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A Study of Relationship Marketing Types, Service Quality, and Relationship
Quality on Customer Loyalty in the Life Insurance Industry
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Tsu-Wei Yu
Assistant Professor
Department of Senior Citizen Service Management
Chaoyang University of Technology
No. 168, Jifong E. R., Wufong Township�
Tel:�04-23323000 ext 4812
E-mail: [email protected]
Fax: 04- 23335318
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A Study of Relationship Marketing Types, Service Quality, and Relationship Quality
on Customer Loyalty in the Life Insurance Industry
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Abstract
This study conducts in-depth interviews as well as an empirical survey to examine
relationships of relationship marketing types, service quality, and relationship quality on
customer loyalty. Prior studies seldom explore the issue as this life industry in Taiwan.
The purpose of this study: 1. Probe the relationship of service quality of client service
center of life insurer and relationship quality. 2. This study examines the relationship of
relationship quality of client service center of life insurer and customer loyalty; the
relationship of relationship marketing types and service quality; the relationship of
relationship marketing types and relationship quality; the relationship of relationship
marketing types and customer loyalty.
The sample for this study is drawn from the clients of client service center of the life
insurance industry in Taiwan. Results indicate that service quality is positively related to
relationship quality. Relationship quality is related positively to customer loyalty.
Relationship marketing types will be positively related to service quality. Relationship
marketing types will be positively related to relationship quality. Relationship marketing
types will be positively related to customer loyalty. Finally, this concludes provide
theoretical implications and managerial implications.
Keywords: Relationship marketing, Service quality, Relationship quality, Customer loyalty.
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A Study of Relationship Marketing Types, Service Quality, and Relationship Quality
on Customer Loyalty in the Life Insurance Industry
I. Introduction
Relationship marketing refers to the marketing process of attracting, developing and
maintaining customer relationships (Berry and Parasuraman, 1991). Successful
relationship marketing helps create loyal customers, establish favorable word of mouth
and lower the costs of cultivating new customers (Berry and Parasuraman, 1991). In
recent years, as competition in the life insurance industry has grown increasingly fierce,
customers have become firms' most important strategic resources (Webster, 1994).
Maintaining long-term relationships with customers and increasing customer satisfaction
as well as loyalty are highly related to the profitability of enterprises (Reichheld and
Sasser, 1990; Jacob, 1994). Crosby et al. (1990) noted that the quality of such
relationships plays an important role in affecting customer loyalty. According to many
studies, good quality relationships mean that customers are able to have trust and
confidence in the selling parties through achieving a continuous sense of satisfaction.
Other studies regarding the correlation between relationship quality and customer loyalty
also indicate that when customers are aware of continuous, better service quality, they are
more willing to develop and maintain a long-term relationship and express a higher sense
of trust and satisfaction toward service staff (Crosby et al., 1990; Shani and Sujana, 1992;
Jones and Sasser, 1995).
In recent years, the demand for insurance products has risen with increasing levels of
personal income and quality of life in Taiwan, and the insurance industry has grown
accordingly. Indeed, Taiwan’s life insurance industry has seen steady growth, even amid
the Asian financial crisis in 1997 as well as the global financial crisis that began in 2008.
Meanwhile, the cross-straits Memorandum of Understanding (MOU) was signed in
November 2009, establishing cooperation and communication among financial
management institutions in Taiwan and China. In addition, according to the Taiwan
Insurance Institute (2009), Taiwan’s ratio of life and annuity insurance coverage was
204.84%, representing the ratio of the number of in-force policies of life and annuity
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insurance to the population, while for the same year the ratio of life and annuity insurance
prevalence was 339.67%, representing the ratio of the sum of in-force policies of life and
annuity insurance to national income,, indicating the importance of this industry. Details
of the life and annuity insurance coverage ratio and the life and annuity insurance
prevalence ratio (2000-2009) are given in Figure 1. With the growing popularity of
adopting a customer-orientation in business, life insurers can no longer rely on the
traditional� product-oriented and favor policy strategies, with the latter meaning that
policies were sold according to the salespersons’ own social networks, rather than based
on real customer demand, and such sales usually lacked complete after-sales services.
Life insurers now need to work on differentiating customer groups, identifying their
various needs, launching products that are more suitable for them. As most life insurance
products are long-term policies, they contain an intangible quality (Tsoukatos and Rand,
2006). Therefore, in addition to developing high quality services, life insurers need to
establish and maintain long-term relationships with policyholders in order to increase
customer loyalty and ultimately raise profitability.
(Insert Figure 1 about here)
Given the above reasoning, this study attempts to focus on policyholder service centers
in the life insurance industry, which have been increasingly emphasized in Taiwan, to
examine the impacts that different relationship marketing methods have on service quality,
relationship quality and customer loyalty. Based on the results of in-depth interviews and
surveys, this study also attempts to propose a set of references to aid the development and
implementation of relationship marketing campaigns, and to make further contributions
to both the academic and empirical literature.
The main purposes of this study are as follows. 1. Explore the correlation between the
service quality offered by life insurers’ policyholder service centers and relationship
quality. 2. Examine the correlation between relationship quality and customer loyalty. 3.
