent 11 33
Moderate extent 5 15
Low extent 0 0
Very low extent 0 0
Total 33 100

Source; Author (2019)

60%
50%
Percentage

40%
30%
20%
10%
0%
Very large extent Large extent Moderate extent Low extent Very low extent
Category

Source; ** Author (2019)

Figure 4.17Analysis on the extent service delivery affects customer retention in the
insurance industry

Table 4.17 and figure 4.17 indicated that 52% of the respondents agreed that service
delivery to a very large extent affects customer retention in the insurance industry, 33%
said it affects to a large extent, 15% to a moderate extent, none to a low extent and none
to a very low extent. Majority of respondents agreed that service delivery to a very large
extent affects customer retention in the insurance industry.

47
4.3 Chapter Summary

This chapter contained; research findings and discussions whereby the analysis was
presented in form of tables and charts.

48
 CHAPTER FIVE

SUMMARY, RECOMMENDATIONS, AND CONCLUSIONS.

5.0 Introduction

This entails the summary of findings, discussions, conclusions and recommendations of

the research project carried out.

5.1 Summary of findings

5.1.1 How does cost affect customer retention in the insurance industry?

Findings indicated that 60% of the respondents agreed that cost to a very large extent
affects customer retention in the insurance industry, 24% said it affects to a large extent,
13% to a moderate extent, 3% to a low extent and none to a very low extent. Majority of
respondents agreed that cost to a very large extent affects customer retention in the
insurance industry.

5.1.2 To what extent do relations affect customer retention in the insurance

industry?

Findings indicated that 58% of the respondents agreed that relations to a very large extent
affects customer retention in the insurance industry, 27% said it affects to a large extent,
15% to a moderate extent, none to a low extent and none to a very low extent. Majority of
respondents agreed that relations to a very large extent affect customer retention in the
insurance industry.

5.1.3 How does communication affect customer retention in the insurance industry?

Finding indicated that 55% of the respondents agreed that communication to a very large
extent affects customer retention in the insurance industry, 30% said it affects to a large
extent, 15% to a moderate extent, none to a low extent and none to a very low extent.
Majority of respondents agreed that communication to a very large extent affects
customer retention in the insurance industry.

49
5.1.4 What is the effect of service delivery on customer retention in the insurance
industry?

Findings indicated that 52% of the respondents agreed that service delivery to a very
large extent affects customer retention in the insurance industry, 33% said it affects to a
large extent, 15% to a moderate extent, none to a low extent and none to a very low
extent. Majority of respondents agreed that service delivery to a very large extent affects
customer retention in the insurance industry.

5.2 Conclusion

The ability that a company has to gain and retain new clients does not only rely on the
quality of goods and services that they have, but also to the way it treats the existing
customers, what value or benefits they obtain from the company’s solutions, and the
reputation it has across the marketplace. Customer retention not only helps to make the
insurance company increase profits, but also helps to reduce new customer recruitment
and marketing costs. Insurance companies frequently feel like they are huge bodies
without a personal connection with their customers, mainly due to the fact that their
consumers mainly interact with their agents and representatives through means such as
telephone or email. This personalized interaction is required for customer retention.
Companies can therefore increase retention rates by improving this interaction through,
for instance, assigning a single agent to a single customer, which will grant the consumer
the freedom to talk to them anytime they can and air any concerns and issues concerning
their policy and coverage options.

5.3 Recommendations

Some of the recommendations I would love to highlight include, for instance, cost.
Insurance companies need to provide products with a favorable cost which will enhance
customer retention due to customer satisfaction. Moreover, insurance agents need to
create a good relationship between their company and the customers which will enhance
customer welfare since customers will express their views on products and services
provided. The management of an insurance company needs to provide an effective

50
communication strategy in their organization and towards their customers. This will lead
to enhancing customer retention. Insurance companies need to provide a policy that
enhances service delivery leading to customer satisfaction hence customer retention.

5.4 Suggestions for further studies

A research needs to be carried out on the role of company policy on customer retention in
the insurance industry.