Investigate the correlation between various types of relationship marketing and service
quality. 4. Explore the correlation between various types of relationship marketing and
relationship quality. 5. Explore the correlation between various types of relationship
marketing and customer loyalty.
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The contributions of this study are as follows:
1. This study explores the correlation among various types of relationship marketing,
relationship quality and customer loyalty in Taiwan’s life insurance industry, thus filling a
gap in the existing literature on insurance marketing.
2. Previous domestic and international studies have focused on the wealth management
departments in the banking industry, rather than the policyholder service centers of life
insurers. This study will thus be able to contribute to the field of insurance marketing.
3. In the field of insurance marketing channels, this study is the first which attempts to
examine the relationship between the life insurers’ policyholder service centers and
customers. The results of this study will be able to serve as a reference for other studies in
the area.
4. Various methods were applied in this study. First, the framework of research and
contents of the questionnaire were created through literature reviews and in-depth
interviews with insurance experts. The Structural Equation Model (SEM) was then used
to examine the causal relationship of the constructs. Therefore, this study should be of
interest to both academics and practitioners.
The remainder of this study is organized as follows. In the next section we provide the
theoretical background and discuss the development of our hypotheses, and then we
present our sample, data, and statistical procedures. This study concludes with a
discussion of the results of our hypotheses testing, academic and managerial implications,
limitations of this study and avenues for future research.
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II. Literature review and hypotheses development
This section first reviews the literature on factors affecting service quality., and then
explores the related works on relationship marketing, relationship quality and customer
loyalty. Finally, the hypotheses of this study are proposed based on both the literature
review and the in-depth interviews with insurance experts.
1. Service quality
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Services possess the characteristics of intangibility, inseparability, variability and
perishability (Kotler, 2000), and are difficult to measure against certain consistent
standards. Still, the quality of a service is normally judged by what customers have
experienced, and thus both Gronroos (1984) and Etzel et al. (2001) suggested that service
quality is the result of a comparison between customer expectations and what they
actually experience.
Parasuraman et al. (1985) contended that service quality is the measurement of
customers’ subjective perception of the services received, i.e. customers’ perceived
quality� More specifically� �Parasuraman et al. (1988) defined service quality as customer
assessments of a company’s overall excellence, and this is an attitude different from
satisfaction and is determined by the gap between customer expectations of a service and
their perceptions of it. Currently, the most commonly adopted model to measure service
quality is the SERVOUAL model developed by Parasuraman et al. (1988), which
contains five dimensions, namely tangibles, reliability, responsiveness, assurance and
empathy. The SERVOUAL model differs from other models in its descriptions of key
factors which determine the quality of service, and these factors can be used to further
refine the service quality. Brady and Cronin (2001) adopted qualitative research methods
to collect assessments of services in eight industries with a variety of service personnel,
namely theme parks, restaurants, health care centers, hair salons, car care centers,
laundries, jewelry repair shops and photo studios. The results of their research showed
that service quality is multifaceted and hierarchical, with customer perceptions of quality
mainly built on the three dimensions of “interaction quality”, “physical environment” and
“outcome quality”. These dimensions form the basis for customers to evaluate the
primary construct.
2. Relationship quality
“Relationship quality” is a new concept developed from relationship marketing, which
emphasizes that when building long-term and mutually beneficial relationships with
individual customers companies need to use the idea of “quality” in order to lower the
transaction costs or the uncertainty of future transactions, thus ensuring the continued
operation of the system. There are no consistent definitions regarding relationship quality
in the literature (Dorsch et al., 1998; Kumar et al., 1995; Bejou et al., 1998;
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Henning-Thurau et al., 2002), but most researchers have regarded satisfaction and trust as
important indicators of it (Crosby et al., 1990; Dwyer et al., 1987; Shamdasani and
Balakrishnan, 2000; Henning-Thurau et al., 2001). In addition, Smith (1998) and Kumar
et al. (1995) summarized the related studies and proposed that relationship quality
contains at least three dimensions: trust, satisfaction and commitment, which are
described in more detail, below.
Trust is a crucial factor in building strong customer relationships and acquiring market
share (Urban et al., 2000), and it has to be earned before customer loyalty can be obtained
(Reichheld and Schefter, 2000). Morgan and Hunt (1994) stated that trust is the degree to
which trading partners regard each other as being reliable and honest. Satisfaction refers
to overall contentment, and it is the accumulated assessments based on the purchase of
products or services or the related consumption experience (Garbarino and Johnson,
1999). Churchill and Surprenant (1982) also indicated that satisfaction is the result of
purchasing and using products, derived from the comparison between the purchasers’
expected outcomes and the actual investment they make. Commitment is a necessary
element for long-term relationships (Dwyer et al, 1987), and it is also the most commonly
used variable when examining trading relationships. Commitment means maintaining an
important relationship with a trading partner as well having the desire to continue the
relationship in the future (Wilson, 1995). Morgan and Hunt (1994) stated that it is very
important for trading partners to believe that their relationship is sustainable, as this
would encourage both parties to make efforts to maintain the relationship as well as to
tolerate some uncertainties. Therefore, commitment is an important symbol of good
relations as well as a willingness to continue to maintain the relationship. When
customers express a willingness to make a commitment to a firm, it denotes that good
relations exist between the parties involved. Hence, commitment is vital to a successful
long-term relationship (Dwyer et al., 1987; Morgan and Hunt, 1994; Sharma and
Patterson, 1999). Dwyer et al. (1987), Gundlach et al. (1995), Wong and Shoal (2002)
claimed that commitment and trust are the important variables in attempting to
understanding the strength of a relationship, and the most useful dimensions in evaluating
the continuous development of the relationship between trading partners.
Crosby et al. (1990) noted in their research regarding the US life insurance industry
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that relationship quality is the overall assessment of the strength of the relationship
between life insurance salespersons and customers, and this assessment matches the
demands and expectations of both parties. Their study also showed that the professional
competence of life insurance salespersons has a positive impact on service quality,
indicating that when the salespersons have a high level of expertise, customers will feel
more confident about the quality of the services offered. Customers’ perceived service
quality assurance thus has a positive impact on the relationship quality. Henning-Thuran
and Klee (1997) also stated that the foundation of any trading relationship is built on the
transaction of services or products, and that the awareness of overall quality (including
products and services) is the basic factor of relationship quality.
Based on the above-mentioned studies, a connection between service quality and
relationship quality can be observed. Specifically, the more satisfied customers are with
companies’ service quality, the better evaluations they will give with regard to the
relationship quality. We thus present the following hypothesis: � � � � �
H1: The better the service quality of the life insurers, the higher the relationship quality
between customers and companies is.
3. Types of relationship marketing
The concept of relationship marketing was first presented by Berry (1983) in a study of
marketing in service industries. Relationship marketing is a strategy to attract, maintain
and promote customer relationships via the various services provided by organizations.
Berry and Parasuraman (1991) indicated that relationship marketing involves attracting,
developing and maintaining customer relationships. Shani and Chalasani (1992) argued
that such marketing is mainly achieved by offering family-related products and services
to establish ongoing, mutually beneficial relationships with consumers.
Berry and Parasureman (1991) and Berry (1995) noted that there are three types of
marketing bonds companies adopt to cultivate customer loyalty. The higher the level of
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relationship marketing implemented, the stronger the bonding between customers and
companies becomes. The three types of bonding are as follows. (1) Financial bonds,
which mainly rely on using price incentives to encourage customers to buy the goods or
services in order to maintain customer loyalty, or offering long-term customers cheaper
products or free gifts. However, the competitive advantage companies enjoy with such
measures is often short-lived. (2) Social bonds, when companies establish long-term
relationships with customers via social and interpersonal networks. In this approach,
companies regard customers as different individuals and attempt to meet the demands of
various customer groups with customized services. Compared to the financial bonds,
which are built based on price incentives, social bonds allow companies to enjoy greater
competitive advantages, as they are more difficult to replace and also helpful in
increasing the customer retention rate (Crosby et al., 1990). (3) Structure bonds, which
are achieved when companies offer much more customized services to individual
customers, emphasizing the delivery of high service quality and developing long-term
sustainable relationships consisting of trust, satisfaction and commitment (Kumar et al.,
1995). In this final strategy, companies have to offer partners integrated services or to
provide customers with innovative products to meet their specific needs (Hsieh et al.,
2002).
Berry and Parasureman (1991) noted that financial bonds are built by companies
offering price incentives to encourage customers to buy their products or services. They
also stated that the pricing strategy of the marketing mix helps to transform random
customers into regular clients. At the same time, customers can be made to identify with
companies’ products and have stronger feelings of trust and commitment towards the
related firms.
Wilson (1995) postulated that social bonds represent the interpersonal relationships
between buyers and sellers. When there is a strong interpersonal relationship between two
parties, the commitment to maintain the relationship is significantly higher. When
choosing to connect via social bonds, companies are more likely to care about customers
as friends and to try to meet their specific demands. When customers are aware of being
regarded as friends, they would also be more willing to give the companies more service
opportunities, thus increasing the chances of future cooperation. Gadde and Snehota
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(2000) have pointed out that when there is closer interaction between two trading partners,
they are more likely to depend on each other and affect each other's satisfaction,
commitment and trust. Wilson and Mummalaneni (1986) indicated that when there are
stronger personal relationships and social bonds between members within a trading
relationship, the commitment to maintain the relationship will also be stronger. Finally,
Smith (1998) found that when companies offer personalized communication or establish
social bonds with customers via personalized service delivery, a positive impact on
relationship quality can be observed.
Han et al. (1993) indicated that in the complex purchasing conditions that no prevail,
companies with stronger structure bonds are able to offer multiple and better customized
value-added services. Compared to companies with weaker such bonds, they would also
be able to receive more trust, satisfaction and commitment in maintaining long-term
relationships with customers. Moreover, Lin et al. (2003) and Rodriguez and Wilson
(2002) confirmed that structure bonds have a positive impact on trust, satisfaction and
commitment, which form the basis of relationship quality.
Lin et al. (2003) found in their study of the banking industry that in establishing
long-term transaction relationships with customers, the financial, social and structure
bonds strategies all have significantly positive impacts on trust, satisfaction and
commitment. Hsieh et al. (2005) undertook a study of online shoppers to examine
whether online auction sellers might increase customer commitment by using bonding
strategies. In their work, products were classified into three categories: search, experience
and trust, which were then used as moderating variables. Their results show that
regardless of the product category, the financial, social and structure bonds strategies all
help to increase customers’ satisfaction and commitment toward the related companies.