51
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54
 APPENDICES

APPENDIX I - LETTER OF INTRODUCTION

SARAH WACHUI CHEGE

Management University of Africa

THIKA CAMPUS

16/03/2019

CELL:0722658320

Dear Sir/ Madam,

RE: FACTORS AFFECTING CUSTOMER RETENTION IN INSURANCE

INDUSTRY. A CASE STUDY OF BRITAM INSURANCE AND INVESTMENT
GROUP, THIKA. ________________________________________________________

I am a student currently pursuing a bachelor’s degree in Management and Leadership at

the Management University of Africa. I am doing research on “Factors affecting
customer retention in the insurance industry”.

The purpose of this letter is, therefore, to kindly request you to allow me collect data
using the questionnaires that will be administered to your employees, since I have
selected your company as the case study. I would love to assure you that the information
your employees give will be confidential and used for this study only.

Your assistance will highly be appreciated.

Thank you.

Regards,

Sarah Chege.

55
 APPENDIX II - QUESTIONNAIRE

Questionnaire on the factors affecting customer retention in the insurance industry.

INTRODUCTION

Please tick appropriate in the box provided and for any explanation please be brief.

SECTION A: Background Information of Respondents.

1. Please indicate your gender.

Male [ ]
Female [ ]
2. Age Bracket:
(Below 25 yrs) [ ]
(26-35 yrs) [ ]
(36-45 yrs) [ ]
(46 yrs and above) [ ]
3. Highest Level of Education:
Master’s Degree [ ]
Degree [ ]
Diploma [ ]
Certificate [ ]
If others specify…………………………………………………..

4. Years of work Experience

Below 1 Yrs [ ]
1-4yrs [ ]
5-10 Yrs [ ]
Over 10 Yrs [ ]

56
SECTION B: Cost

5. Doescost affect customer retention in the insurance industry?

Yes [ ]
No [ ]

Explain

………………………………………………………………………........................
....................................................................................................................................

6. How doescost affect customer retention in the insurance industry?

Positively [ ]
Negatively [ ]
No effect [ ]

7. To what extent does cost affect customer retention in the insurance industry?

To a very large extent [ ]

To a large extent [ ]
To a moderate extent [ ]
To a low extent [ ]
To a very low extent [ ]
8. In your own option, state how cost affects customer retention in the insurance
industry?
…………………………………………………………………………………………
…………………………………………………………………………………………

57
SECTION C: Relations
9. Do relations affect customer retention in the insurance industry?

Yes [ ]
No [ ]

Explain

………………………………………………………………………..............................
........................................................................................................................................
10. How do relations affect customer retention in the insurance industry?
Positively [ ]
Negatively [ ]
No effect [ ]
11. To what extent do relations affect customer retention in the insurance industry?

To a very large extent [ ]

To a large extent [ ]
To a moderate extent [ ]
To a low extent [ ]
To a very low extent [ ]
12. In your own option, state how relations affect customer retention in the insurance
industry?
……………………………………………………………………………………
……………………………………………………………………………………

58
SECTION D: Communication
13. How important is communication on customer retention in the insurance industry?

Very important [ ]

Important [ ]
Not important [ ]
14. Does communication affect customer retention in the insurance industry?
Yes [ ]
No [ ]

Explain

………………………………………………………………………..............................
........................................................................................................................................
15. To what extent does communication affect customer retention in the insurance
industry?

To a very large extent [ ]

To a large extent [ ]
To a moderate extent [ ]
To a low extent [ ]
To a very low extent [ ]

16. In your own option, state how communication affects customer retention in the
insurance industry?
……………………………………………………………………………………
……………………………………………………………………………………

59
SECTION E: Service Delivery
17. Does service delivery affect customer retention in the insurance industry?
Yes [ ]

No [ ]

Explain

………………………………………………………………………..............................
........................................................................................................................................

18. To what extent doesservice delivery affect customer retention in the insurance
industry?

To a very large extent [ ]

To a large extent [ ]
To a moderate extent [ ]
To a low extent [ ]
To a very low extent [ ]
19. How does service delivery affect customer retention in insurance industry?
Positively [ ]
Negatively [ ]
No effect [ ]
20. In your own option, state how service delivery affects customer retention in the
insurance industry?

…………………………………………………………………………………………
………………………………………………………………………………………….

************ Thank you for your time **************

60
61