Based on these earlier studies, we present the next hypothesis:
H2: The type of relationship marketing (financial, social and structure) adopted by life
insurers is positively correlated with the relationship quality (trust, satisfaction and
commitment).
Good customers relationships help enhance service quality (Parasurman, Zemail and
Berry, 1991). Holmlund and Kock (1996) discovered that relationship marketing
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increases customer awareness of service quality as well as customer loyalty (Storbacka,
Strandvik and Gronroos, 1994). Leuthesser (1997) noted that the implementation level of
relationship marketing bonds and customers’ awareness of service or product quality are
correlated. Formally stated, we present the third hypothesis: � � � � �
H3: The type of relationship marketing (financial, social and structure) adopted by life
insurers is positively correlated with the service quality.
4. Customer loyalty
In the highly competitive insurance market, it is not easy to acquire new customers,
so life insurers have endeavored to increase customer loyalty among existing clients.
Reichheld and Sasser (1990) and Rosenberg and Czepiel (1984) pointed out that the cost
of acquiring a new customer is five times that of keeping an existing one. Frederick and
Schefter (2000) noted that "customer loyalty" refers to the trust held by the “right”
customers, and thus companies should try to win customers who are worthy of the related
investment and then work to earn their commitment. According to Frederick and Sasser
(1995), when the customer retention rate increases by 5%, profits will rise by from 25%
to 100%. Backman and Crompton (1991) indicated that loyalty can be further divided
into "attitude" and "behavior". In addition, Griffin (1996) proposed that customer loyalty
should consist of the following actions: 1. regular and repeated purchases; 2. patronage of
the various products and services offered; 3. establishment of word of mouth; 4.
immunity to other competitors’ promotional activities. Additionally, Bowen and
Shoemaker (1998) stated that customer loyalty refers to customers’ repeated purchases
and the possibility of customers viewing themselves as partners of the related companies.
Loyal customers are an important source of competitiveness, and retaining loyal
customers is a vital task for life insurers.
Relationship quality is the key factor determining whether transactions between buyers
and sellers can be maintained (Anderson and Narus, 1990). Crosby et al. (1990) found in
their empirical study that customer expectations about future interactions are determined
by the quality of relationships with insurance salespersons. Oliver and Macmillan (1992)
indicated that customer satisfaction and trust affect customer loyalty. When customers
show willingness to continue interacting with a company, the relationship between them
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becomes closer and customer loyalty increases accordingly. Boles et al. (2000) also
discovered that if customers have relatively good relationships with the salespersons, they
are more likely to return for further purchases and to recommend the products sold.
Based on this, present the following hypothesis:
H4 � � Customers’ perceived relationship quality is positively correlated with customer
loyalty.
The aim of relationship marketing is to cultivate customer loyalty and acquire
customer lifetime value via the establishment of a long-term relationship. Christy et al.
(1996), Evans and Laskin (1994) and Shani and Chalasani (1992) all indicated that the
implementation of relationship marketing helps enhance customer loyalty. Peltier and
Westfall (2000) and Kristof et al. (2001) also found that relational bonds have a
significant impact on customer loyalty, and especially structure bonds. We therefore
hypothesize that: � � � �
H5: The type of relationship marketing (financial, social and structure) adopted by life
insurers is positively correlated with customer loyalty.
This remainder of this study consists of four sections. The first presents an overview
of the factors affecting service quality, including interaction quality, physical
environment and additional services. The second covers the dimensions of relationship
quality, including trust, satisfaction and commitment. Details regarding the types of
relationship marketing, including financial, social and structure bonds, are given in the
third section. The fourth section then presents an overview of customer loyalty, which
here is composed of behavioral loyalty and word of mouth. The research framework used
in this study is shown in Figure 2.
(Insert Figure 2 about here)
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III. Methodology
1. Sample and data collection procedure
Policyholder service centers have direct contact and frequent interaction with
customers, and thus the customer service representatives working in these centers need to
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offer various after-sales services according to customer demands. This study takes as its
research subjects the customers of life insurers’ policyholder service centers. Data from
the Taiwan Insurance Institute (2010) show that there are 30 life insurers in Taiwan, with
the full list as follows: BankTaiwan Life Insurance, Taiwan Life Insurance, Cathay Life
Insurance, PCA Life Insurance,China Life Insurance, Nan Shan Life Insurance, Kuo Hua
Life Insurance, Shin Kong Life Insurance, Fubon Life Insurance, Global Life Insurance,
MassMutual Mercuries Life Insurance, Sinon Life Insurance, Singfor Life Insurance,
Farglory Life Insurance, Hontai Life Insurance, Allianz Life Insurance, Taiwan Post,
TCB Life Insurance, Prudential Life Insurance, TransGlobe Life Insurance, New York
Life Insurance, Metropolitan Life Insurance, First-Aviva Life Insurance, CIGNA Life
Insurance, AIA, Manulife Insurance, Cardif Assurance Vie, ACE Life Insurance, Zurich
International Life Insurance and HSBC Life Insurance.
To achieve the research goals of this study, both qualitative and quantitative methods
were adopted to obtain more comprehensive results. The qualitative method of in-depth
interviews was used to modify the overall research model. With the help of the Life
Insurance Association of the Republic of China, interviews with top executives of the
policyholder service centers at five life insurance companies (Nan Shan Life Insurance,
Fubon Life Insurance, Shin Kong Life Insurance, MassMutual Mercuries Life Insurance
and Global Life Insurance) were conducted to ensure that relationships between the
independent and dependent variables examined in this study exist, and to understand their
views with regard to using the different types of relationship marketing to promote
service quality, relationship quality and future customer loyalty, with these aims forming
the basis for the design of the questionnaire (Siu et al. , 2004). Each interview session
lasted from 30 minutes to one hour, using an interview outline with open-ended questions,
with these based on the review of the related literature and the opinions of the managers
working at policyholder service centers of life insurers.�
Pre-tested draft questionnaires were mailed to ten respondents, including instructors of
insurance in universities and executives of policyholder service departments at life
insurers, to assess whether the content and semantics were clear and appropriate.
Follow-up interviews were scheduled via telephone calls to collect the respondents’
feedback, which was then used to modify the questionnaire. After several examinations,
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inappropriate questions and items were revised or deleted and the survey questionnaire
was finalized (Churchill, 1979).
According to the Taiwan Insurance Institute's (2009) figures on the market share of life
insurers (calculated by dividing the total premium income by that of the industry) in
Taiwan, the top eight companies were Cathay (22.9%), Fubon (19.66%), Nan Shan
(11.4%), Shin Kong (10.52%), Taiwan Post (7.3%), MassMutual (4.12%), China (3.97%)
and Farglory (3.37%), accounting for 83.25% of the market. Due to limitations with
regard to time and human resources, only customers of the policyholder service centers at
the eight companies in the Taipei, Taichung and Kaohsiung metropolitan areas were
sampled for the survey. Kerlinger and Lee (2000) suggested that the number of samples
used for factor analysis should at least be ten times the number of question items. The
questionnaire used this study contained thirty items. Therefore, taking into account the
probability of invalid questionnaires and the actual number of usable questionnaires that
would be returned, a total of 780 questionnaires, more than double the suggested amount,
were issued to Cathay (180 copies), Fubon (150), Nan Shan (120), Shin Kong (100),
Taiwan Post (80), MassMutual (50), China (50) and Farglory (50). With the help of the
Life Insurance Association of the Republic of China and top executives from the focal
life insurers, the questionnaires were mailed from July 1 to August 31, 2010. To increase
the response rate, the top executives of these companies were contacted via mail or
telephone prior to the mailing (Stafford, 1966). A total of 448 questionnaires were
returned, of which 40 copies were incomplete and 408 copies were valid, giving an
overall valid response rate of 52.3%.
In order to examine the possibility of a non-response bias as well as the
representativeness of the sample, early-returned questionnaires (returned within three
weeks of the mailing) were compared to late-returned ones (returned after three weeks of
the mailing) with regard to gender, age and education using the t test. The results were
statically significant with a value of α = 0.05, and did not show any statistically
significant differences (p = 0.35) (Armstrong and Overton, 1977), indicating that the
non-response bias had no serious impact on this study.
2. Operational measures
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This study examined the relationships among "service quality", "relationship marketing
types", "relationship quality" and "customer loyalty". All question items were measured
using a five-point Likert scale, where 1 represented “strongly disagree” and 5 represented
"strongly agree”. The operational definitions and methods of measurement are as follows.
Service quality is defined as the quality and interim effects customers feel during the
actual servicing process. The ten items were adapted from Parasuraman, Zeithaml, and
Berry (1988), Albacete-Saez, Fuentes-Fuentes and Loirens-Montes (2007). The details of
these are as follows:
(1). Interaction quality refers to the interaction relationship between customers and the
customer representatives of life insurers’ policyholder service centers.
(2). Physical environment refers to the complete software and hardware environment
offered by life insurers’ policyholder service centers.
(3). Additional services refer to the financial and insurance information offered by life
insurers’ policyholder service centers.
There are three types of relationship marketing.
(1). Financial bonds refer to life insurance companies’ financial incentives, such as a
discount and product interest, which were adopted to keep and attract customers in the
short-term. Two items to measure this were modified from Berry and Parasuraman (1991)
and Emmelhaize and Kavan (1999).
(2). Social bonds refer to life insurers’ actions to strengthen personal contacts with
customers and to understand their needs in order to offer customized services, thus
enhancing the customer retention rate. Two items for this were adopted from Berry and
Parasuraman (1991), Crosby et al. (1990), Ravald and Gronroos (1996) and Wilson
(1995).
(3). Structure bonds refer to the connections between life insurers and customers
established with value-added services which customers find difficult to acquire from
competitors. Such bonds help deepen relations with customers, and three items were
developed for this by consulting the works of Berry and Parasuraman (1991), Berry
(1995) and Lin et al. (2003).
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Relationship quality is defined as the extent of good relations maintained between life
insurers and customers. Eight items from Crosby et al. (1990), Smith (1998), Swan et al.
(1999) and Morgan and Hunt (1994) were used to assess this. The details of these are as
follows:
(1). Trust refers to the extent of customers’ confidence in life insurers’ actions to improve
the long-term interests of customers in the transaction relationship.
(2). Satisfaction refers to the extent of customers’ contentment with the software and
hardware environment offered by life insurers.
(3). Commitment refers to the completion status of items promised by life insurers to
customers.
Customer loyalty is defined as the customers’ intention to purchase insurance products in
the future and to offer positive word of mouth. It is measured using a five-item scale
drawn from Zeithaml et al. (1996), Martensen, et al. (2000), Boles et al. (1997) and
Roberts et al. (2003). Behavioral loyalty and word of mouth are used to accommodate the
specific characteristics of the life insurance industry.
(1). Behavioral loyalty refers to customers’ intention to purchase a company’s insurance
products again in the future.
(2). Word of mouth refers to customers’ intention to recommend a company to others.
3. Statistical approaches
We used the SPSS 12.0 statistical package for descriptive analysis of the sample
structure, while AMOS 6.0 was used for the SEM. According to the two-step procedures
developed by Anderson and Gerbing (1988), the first step is to develop the measurement
model with good fitness employing confirmatory factor analysis (CFA) to test the
reliability and validity of each construct. The second step is to further analyze the causal
model of the theory, which was undertaken by SEM. Finally, the mediating relationships
among the variable were examined using path analysis (Anderson and Gerbing, 1988;
Bagozzi and Yi, 1988; Jöreskog and Sörbom, 1993).
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IV. Result and discussions
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1. Description of sample
Male and female respondents accounted for 55.4% and 44.6% of the sample,
respectively. Respondents aged over 36 accounted for 31.9% of the sample, and 41.2%
had a university education, indicating the growing trend for insurance products to be
purchased by consumers with higher education in recent years. In addition, 25.7% of the
respondents had between 7 to 9 years work experience, and 41.2% of policyholders were
located in Northern Taiwan. Details of the sample are shown in Table 1.
(Insert Table 1 about here)
2. Correlation coefficients matrix The mean, standard deviation and correlation coefficients are presented in Table 2. The
results of the correlation analysis between the variables show significant positive
correlations. In addition, the correlation coefficients do not exceed 0.8, indicating that
multicollinearity does not affect the regression model (Hair et al., 2006).
� (Insert Table 2 about here)
� � � � �
3. Measurement model
In this study, confirmatory factor analysis (CFA) was used to test the measurement model
of the latent variables. First, when the standardized factor loading (SFL) ranges between
0.50 and 0.95, the measurement model achieves basic goodness of fit (Bagozzi and Yi,
1988). Second, the composite reliability (CR) of the latent variables is used to measure
the reliability of latent variables. The higher the CR value, the more effectively the
construct reliability of a specific latent variable can be determined. Fornel and Larcker
(1981) and Bagozzi and Yi (1988) have suggested the CR value should be above 0.6. In
addition, the average variance extracted (AVE) is above 0.5, and thus the convergent
validity of the measure is established (Anderson and Gerbing, 1988). The figures shown
in Table 3 indicate that good internal quality exists within the research model.
(Insert Table 3 about here)
4. Structural equation model
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A structural equation model is used to test the goodness of fit, and the results show that
the Chi-Square = 541 (p = 0.00), χ2/df (degree of freedom) = 3.02, Good-of-Fit Index
(GFI) = 0.95, Adjusted Good -of-Fit Index (AGFI) = 0.92, Normed Fit Index (NFI) =
0.93, Non-Normed Fit Index (NNFI) = 0.71 and Root Mean Square Error of
Approximation (RMSEA) = 0.041, all reaching the standards suggested by Hair et al.
(2006), thus indicating a good overall model fit. The standardized path coefficients are
then applied to verify the hypotheses.
The positive correlation between service quality and relationship quality (service quality
� relationship quality) reaches the level of significance (0.86**), indicating that the
better the service quality of the life insurers, the higher the relationship quality between
customers and companies is, and thus Hypothesis 1 is supported. The positive correlation
between types of relationship marketing (financial, social and structure) and relationship
quality (trust, satisfaction and commitment) (types of relationship marketing �
relationship quality) reaches the level of significance (0.75**), indicating that the types of
relationship marketing adopted by life insurers and the relationship quality are positively
correlated, supporting Hypothesis 2. The positive correlation between types of
relationship marketing (financial, social and structure) and service quality (types of
relationship marketing � service quality) reaches the level of significance (0.79**),
indicating that the types of relationship marketing adopted by life insurers and the service
quality are positively correlated, providing support for Hypothesis 3. The positive
correlation between relationship quality and customer loyalty (relationship quality �
customer loyalty) reaches the level of significance (0.51**), indicating relationship
quality and customer loyalty are positively correlated, supporting Hypothesis 4. Finally,
the positive correlation between types of relationship marketing (financial, social and
structure) and customer loyalty (types of relationship marketing � customer loyalty)
reaches the level of significance (0.56**), indicating that the types of relationship
marketing adopted by life insurers and customer loyalty are positively correlated,
supporting Hypothesis 5.
The details results are shown Table 4, and the linear structural relations among the
variables are also shown in Figure 3.
19
(Insert Table 4 about here)
(Insert Figure 3 about here)
5. Theoretical implications
This work represents the first attempt to study Taiwan's life insurance industry and to
examine customer loyalty from the perspective of relationship marketing, using in-depth
interviews and questionnaires. Theories covered in the study include financial bonds,
social bonds, structure bonds, interaction quality, physical environment, additional
services, trust, satisfaction, commitment, behavioral loyalty and word of mouth, which
are expected to serve as references for future insurance marketing research.
6. Managerial implications This study has found that the impact of relationship marketing on policyholders varies
depending on the type of relational bonds pursued. Social bonds are the most influential
type, and thus it is highly recommended that life insurance salespersons should be more
active in communicating with customers and offering products (e.g. investment-linked
insurance, life insurance, health insurance and accident insurance) which meet the their
specific needs and preferences. Salespersons are also encouraged to be more active in
offering after-sales services and developing friendships with customers. Financial and
structure bonds also have positive impacts on relationship quality. With regard to the
former, life insurance companies can promote products by offering premium discounts.
Moreover, life insurers can also build stronger structure bonds by offering new insurance
information to policyholders, immediate answers to policyholders’ questions and
complaints, more complete policyholder services, and diverse product purchase channels.
These measures have all been shown to be effective in enhancing customer trust,
satisfaction and commitment, as well as customer loyalty.
This study has also found that relationship quality helps enhance customers’ behavioral
loyalty and word of mouth. Life insurance companies therefore should endeavor to
improve the relationship quality to maximize their customer retention rates. With
improved relationship quality, customers are more likely to continue to hold on to their
existing policies, purchase other insurance products from the same company, and
20
recommend the company to others.
V. Conclusions
The conclusions and research limitations of this work are as follows.
The better the service quality of the life insurer is, the higher the relationship quality
between customers and company.
This result matches the findings of Leuthesser (1997) and Shamdasani and
Balakrishnan (2000), in that life insurers can strengthen policyholders’ trust, satisfaction
and commitment by improving the interaction quality and physical environment, and
offering additional services. That is, in addition to creating comfortable service centers
and a good atmosphere of the overall surroundings, life insurers should endeavor to better
understand policyholders’ needs in order to better meet them. Meanwhile, it is vital to
manage customers’ complaints in an effective manner. Apart from establishing more
complete communication channels, life insurers should keep an open mind about all
complaints and actively seek improvements where needed.
The types of relationship marketing (financial, social and structure) adopted by life
insurers and the relationship quality (trust, satisfaction and commitment) are positively
correlated.
These results match the findings of Morgan and Hunt (1994) and Garbarino and
Johnson (1999). Life insurers can offer policyholders better insurance packages via
premium discounts, fast after-sales services and diverse insurance purchase channels,
thus utilizing relationship marketing strategies involved financial, social and structure
bonds to further enhance customer trust, satisfaction and commitment. Life insurance
salespersons are thus encouraged to develop friendships with policyholders and to work
to better understand their real needs in order to offer more suitable services which
customers might find difficult to acquire from competitors.
Types of relationship marketing (financial, social and structures) adopted by life insurers
and the service quality are positively correlated.
These results match the findings of Holmlund and Kock (1996). By utilizing
21
relationship marketing strategies involving the financial, social and structure bonds, life
insurance companies can improve the friendliness of service personnel, actively offer
insurance consultancy services, provide complete hardware and software environments,
and offer a variety of services, including the roadside assistance services, overseas
emergency relief services, hospital concessions and toll-free services.
Customers’ perceived relationship quality and customer loyalty are positively correlated.
These results match the findings in Crosby et al. (1990) and Smith (1998), and thu is
an area where life insurers might find competitive niches for further differentiation in the
market. In the life insurance industry, good long-term relations with customers and high
customer satisfaction create significant entry barriers for competitors. They also help
maintain and enhance customer loyalty, which is crucial for companies’ overall
performance and profitability.
The types of relationship marketing (financial, social and structure) adopted by life
insurers and customer loyalty are positively correlated.
Life insurance salespersons should more actively care about policyholders’ insurance
demands and preferences, offer premium discounts, provide insurance information and
immediately solve any problems and customer complaints. Utilizing the relationship
marketing strategies involving financial, social and structure bonds can help to enhance
customer loyalty. In such circumstances, when a firm is criticized, its policyholders are
likely to defend it, and are also willing to recommend the insurance products it offers to
others as well as purchase new products from the same company. �
Limitations and future research directions
A self-report scale is adopted in this work, so the common method variance (CMV) is a
potential issue. Spector (1987) noted that CMV results from the self-report questionnaire
and social desirability bias are permitted. However, two methods are used in this study to
reduce CMV in terms of empirical interpretation. First, both in-depth interviews and
questionnaires are used, and the statements used in the questionnaire tend to be fair and
open. Secondly, SEM is used for statistical analysis (Jöreskog and Sörbom, 1993) to
reduce the impact of this particular problem.
22
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28
Figure 1 Ratio of life and annuity insurance coverage and prevalence (2000-2009)
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
Per c
ent Life and annuity insurance
coverage ratioLife and annuity insuranceprevalence ratio
Source: Taiwan Insurance Institute (2009)
�������������� �
29
Figure 2 Conceptual model� �
�
Relationship quality � Trust � Satisfaction � Commitment
�Service quality
� Interaction quality
� Physical environment
� Additional services�
�Customer loyalty�
� Behavioral loyalty�
� Word of mouth
Types � � ��elationship marketing�
� Financial bonds � Social bonds � Structure bonds�
30
Figure 3 Path diagram for structural model�
�
�
���������������������������������������
�����������������������������������������0.71 0.80 0.78
���������������������������������������������������������������������
�
������������������������������������� 0.79�� 0.75�� 0.56��
��������������������0.88 0.85
0.87 0.86�� 0.51��
�
�����������������0.90����������������������0.70 0.73 0.72 �����������������0.89
�����������������������������������������
�
�
Types of relationship marketing
types
Service quality �
Relationship quality �
Customer loyalty
�
Financial bonds �Social bonds Structure bonds
Interaction quality
Physical environment
Additional services
Trust� Satisfaction� Commitment�
Behavioral loyalty
Word of mouth
31
Table 1 Description of sample�
Item Category Sample Per cent
Gender Male 226 55.4
� Female 182 44.6
Age Under 20 20 4.9
� 20-25 70 17.2
� 26-30 85 20.8
� 31-35 103 25.2
� Over 36 130 31.9
Education Senior high school 79 19.4
� College 140 34.3
� University 168 41.2
� Graduate school 21 5.1
Working experience (years) No 28 6.9
� 1-3 52 12.7
� 3-5� 68 16.7
� 5-7 80 19.6
� 7-9 105 25.7
� Over 9 75 18.4
Area Taipei 168 41.2
� Taichung 103 25.2
� Kaohsiung 137 33.6
�
�
32
Table 2 Correlations matrix among variables�
Variables Mean S.D. 1 2 3 4 5 6 7 8 9 10 11
1.Financial bonds 4.10 0.31 1
2. Social bonds 3.82 0.43 0.34�� 1
3. Structure bonds 3.97 0.40 0.40�� 0.41�� 1
4. Interaction quality 4.32 0.37 0.43�� 0.46�� 0.44�� 1
5.Physical environment 4.51 0.35 0.38�� 0.35�� 0.34�� 0.31�� 1
6. Additional services 4.21 0.30 0.46�� 0.42�� 0.39�� 0.37�� 0.36�� 1
7. Trust 4.55 0.33 0.27�� 0.31�� 0.24� 0.30�� 0.33�� 0.29�� 1
8. Satisfaction 4.48 0.39 0.46�� 0.51�� 0.49�� 0.55�� 0.48�� 0.45�� 0.44�� 1
9. Commitment 4.56 0.42 0.43�� 0.41�� 0.38�� 0.41�� 0.40�� 0.42�� 0.39�� 0.38�� 1
10. Behavioral loyalty 4.38 0.28 0.29�� 0.31�� 0.36�� 0.35�� 0.33�� 0.41�� 0.39�� 0.37�� 0.38�� 1
11. Word of mouth 4.58 0.30 0.38�� 0.39�� 0.43�� 0.47�� 0.46�� 0.44�� 0.41�� 0.40�� 0.45�� 0.39�� 1
� Note:��indicates statistical significance at the 1% level.��indicates statistical significance at the 0.05% level. �
33
Table 3�Confirmatory factor analysis result of measures
Construct Measurement aspects �SFL (t-value) CR AVE
Types of relationship marketing �
(α = 0.90 )
Financial bonds
Social bonds�
0.71 (17.14��) 0.80 (18.13��)
0.91 0.72
� Structure bonds� 0.78 (17.85��)
� �
Service quality�(α = 0.90 )
Interaction quality�
0.88 (18.89��)
0.91 0.87
� Physical environment� 0.87 (18.87��)
� Additional services� 0.90 (19.02��)
Relationship quality�(α = 0.85 )
Trust�
0.70 (17.01��)
0.85 0.65
� Satisfaction� 0.73 (17.38��)
� Commitment� 0.72 (17.33��)
Customer loyalty
(α = 0.92 )
Behavioral loyalty�
0.85 (18.84��)
0.92 0.86
� Word of mouth� 0.89 (19.01��)
SFL, standardized factor loading; CR, composite reliability; AVE, average variance extracted.
Note����indicates�statistical significance at the 1% level.
34
Table 4�Result of the structural model test
Hypothesis Causal paths Coefficient (t-value)
H1 Service quality Relationship quality�������� 0.86��(9.51)
H2 Types of relationship marketing (Financial, Social, Structure ) ��������Relationship quality����
0.75��(8.72)
H3 Types of relationship marketing (Financial, Social, Structure ) ��������Service quality�
0.79��(9.24 )
H4 Relationship quality�������Customer loyalty� 0.51��(6.91)
H5 Types of relationship marketing (Financial, Social, Structure ) �������Customer loyalty�
0.56��(7.21)
�
�
�
Goodness-of-fit indices
Chi-Square test =541 (p= 0.00)
χ2/df (degree of freedom) = 3.02
GFI= 0.95
AGFI= 0.92
NFI= 0.93
NNFI= 0.71
RMSEA= 0.041�
�
Note: All coefficients are significant (t-value� 2.58, ��indicates statistical significance at the
1% level).
�
������������������
