Hanna Dagne

ST.
MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES
DETERMINANTS OF CUSTOMER RETENTION IN

NYALA INSURANCE S.C.
BY: HANNA DAGNE
NOVEMBER 2014
ADDIS ABABA, ETHIOPIA
BY: HANNA DAGNE

I.D NO: SGS/0223/2005B
A THESIS SUBMITTED TO ST.MARY’S UNIVERSITY,

SCHOOL OF GRADUATE STUDIES IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION
NOVEMBER, 2014
ADDIS ABABA, ETHIOPIA
ST. MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES
SCHOOL OF BUSINESS

BY
HANNA DAGNE
I.D NO: SGS/0223/2005B
APPROVED BY BOARD OF EXAMINERS
________________________ __________________
Dean, Graduate Studies
______________________________ _____________________
Advisor
______________________________ _____________________
External Examiner
______________________________ _____________________
Internal Examiner
TABLE OF CONTENTS
TABLE OF CONTENTS ...............................................................................................................................i

ACKNOWLEDGMENTS ............................................................................................................................ iii
LIST OF ACRONYMS ................................................................................................................................ iv
LIST OF TABLES ........................................................................................................................................ v
LIST OF FIGURES ...................................................................................................................................... vi
ABSTRACT .................................................................................................................................................. vii
CHAPTER ONE ........................................................................................................................................... 1
INTRODUCTION ........................................................................................................................................ 1
1.1 Background of the Study ........................................................................................................................ 1
1.2 Statement of the Problem ....................................................................................................................... 3
1.3 Research Questions ................................................................................................................................ 3
1.4 Objective of the Study ............................................................................................................................ 4
1.4.1 General Objective ................................................................................................................................ 4
1.4.2 Specific Objectives .............................................................................................................................. 4
1.5 Definition of Terms ................................................................................................................................ 4
1.6 Significance of the Study........................................................................................................................ 5
1.7 Scope of the Study .................................................................................................................................. 5
1.8 Organization of the Study ....................................................................................................................... 5
CHAPTER TWO .......................................................................................................................................... 7
REVIEW OF RELATED LITERATURE .................................................................................................... 7
2.1. Customer Retention ............................................................................................................................... 7
2.2. Factors Affecting Customer Retention .................................................................................................. 8
2.2.1. Customer Satisfaction ......................................................................................................................... 8
2.2.2 Trust..................................................................................................................................................... 9
2.2.3 Premium Price ..................................................................................................................................... 9
2.2.4 Switching Barriers ............................................................................................................................. 10
2.3 Empirical Review ................................................................................................................................. 11
2.3.1 Relationship between Customer Satisfaction and Retention ............................................................. 11
2.3.2 Relationship between Trust and Customer Retention ....................................................................... 12
2.3.3 Relationship between Premium Price and Customer Retention ........................................................ 12
2.3.4 Relationship between Switching Barriers and Retention ................................................................. 13
CHAPTER THREE .................................................................................................................................... 14
RESEARCH DESIGN AND METHODOLOGY ...................................................................................... 14
3.1 Research Design ................................................................................................................................... 14
3.2 Population and Sampling Techniques .................................................................................................. 15
3.2.1 Population ......................................................................................................................................... 15
3.2.2 Sampling Technique .......................................................................................................................... 16
3.3 Types of data and Instruments of data collection ................................................................................. 17
3.3.1 Types of Data .................................................................................................................................... 17
3.3.2 Instruments of Data Collection .......................................................................................................... 18
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3.4 Procedures of Data Collection .............................................................................................................. 18
3.5 Method of Data analysis ....................................................................................................................... 18
3.6. Validity and Reliability ....................................................................................................................... 19
3.7 Ethical considerations ........................................................................................................................... 20
CHAPTER FOUR ...................................................................................................................................... 21
RESULTS AND DISCUSSION ................................................................................................................. 21
4.1 Demographic Data ................................................................................................................................ 21
4.2 Data Analysis........................................................................................................................................ 22
4.3 Retention Rate of NISCO ..................................................................................................................... 22
4.4 The Current Status of NISCO ............................................................................................................... 23
4.4.1 Customer Satisfaction ........................................................................................................................ 23
4.4.2 Trust................................................................................................................................................... 24
4.4.3 Price ................................................................................................................................................... 26
4.4.4. Switching Barrier.............................................................................................................................. 27
4.5 Cross Tabulation of Variables .............................................................................................................. 28
4.5.1 Cross tabulation of Customer Satisfaction and Retention ................................................................. 28
4.5.2 Cross tabulation of Trust and Retention ............................................................................................ 29
4.5.3 Cross tabulation of Premium and Retention ...................................................................................... 30
4.5.4 Cross tabulation of Switching Barrier and Retention ........................................................................ 31
4.6 Result of Pearson Correlation Analysis ................................................................................................ 32
4.7 Result of Binary Logistic Regression ................................................................................................... 33
4.8 Discussion of the Results...................................................................................................................... 34
4.8.1 The Attrition Rate of NISCO............................................................................................................. 34
4.8.2 Factors that Lead to Attrition in NISCO ........................................................................................... 35
4.8.2.1 Customer Satisfaction ..................................................................................................................... 35
4.8.2.2. Trust............................................................................................................................................... 36
4.8.2.3. Premium ........................................................................................................................................ 37
4.8.2.4. Switching Barrier........................................................................................................................... 38
CHAPTER FIVE ........................................................................................................................................ 40
CONCLUSIONS AND RECOMMENDATIONS ..................................................................................... 40
5.2. Conclusions ......................................................................................................................................... 40
5.3 Recommendations ................................................................................................................................ 41
5.4 Limitation of the study ......................................................................................................................... 42
References .................................................................................................................................................. 43
APPENDIX
QUESTIONNAIRE
ii
ACKNOWLEDGMENTS
I would like to take this opportunity to thank my friend, Guiliano Ettore for his
professional advice and encouragement while doing this research.
My gratitude also goes to my adviser, Asst. Prof. Shoa Jemal, for his kind guidance and
support. I would like to thank all NISCO staffs who work in Addis Ababa branches for
their cooperation in distributing and collecting questionnaire.
Finally, I would like to thank my families who encourage and assist me morally and
financially in order to complete this study.
iii
LIST OF ACRONYMS
NISCO Nyala Insurance S.C.
SMU Saint Mary‟s University
SGS School of Graduate Studies
SPSS Statistical Package for Social Sciences
OR Odds Ratio
CI Confidence Interval
iv
LIST OF TABLES
Table 1: Validity statistics
Table 2: Demographical Data of the Respondents
Table 3: Summary of Responses Related to trust
Table 4: Summary of Responses Related to Customer Satisfaction
Table 5: Summary of Responses Related to Price
Table 6: Summary of Responses Related to Switching Barrier
Table 7: Crosstab: Customer Satisfaction with Retention
Table 8: Crosstab: Trust with Retention
Table 9: Crosstab: Premium with Retention
Table 10: Crosstab: Switching Barrier with Retention
Table 11: Result of Pearson Correlation Analysis
Table 12: result Binary Logistic Regression
v
LIST OF FIGURES
Figure 1: Conceptual framework of the study
Figure 2: Respondent‟s response to wards retaining service
Figure 3: General feeling of Respondents about Premium Price
Figure 4: General feeling of Respondents about switching barrier
vi
ABSTRACT
Customer retention plays a significant role for profitability and growth of a company.
Accordingly, the aim of this study was determining the factors that affect customer
retention in Nyala Insurance S.C. where its customer retention rate has been going
down on an alarming rate. The study has analyzed the impact of selected independent
variables, which are believed to have major impact in service rendering sector based
on previous research findings. The determinant variables, which are satisfaction, trust,
premium and switching barriers were selected based on the theoretical references
made. The relevant data for the analysis of the research was gathered from a sample of
143, out of nearly 2,000 customers of NISCO Addis Ababa branches. Respondents were
selected using convenience sampling method. The data was collected using a
questionnaire comprised of 21 close-ended questions, mostly with Likert scale. The
return rate was 90.2%. The data was analyzed on three layers. The demographic and
univariate analysis was carried out using descriptive analysis; the bivariate analysis
was computed using Pearson Correlation analysis; and, finally, binary logistic
regression was used for the multivariate analysis. Major findings of the research
showed that the attrition rate of the company still lies around 31.8%. Amongst the
independent variables, trust is found to be the most significant factor in determining
customer retention rate. Secondly, customer satisfaction is found to have a strong
impact in affecting customers’ decision whether to stay or not. Premium price and
switching barrier were found to have non-significant impact on retention. Based on
these findings, a recommendation that stresses on developing trust and customer
satisfaction has been forwarded.
Key Words: customer retention, Attrition, Trust, Customer Satisfaction, Premium,

Switching Barrier.
vii
CHAPTER ONE
INTRODUCTION
This chapter presents a general background of the study, Objectives of the study as well as
statement of the problem. The chapter further describes the scope of the study, significance
of the study and organization of the study.
1.1 Background of the Study
As per the financial definition, insurance is a financial arrangement that redistributes the
costs of unexpected losses. Article 654 (2) of the commercial code of Ethiopia, provides a
legal definition of insurance policy as “An insurance policy is a contract whereby a person
called the insurer undertakes against payment of one or more premiums to pay to a person,
called the beneficiary, a sum of money where a specified risk materializes”. This contract
of agreement is subject to specific period, usually one year, and can be renewed for further
period based on an additional charge and the mutual interest of the insurer and the insured.
Thus, renewed policies assure customer retention.
In this complex and dynamic business environment, organization‟s survival is highly

determined by its ability to attract and retain customers. Ramakrishnan (2006) defines
customer retention as the marketing goal of preventing customers from going to the
competitor.
In Ethiopia, the insurance industry falls under the category of fast growing sectors. This
can be witnessed by the availability of many new entrants that are joining the market.
Currently, the government of Ethiopia has given special emphasis to the sector by which it
had introduced compulsory third party insurance act regarding motor vehicles. Moreover,
it is also in process to declare a compulsory health insurance act for employees. This and
other factors increase the market demand. On the other hand, as a supply response, some
new insurance companies has joined the market and others are on establishment to join the
market. Currently the total number of insurance companies in operation has reached
seventeen. Thus, it is common for the prevalence of stiff competition and switching of
customers among the insurance companies.
1
Customer retention is the way in which organizations focus their efforts on existing
customers in an effort to continue doing business with them (Mostert et al., 2009).
However, customer retention can also mean the number of customers who stay with the
provider in the course of an established period, such as a year (Dawes, 2009: 232).
Customer retention is a key factor in determining the success of businesses today. Fluss
(2010) notes that competitors are always on the lookout to steal customers through better
deals. Fluss has observed that annual customer attrition rates range from 7% in industries
that have high Switching Barriers such as banking and insurance, to almost 40% in the
mobile phone industry.
However, currently Nyala Insurance S.C experiencing higher attrition rate than stated,
which is 30% though there are Switching Barriers. This results a significant negative
impact on the company‟s market share and profitability.
Customer retention has a direct impact on long-term customer lifetime value, which is a
more profitable avenue for firms that seek to pursue growth and sustainability or those that
seek to protect themselves from market shrinkage resulting from a contracting economy
(Gee et al., 2008). Therefore, Customer retention is important when brand loyalty is
decreasing and sales cycles are aggravating the business environment because under these
circumstances, losing an important customer to a competitor would affect significantly the
organization's profitability and growth
Different studies like Rust and Zahorik (1993) indicates that acquiring new client costs five
to twelve times greater effort than retaining existing client. Therefore, it is vital to
emphasis on maximizing customer retention through addressing issues that affect retention
so as to ultimately ensure the company's sustainable growth and profit.
This research mainly focuses on identifying the customer retention factors and their degree
of influence on company under study, Nyala Insurance S.C. Thus, having recognized the
factors, the company can control or minimize its alertly increasing attrition rate and
increase its market share. Moreover, different researchers studied the relationships of
customer retention and its factors in different sectors. However, there is no prior similar
research conducted on the insurance industry in Ethiopian context. Hence, this research has
a great significance for insurance industry in general and for Nyala Insurance S.C. in
particular.
2
1.2 Statement of the Problem
Insurance companies in Ethiopia are in expansion, targeting lucrative businesses favored

by construction development, growth of foreign direct investment and the overall
economic growth. Thus, competition tends to be high among existing and the incoming
insurance companies. The nature of service given by all insurance companies is subject to
renewal of policy period which require the customer's willingness to stay longer with its
insurers.
On the other hand, insurance companies are always exerting their effort on acquisition of
new customer and retaining of the existing customers to achieve their production goal.
Retaining customer for the organization is indispensable target for survival and
maximizing profit. Different studies show that customer retention has as many advantages
over customer acquisition as the cost of attracting new customer is five to twelve times
Therefore, considering these facts, insurance industries are expected to maximize their
retention rate in order to survive and to make profit. Nyala insurance company is in a move
to increase its production by increasing its branches and by diversifying its products. the
Though, company‟s minimum targeted retention rate is 80%, currently (2012/13) the
annual retention rate shows 70%, while in 2011/2012 budget year it was 79%. Thus, the
current retention rate is interpreted as out of 100 customers only 70 customers are retained
and 30 customers are lost per annum due to various reasons. In correlation with this
retention rate, the market share of the company also decreased from 6.1% in 2011/12 to
5.6% in 2012/13 which is a significant lose for the company. In the prevailing dynamic
market and demanding customers, there are many factors that affect customer retention in
insurance industry. Identifying these factors that affect customer retention is very
important for Nyala insurance S.C. and for other similar companies in order to device
appropriate retention strategy, maximize profit, and increase market share. Therefore, this
study carried out to examine factors that affect customer retention particularly in Nyala
Insurance S.C. Moreover, as per the researcher‟s exhaustive search for available sources,
previous works in particular to Ethiopian insurance industry have not been found. Thus,
this research is unique and vital since it considers the context of local market practice.
1.3 Research Questions
3
Derived from the research problem, The following questions are raised in order to
determine the relationship between the dependent and independent variables.
1. What is the relationship between customer satisfaction and customer retention?

2. What does the relation between trust and customer retention in Nyala insurance S.C.
look like?
3. What is the effect of premium /price on customer retention in Nyala Insurance S.C.?
4. What is the relationship between switching barrier and customer retention?
1.4 Objective of the Study

In correlation with the discussed problems, this research has put forward general and specific
objectives to be addressed by the research findings.
1.4.1 General Objective
The general objective of this study is to examine factors that affect customer retention in
Nyala Insurance S.C.
1.4.2 Specific Objectives
To assess the effect of customer satisfaction on retention

To examine the effect of trust on customer retention
To determine the effect of premium price on retention
To assess the effect of switching barrier on customer retention
1.5 Definition of Terms
The following terms are used in this research as per their theoretical definition stated here
under.
Retention rate: It is the percentage of maintained customer over a period. (Ramakrishnan

2006)
Attrition rate: It is defined as the percentage of lost customer over a period. (Fluss 2010)
Acquisition: It is the action of taking possession of customer. (Fluss 2010)
Market share: It is described as a percentage of the total production volume in market
captured by a company (Kotler et al., 2002)
4
Switching barrier: It is a constraint that prevents the customer from switching to other
company. (Gremler and Brown, 1996)
1.6 Significance of the Study
The study has a great significance to Nyala Insurance S.C. and the insurance Industry in
Ethiopia as a whole. Major benefits that would be obtained from the study are:
 It helps Nyala Insurance S.C. to identify determinants of customer retention and

distinguish the factor that has a greater effect over customer retention.
 By identifying and capitalizing on the determinants of customer retention NISCO can
 Reduce the cost of acquisition through maximizing retention. Hence it
indirectly will serve as a free advertising method through retained customer's
 word of mouth activity.
 Maximize its market share, production, and profit.
 Generate new ideas so that they can device their marketing strategy in
accordance to win maximum retention.
 It also helps to Similar insurance companies to identify customer retention
determinants so as to device proper strategy
1.7 Scope of the Study
The study is limited to Nyala Insurance S.C.'s service centers, which are found only in
Addis Ababa. One of the reasons behind this is that the concentration of Nyala Insurance
S.C's branches in Addis Ababa is 58% and in premium contribution, Addis Ababa
branches share 73% of the total premium. The head office of the company is also found in
Addis Ababa. Moreover, Addis Ababa is a better representative of the nations and
nationalities of the country.
1.8 Organization of the Study
The study comprises five main chapters. Chapter one is devoted to the general introduction
covering the background of the study, the statement of the problem, the objectives,
significance, scope and how the research was organized. Chapter two is mainly concerned
5
with the review of related literatures on customer retention determinants as well as the
impact on corporate performance. Chapter three provides the methodology that was
applied to achieve the research objectives including primary data and method of analysis.
Chapter four covers the analysis and presentation of data. This chapter discusses the result
obtained in accordance with the research questions. Finally, chapter five deals with
conclusions of the findings and recommendations forwarded.
6
CHAPTER TWO
REVIEW OF RELATED LITERATURE
This Chapter reviews literatures relevant to the study. The main focus of the study is on
customer retention and its determinants. Accordingly, the review looks at the concept of
customer retention and the proposed factors that affect customer retention; i.e., satisfaction,
trust, price and switching barriers in the insurance sector. Thus, the effect of each variables
suggested by different authors are discussed in this chapter. Then, an empirical review of
different researches has been made.
2.1. Customer Retention
Customer retention involves the steps taken by a selling organization in order to reduce
customer attrition. Successful customer retention starts with the first contact an
organization has with a customer and continues throughout the entire lifetime of a
relationship. Many studies have conducted that show how significant customer retention is
for firms and what factors affect it. For example, the longer a customer stays with an
organization the more utility the customer generates (Reichheld and Sasser, 1990).
According to another research, this is an outcome of a number of factors relating to the
time the customer spends with the organization which includes the higher initial costs of
introducing and attracting a new customer, increases in both the value and number of
purchases, the customer's better understanding of the organization, and positive word-of-
mouth promotion (Havaldar et al, 2012). In addition, retaining customers saves the effort
and cost of gaining new ones. Rust and Zahorik (1993) argue the financial implications of
attracting new customers may be five times as costly as keeping existing customers.
Customer retention is important to most companies because the cost of acquiring a new
customer is far greater than the cost of maintaining a relationship with a Current customer
(Ro King, 2005). The argument for customer retention is relatively straightforward. It is
more economical to keep customers than to acquire new ones. The costs of acquiring
customers to “replace” those who have been lost are high. This is because the expense of
acquiring customers is incurred only in the beginning stages of the commercial relationship
(Reichheld and Kenny, 1990). In addition, longer-term customers buy more and if satisfied
may generate positive word-of mouth promotion for the company. Additionally, long-term
7
customers also take less of the company‟s time and are less sensitive to price changes
(Srivastava and Lurie, 2001).
These findings highlight the opportunity for management to acquire referral business, as it
is often of superior quality and inexpensive to obtain. Thus, it is believed that reducing
customer attrition by as little as five percent can double the profits (Srivastava and Lurie,
2001). Customer retention only focuses on developing marketing strategies that cause
repeat-purchasing behavior and ignores factors that influence such behavior (Hennig-
Thurau and Klee, 1997). Currently, although the concept of customer retention is
applicable to all types of businesses, financial firms seem to be in the forefront of studying
the impact of retention on profits. This makes customer retention one of the priorities of
strategic management. But retaining customers is not an easy task. Many factors are
making retention a difficult task for managers.
2.2. Factors Affecting Customer Retention
There are many factors that affect customer retention. But in light with the objective of the
research and its research questions, only four of the factors are discussed here.
2.2.1. Customer Satisfaction
Customer satisfaction is defined as an "evaluation of the perceived discrepancy between

prior expectations and the actual performance of the product" (Tse and Wilton, 1988,
Oliver 1999). Many published works consistently cite customer satisfaction as an
important antecedent of customer retention. Customer satisfaction is regarded as the key to
customer retention (Kotler, 1994) and has been taken as a fundamental determinant of
long-term customer behavior and customer retention (Oliver, 1980; Yi, 1990). Customer
satisfaction has a significant impact on repurchase intentions in a range of services (Cronin
and Taylor, 1992; Patterson, Johnson & Spreng, 1997).
The statement “investing in customer satisfaction is like taking out an insurance policy. If
some temporary hardship befalls the firm, customers will be more likely to remain loyal”
(Anderson and Sullivan, 1993, p.160) is endorsed by another statement that: The key to
customer retention is customer satisfaction Satisfying customer needs and wants ensures
repeat purchase (Kotler et al., 2002). The service that is given to the client during policy
agreement (underwriting) and during claim settlement process are the main factors that
determine customer satisfaction in insurance industry. Fast and prompt service increases
8
customer satisfaction and on another hand customer satisfaction leads to customer
retentions.
2.2.2 Trust
Trust is defined as „the extent to which a person is confident in - and willing to act on - the
basis of the words, actions, decisions of others‟ (McAllister, 1995). In the consumer-brand
domain, trust is described as the willingness of the consumers to rely on the capability of
the brand to act on the promises it has claimed to fulfill (Chaudhuri and Holbrook, 2001).
In the financial services market, trust, together with honesty, fairness or excellence, has
been taken as one of the basic consumer needs (Bayne, 1999). Customer trust holds the key
mediating role in successful relationship marketing (Morgan and Hunt, 1994).
For repurchases, customer trust in a firm is the principal mediator between product or
service attributes and customer retention (Garbarino and Johnson, 1999). Customer trust
significantly contributes to sales growth through customer acquisition and retention. The
development and upkeep of trust in a business environment is critically important,
especially in such a highly unpredictable market with reduced product differentiation as
insurance (Fournier and Yao, 1997; Urban et al., 2000; Papadopoulou, et al., 2001)
It was reported that building customer trust and convenience is the most appropriate
strategy for commerce-based businesses (Garbarino and Johnson, 1999). As per the various
literatures reviewed, trust has been found to be related with customer retention. When we
take the insurance industry specific view, trust is of a high value since insurance
companies only sell a promise and a full level of trust is expected from the customer.
2.2.3 Premium Price
In insurance premium means, a fee paid for getting insurance protection. It varies from one
insurance company to the other, making it a potential factor for attrition. Price may be one
of the most important determinants of customer decisions (Srivastava and Lurie, 2001).
Managers could utilize price matching to stimulate repeat purchase behavior (reducing
price defection), because price matching may indicate a commitment to protect customers
in order to keep customers happy so they would come back and buy again.
Nevertheless, previous research findings suggest that repeat (existing) customers focus less
on price savings than new customers do (Reichheld and Sasser, 1990). Understanding
long-term price matching effects on customers is important in order to determine whether
9
price matching has a lasting impact on customer behavior that is evaluating the
effectiveness of these policies in stimulating customer retention, in addition to customer
acquisition (Kukar Kinney, 2006).
2.2.4 Switching Barriers
Perceived switching barriers is defined as the consumer‟s assessment of the resources and
opportunities needed to perform the switching act, or alternatively, the constraints that
prevent the switching act (Bansal and Taylor, 1999; Ranaweera and Prabhu, 2003).
Customer retention refers to the predisposition of the customers not to switch to other bank
in the long time.
Study showed that while you invest in time, money and your effort, all of these items
define switching costs which in result make your perception as difficulty to switch.
Researches also show that switching barriers may have both main and interaction effects
on customer retention (Gremler and Brown, 1996; Bansal and Taylor,1999; Lee et al.,
2001). As a consequence, when switching barriers are high, service firms may continue to
retain customers even if they are not highly satisfied.
As it is already mentioned that the switching costs deemed as the investment of time,
money and effort. As in the customers‟ perception, these switching costs make difficulty
for buyers to switch and change from one retailer to others (Gremler and Brown, 1996).
Given that the time and effort required switching are perceived to be important switching
barriers, service providers may therefore wish to focus on service features that increase
switching costs without necessarily creating absolute barriers to switching. Indeed,
researcher suggests that an ideal way for firms to prevent customer resentment is to create
switching barriers that also add value to the service (Ranaweera, C. and Prabhu, J., 2003).
Daniell (2000) and Noe (1996) further discovered that customers who have several
accounts with a bank are much more likely to remain loyal. The same is applicable in
insurance industry. The customer who have different class of business, like fire, marine,
motor, engineering liability, workmen compensation etc…will suffer to withdraw his/her
business at a time because of the existence of Switching Barriers like facilitating a new
pre-risk survey for each of his property, dealing with new price and price settlement
arrangement, adapting new system and staff culture, and the amount of paperwork
involved. These factors highly determine customer retention. Therefore, this research
would like to evaluate the relationship between switching barriers and customer Retention.
10
2.3 Empirical Review
The area of customer retention and factors affecting it is one of the well researched areas of
marketing (Havaldar et al, 2012). Cohen et al. (2006) examined several factors that
influence consumers‟ decisions to stay with or leave their banks in New Zealand. The
results of the study suggested that the most important factors for customer retention were
customer satisfaction, followed by the corporate image, and switching barriers.
2.3.1 Relationship between Customer Satisfaction and Retention
There are many researches that are conducted to test the relationship of customer
satisfaction and retention. The researches on customer satisfaction and customer
retention shows a general positive relationship between customer service and
customer retention. Nam et al (2007) found that a 10% increase in service quality
(customer satisfaction) leads to a 7% increase in customer lifetime value. Ranaveer et al.
(2003) also showed that perceptions of service quality have a direct linear relationship with
customer retention even in mass services with low customer contact. Havaldar et al (2012)
also show that organizations providing superior basic customer service had a higher
rate of customer retention (51.08%) than organizations delivering inferior basic customer
service (33.18%).
A study by Leeds (1992), claimed that approximately 40 percent of customers switched

banks because of what they considered to be poor service. Leeds further argued that nearly
three-quarters of the banking customers mentioned teller courtesy as a prime consideration
in choosing a bank. However, another research finds a result that is a beat puzzling.
Reichheld (1996) suggests that unsatisfied customers may choose not to switch, because
they do not expect to receive better service elsewhere. Additionally, satisfied customers
may look for other providers because they believe they might receive better service
elsewhere. This is the only research so far that this researcher has found to be in
contradiction to the largely acclaimed thought of satisfaction leading to retention.
11
2.3.2 Relationship between Trust and Customer Retention
Jobber (2007, 903), says customer retention relies heavily on building trust. This is the
case especially with service companies due to the difficultly of comparing and assessing
services before buying. According to Isomuotia (2014), feeling is an important resource of
the customer relationship and the stronger the mutual feeling is the more durable the
relationship will be. This research also concludes that the most significant factor in
building a lasting relationship between a customer and a firm is by building trust. The
reason mentioned for this is that trust is a behavior that changes slowly.
One aspect of trust to a firm is reflected in its brand strength and image quality. Harwood
(2002) argued that branding, as a tool to build image, is critical in the banking industry
where all firms offer about the same kinds of products. Hence, it is critical that banks have
a comprehensive knowledge of customers‟ values, attitudes, needs and perceptions of
various services the bank offers and the image which customers have of the bank itself
(Kaynak, 1986). Bharadwaj et al. (1993) argue that services are highly intangible and are,
therefore, high in experience and credence qualities. As a consequence, brand reputation is
important as a potential competitive advantage. This is also true for insurance companies.
2.3.3 Relationship between Premium Price and Customer Retention
Today, customers are more value oriented in their consumption of services because they
have alternative choices (Slater, 1997; Woodruff, 1997). Ranaveer et al. (2003) showed
that price perceptions and customer indifference were found to have a direct linear effect
on customer retention. Reidenbach (1995) argued that customer value is a more viable
element than customer satisfaction because it includes not only the usual benefits that most
banks focus on but also a consideration of the price that the customer pays. Customer value
is a dynamic that must be managed. Customer satisfaction is merely a response to the value
proposition offered in specific products/markets (Reidenbach, 1995). By this view,
insurances must determine how customers define value in order to provide added-value
services.
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2.3.4 Relationship between Switching Barriers and Retention
Switching barriers have been used as marketing strategies to make it costly for customers
to switch to another organization. Such barriers include search costs, transaction costs,
learning costs, loyal customer discounts and emotional costs (Fornell, 1992). Curasi and
Kennedy (2002) have shown that customer satisfaction does not predict the continuation of
the relationship. High switching costs are an important factor binding the customer to the
service organization. Even with relatively low levels of satisfaction, the customer
continues to patronize the service provider because repurchasing is easier and more cost
effective than searching for a new provider or sampling the services of an unknown
provider (Curasi and Kennedy, 2002).
In a qualitative research conducted on the effect of switching barriers on customer

retention in the banking sector, Suryani & Chaniago (2008) conclude that switching
barriers have a positive impact in keeping customers with their current banks.
To conclude this chapter, with the ever increasing trend of competition, customer attrition
will continue to be one of the headaches of organizational managers. Customers are
becoming aware of their decisions and with easiness of access to information; there is little
chance of making decisions without being informed first. This makes customer retention
one of the most important priorities of firms. There are different factors that affect
customer retention. Among those, four factors such as satisfaction, trust, price and
switching brainier are selected and discussed in this chapter. They are selected due to their
relevance to the insurance sector under the study. The following figure shows the
conceptual research model showing the relation between customer retention and
determinant factors.
Customer
Satisfaction
Customer
Trust
Retention
Premium
Switching
Barrier
Figure 1: conceptual framework of the study
13
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
This chapter describes how the study was conducted. It outlines the approach and strategy
that was used in undertaking the study. The chapter also defines the sample that are used to
conduct the study, including the statistical techniques used to analyze the data.
3.1 Research Design
According to Robson (2002), based on the purposes they serve, researches can be
categorized into three types: explorative, descriptive, and explanative. Exploratory research
is characterized as the seeking of new insights, the „looking around‟, and the asking of
questions or the bringing of some phenomenon into new light. Descriptive research is
characterized as the depicting of accurate profile of people, events, or situations. Finally,
explanatory research aims at gaining an explanation of a specific problem, generally in the
form of causal relationships (Robson, 2002).
Even though all of these research types have their own features and differences, they are
inseparable in many ways. One cannot explain the relation of two things without first
describing them. Similarly, it is almost impossible to explore new things without
explaining the current situation and relationships. Therefore, a research might be one of the
above three types primarily but it inevitably encompasses many features of the other two
types of researches.
This research is primarily an explanatory research because it aimed at examining the
relationship between customer retention as a dependent variable and customer satisfaction,
premium price, trust and switching barrier as independent variables. The finding of this
14
research explains the relation of each independent variable with the dependent variable that
makes the research type causal. However, it has also some features of descriptive research
in the sense that it views how customers express their sentiment regarding NISCO using
the dimensions provided.
A research can also be either of qualitative or quantitative in nature. Quantitative research
designs are those which generate numerical data and use statistics to improve numerical
data (Leedy and Ormord, 2005:147) while qualitative designs are those that involve human
events such as human interactions, social organizations, and the like (Newman and Benz,
1998: 12). Quantitative design is helpful to assess the magnitude of something while
qualitative design is suitable to describe, interpret, verify and evaluate a given phenomenon
(Newman and Benz, 1998: 12).
This research uses a quantitative design. This is due to the nature of the research and the
research question. Besides, the objective of the research is to quantify the magnitude of the
impact of each independent variable on dependent variable. Using quantitative design, the
research tried to quantify the correlation type and strength between the independent
variables (customer trust, satisfaction, premium price and switching barrier) and its
dependent variable (retention rate).
3.2 Population and Sampling Techniques
3.2.1 Population
To quantify the impact of the independent variables on the dependent variable in Nyala
Insurance S.C., an appropriate population should be determined. Accordingly, the
researcher has identified that the total population size of the research is the number of
customers of the Company. The overall number of customers of the Company is around
5000. But since studying the total population size of customers of the Company is not
manageable, it is necessary first to deduce the number of the target population.
15
To reduce the number of target population of the research, the researcher has decided to
take the customers of company found in Addis Ababa branches. Therefore, the target
population for this study is the customers of Nyala Insurance S.C of Addis Ababa
branches. According to the data taken from the Company, it has 11 branches and customers
that are 2000 in number who have an active policy. Thus, the population size for this study
is two thousand.
3.2.2 Sampling Technique
Once the total population size is determined, the next issue is to decide how many of this
target population will be enough to answer the research questions adequately. It is known
that for the conclusion to be free of bias, samples should be representative enough to the
general population size. Therefore, an appropriate formula has to be taken to minimize the
risk of bias.
Accordingly, Kothari (2004) has introduced a formula which can determine the correct
sample size for a certain amount of target population. The formula is:
Where;
n = sample size
N = population size
e = sample error at 1%
z = the confidence level at 99% which is 2.58
P = the proportion of getting failure=0.01
Q = 1-P=probability of success=0.99
16
To use this formula, the researcher is expected to choose the degree of precision and level
of confidence that is preferable for him/her. The researcher of this study had chosen the
precision rate of sampling to be 99% and is willing to tolerate only 1% sampling error.
Therefore, using the formula the researcher has identified a sample of 119 from the target
population of 2,000 customers. Adding 24 as a contingency, 143 questionnaires were
distributed to the branch offices.
Beside their number, the samples must represent the total population by their character. A
wrong sample selection will lead to poor conclusions. Therefore, due to the nature of the
business, the researcher had used convenience sampling method by which respondents
were selected based on their availability at branches. This is due to the difficulties to
reach the customers.
3.3 Types of data and Instruments of data collection
3.3.1 Types of Data
Both primary and secondary data were used in this research.
Primary Data:
The primary data was collected from the customers of the insurance company‟s 11
branches in Addis Ababa. This is the backbone of the research‟s quantitative analysis.
Primary data was collected using questionnaire as a method of data collection.
Secondary Data:
Since secondary data is also as important as the primary data, the researcher has collected
essential data from secondary sources. The Company‟s data about the number of
customers, number of branches, etc. were taken from the Company's annual report. Other
secondary sources of data also include books, research papers (both published and non-
published), internet sources, and articles from different magazines have taken.
17
3.3.2 Instruments of Data Collection
The data collection instrument that this research was used is questionnaire. Questionnaire
is chosen as a means of data collection because it is effective to collect data about “facts,
activities, level of knowledge, opinions, expectations and aspirations and attitudes and
perceptions” (Siniscalco and Auriat, n.d:7).
The questionnaire were comprised of close-ended questions which were developed in
accordance with the quantitative and qualitative data needs to address the research
questions. The close-ended questions are easy to manage, respond and code (Siniscalco
and Auriat, n.d:7). Hence, they offer an opportunity to present many questions to
respondents without exhausting their time.
3.4 Procedures of Data Collection
After developing the research questionnaire, it was pilot tested. Ten randomly selected
customers were asked to complete the questionnaire and suggest if they found problem in
filling the questionnaire. They completed the questionnaire and forwarded their comments,
which were used as a feedback to correct some errors.
Finally, the Questionnaires were distributed equally (eleven for each) to all Addis Ababa
branches of NISCO. Then with the help of NISCO staffs, the questionnaires were filed by
the respective customers of each branch who were available at the spot and collected
subsequently.
3.5 Method of Data analysis
After the required data is collected, the research was conducted on a three tiered analysis
basis using statistical package for Social Science (SPSS) version 20. In the first tier of
analysis, descriptive statistics such as proportions were used to summarize categorical

18
variables, mostly the demographical data. Then on the second tier of analysis, the
relationship between each independent variable with the dependent assessed using cross-
tabulation method. Finally, after all independent variables identified to significantly
associate with retention using the above method, their collective impact on retention has
analyzed using binary logistic regression. All exposure variables (independent variables)
have associated with the dependent variable (retention) to determine which ones had
significant association. Odds Ratio (OR) and 95% Confidence Interval (CI) were used to
estimate the strength of association between independent variables and the dependent
variable. The threshold for statistical significance was set at p = 0.05.
3.6. Validity and Reliability
According to Muller (2011), validity and reliability are measures used in quantitative
research to assess the accuracy of the measurement tool and its consistency. Validity refers
to the extent we are measuring what we hope to measure (and what we think we are
measuring) while Reliability is concerned with questions of stability and consistency - does
the same measurement tool yield stable and consistent results when repeated over time.
Both types of measures are important tools to reach at a valid research result. Therefore, to
achieve this, the researcher has used the following mechanisms.
There are two ways that reliability is usually estimated: test/retest and internal consistency
(www.pdx.edu). As a result, the questionnaire items were pilot tested to remove confusing
words and to improve upon the clarity of the question items to strengthen its reliability.
Validity on the other hand, is the strength of our conclusions, inferences or propositions, or
put simply, it is defined as the "best available approximation to the truth or falsity of a
given inference, proposition or conclusion" (www.pdx.edu). To assure validity to the
research, the researcher has used Cronbach‟s Alpha test. The result of this test according to
19
SPSS version 20 is 0.8 which is good based on George & Mallery (2003) scale of
reliability reference. Validity result for each independent variables portrayed below.
Table 1: validity stastics
Description Number of Items Cronbach‘s alpha

satisfaction 5 .592
trust 5 .647
Price 5 .463
Switching Barrier 5 .528
Overall Statements 20 0.83
The other type of validity, external validity, refers to the ability to generalize the results of
a study to other settings (www.pdx.edu). The research is mainly focused on insurance
companies and it takes one company into focus. Therefore, the findings are relevant to the
company under scrutiny, and to some extent, to other insurance companies in the country
which have many branches in Addis Ababa.
3.7 Ethical considerations
The necessary precaution was taken to make the study ethical. Respondents were informed
ahead about the purpose of the data they were providing. They were told that the
information they provide via the questionnaire is going to be used only for the purpose of
academic study and remain confidential. They were also assured that their identity would
be anonymous for a research. As it was promised, their privacy and identity was not
disclosed.
20
CHAPTER FOUR
RESULTS AND DISCUSSION
This chapter presents the analysis of the data collected from respondents. The chapter
intends to address the research questions using the data collected from the sample
respondents. The chapter is organized into three sections. The first section presents the
demographic data of the respondents. In the second section, the relationship between the
independent variables and the dependent variable were assessed. This section first test the
relationship of each independent variable with the dependent variable by using cross
tabulation method. Then, it summarizes the effect of all of the independent variables on the
dependent variable using binary logistic regression. Finally, the results are discussed in the
last section of this chapter.
4.1 Demographic Data
From the total 143 questionnaires that were dispatched, 129 were returned, which makes
the response rate 90.2 %.
The following table summarizes the demographic data of respondents:
Table 2: Demographical Data of the Respondents
Variable Category Number Percentage
Male 86 66.7
Gender Female 43 33.3
Less than 25 6 4.7
Age 25-35 24 18.6
36-50 64 49.6
Above 50 35 27.1
As it can be seen in the above table, the gender composition of respondents is more of male
dominated. There are two male respondents for every female respondent, or two-third of
21
the respondents are male. When we see at the age distribution of the respondents, 36 – 50
years of age comprises nearly half of the respondents. It is followed by respondents with an
age range of 50 and above, which is 27.1%. The least represented age group is the age
group of below 25 years, which encompasses only 4.7%. Respondents with an age of 25 –
35 constitute 18.6%.
4.2 Data Analysis
A questionnaire with two demographical and twenty-one main questions was developed to
answer the research questions. The first two demographic questions focus on gender and
age. The other part of the questionnaire comprises twenty-one questions. Each five
questions are used to assess the scenario and to develop a relationship between each
independent variable with the dependent variable. The last question was used to measure
the general feeling of the respondents regarding continuation of NISCO‟s service or not.
The results obtained through different statistical techniques are presented as follows.
4.3 Retention Rate of NISCO
As it is discussed in chapter one, Nyala Insurance company has a higher attrition rate. Last
year‟s annual attrition rate was thirty percent. Therefore, to assess what the trend looks in
future, the respondents were asked whether they see themselves in the Company for the
future. The following chart presents the result
Figure 2: Respondent’s response towards keeping relation with NISCO in future
As it can be seen on the above pie chart, 31.8% of the respondents do not see themselves in
the company in the future. The remaining 68.2% of the respondents, however, seem loyal
22
to NISCO. Thus, the result signifies there is still an increasing attrition rate, which
negatively affect the company's profitability and growth. The figure is very high and is an
indication of a gap in the service package especially in our local context where companies
are offering identical type of products. In such type of scenario, regaining a lost customer
is usually cumbersome and may cost the company a lot.
4.4 The Current Status of NISCO
This section tries to assess the relationship between each of the independent variables
(customer satisfaction, trust, premium price and switching barriers) to the dependent
variable (retention). To do so, the section will look at the independent variables one by one
and finally all in one. Picking each independent variable at once, it first assessed the status
of the company in relation with independent variables, and then it has tried to assess the
effect of the variable on retention.
4.4.1 Customer Satisfaction
For the purpose of this research, satisfaction refers only to examine service quality. To
assess the level of the respondent's satisfaction, four statements were presented for
respondents to rate them on a Likert scale. The following table presents the responses in
each statement and the average reaction of respondents in all of the statements. The
average result is found by computing the responses in each statement. That is why there are
decimals in the frequency (number) columns.
Table3: Responses Related to Customer Satisfaction
Statement 1 Statement 2 Statement 3 Statement 4 Average
No. % No. % No. % No. % No. %
Strongly 14 10.9 13 10.1 3 2.3 12 9.3 10.5 8.1

disagree
Disagree 38 29.5 24 18.6 57 44.2 30 23.3 37.25 28.9
Neutral 7 5.4 5 3.9 9 7.0 10 7.8 9.25 6.0
Agree 61 47.3 63 48.8 58 45.0 65 50.4 61.75 48.9
Strongly 9 7.0 24 18.6 2 1.6 12 9.3 11.75 9.1

Agree
23
The first statement posed to the respondents was whether the company‟s terms and
conditions are favorable for them. As the table shows, the response of the respondents is a
little bit mixed. Though almost half of the respondents agree to the statement, nearly one
third of the respondents are on the opposite side. More than tenth of the respondents
strongly disagree to the claim while 7 percent of them agree strongly.
The second statement asked in relation to customer satisfaction is whether the Company‟s
branches and operating hours are convenient to the respondents. Two-third (67.4%) of the
respondents agree (18.6% of whom agreed strongly) to the notion that the branches and
operating hours are convenient to them. Only 10% of the respondents disagreed strongly
while 18.6% disagreed.
The third statement intends to look at the respondents‟ appraisal of the company‟s
employees. As it is shown on the table, the outlook towards the competence and ethics of
the employees of the company is a bit mixed. While 46.5 percent of the respondents agree
to the statement, almost identically equal amount of respondents (46.6%) disagreed.
The last statement on customer retention wants to seek the view of respondents‟ about the
company‟s competence in providing prompt customer services and attends to customers‟
needs and problems. As it is shown vividly in the table, 9.3% of the respondents strongly
agree to the claim that the company gives prompt customer services and attends to
customers‟ needs/problems. More than half of the respondents (50.4%) also agreed with
the statement while 7.8% of the respondents are undecided. However, nearly quarter of the
respondents did not agree and a further 9.3% strongly dispute the claim.
In general, as the column on of the average respondent‟s response shows, 8.1% of the
respondents strongly disagree with NISCO‟s ability to address customer satisfaction. In
addition, nearly one third of the respondents, 28.9%, disagree. On the other hand, nearly
half of the respondents are agreed with the statements. Besides, 9.1% seem to be strongly
satisfied with the customer service whereas 6.0% remain undecided on the matter. It can be
referred that more than 37% of the respondents showed a negative response with respect to
the statements, which is a clear indication for the gap in the satisfaction. This has an
implication that the company has a deficiency in those aspects.
4.4.2 Trust
The same way as it is done to customer satisfaction, four statements that can measure trust
were forwarded to the respondents. They were about the company‟s dependability,
24
successfulness, brand reputation and the level at which it keeps promises. The questions
are selected taking the value of trust in the insurance company. Since the main purpose of
insurance companies is selling promise, trust is highly significant in the sector. In light
with this expectation, four questions were forwarded and the results of the respondents‟
response are compiled and presented in the following table with the last column showing
the average score in each scale.
As it can be seen in table 4 below, in the first statement, from the respondents, 43.4%
agreed to the notion while another 17.8 percent also strongly agreed with it. However, 28.7
percent of the respondents do not believe that the company is dependable and consistent in
solving customers‟ complaints. 13 of the respondents remained neutral on the statement.
Table 4: Responses Related to Trust

Statement 1 Statement 2 Statement 3 Statement Average
4
No. % No. % No. % No. % No. %
Strongly 10 7.8 11 8.5 11 8.5 2 1.6 8.5 6.6

disagree
Disagree 27 20.9 39 30.2 32 24.8 28 21.7 31.5 24.4
Neutral 13 10.1 8 6.2 7 5.4 12 9.3 10 7.7
Agree 56 43.4 48 37.2 70 54.3 70 54.3 61 47.3
Strongly 23 17.8 23 17.8 9 7.0 17 13.2 18 14.0

Agree
As can be seen on the table, the respondents‟ responses to the second statement, “The
Company is successful in the insurance industry of the country”, is somewhat inclined to
positivity. More than half the respondents (55%) believe Nyala Insurance is a successful
company in the insurance sector of Ethiopia. Only 38.8% of the respondents contend to
this idea while 6.2% remained neutral.
On the third statement, 11 respondents (8.5%) of the respondents disputed the claim by
choosing „strongly disagree‟. Almost quarter of the respondents disagreed while 5.4%
remained neutral on the statement. Seventy respondents (54.3%) of the respondents agree
to the statement and nine respondents (7%) strongly agree with the statement.
25
In the last statement, insignificant numbers of the respondents (1.6%) strongly disagree
with notion that says the Company is truthful in keeping its promises and is successful in
completing insurance claims settlements. One fifth of the respondents (21.7%) disagree
with the statement while 9.3% remained undecided. However, more than half the
respondents (54.3%) believe the company is truthful in keeping its promises and is
successful in completing insurance claim settlements. A further 13.2% agreed strongly.
In summary, as it is shown in the last column of average responses, 6.6% of the

respondents strongly distrust the company while a further quarter of the respondents
(24.4%) have opted for disagreeing with the statements. 7.7% are undecided or neutral. But
more than 60% of the respondents have a trust with the company. While 47.3% of the
respondents are agreed with the statements, 14.0% agreed strongly. This has an indication
that there are aspects pertinent to the statements that has resulted in a deterioration of the
trust level of a considerable number of customers. Thus, it can be said that there is a lot to
be done by the company in securing the confidence of the remaining customers.
4.4.3 Price
four questions were presented to the respondents to assess their feeling towards the price,
service charge and pricing mechanisms of the company.
The following table presents the summarized result of the questions.
Table 5: Responses Related to Price
Statement 1 Statement 2 Statement 3 Statement Average

4
No. % No. % No. % No. % No. %
Strongly 7 5.4 20 15.5 15 11.6 10 7.8 13 10.1

disagree
Disagree 30 23.3 28 21.7 59 45.7 47 36.4 41 31.8
Neutral 13 10.1 12 9.3 3 2.3 16 12.4 11 8.5
Agree 69 53.5 50 38.8 40 31 43 33.3 50.5 39.2
Strongly 10 7.8 19 14.7 12 9.3 13 10.1 13.5 10.5

Agree
26
On average, 13 (10.l %) of the respondents strongly disagree with the overall questions that
focused on the fairness of the premium price, service charge, and pricing mechanism of the
company. On average, the other 31.8% of the respondents disagree with these items. The
result has showed that, 41.9% of the respondents are not happy with the price and pricing
mechanisms of NISCO. Nearly half of the respondents (49.7%) have agreed on these
issues while 8.5% are neutral on the matter. The following graph presents the data in a
vivid way. The result has a connotation that the pricing mechanism is still unacceptable for
a considerable (nearly half) number of the customers.
Figure 3: General feeling of Respondents about Premium Price
4.4.4. Switching Barrier
Four statements were presented to respondents to measure the feeling of respondents

towards switching barriers.
The following table summarizes the responses.
Table 6: Responses Related to Switching Barrier
Statement 1 Statement 2 Statement 3 Statement 4 Average

No. % No. % No. % No. % No. %
Strongly 16 12.4
12 9.3 21 16.3 10 7.8 21 16.3
disagree
Disagree 40 31 39 30.2 26 20.2 48 37.2 38.25 29.6
Neutral 9 7 9 7 4 3.1 8 6.2 7.5 5.8
Agree 56 43.4 44 34.1 59 45.7 43 33.3 50.5 39.1
Strongly 16.75 13
12 9.3 16 12.4 30 23.3 9 7
Agree
27
As can be seen on the table, the responses are distributed to the two halves. 12.4% and
19.6% (a total of 42%) have disagreed to the statements, whereas 39.1% and 13% (a total
of 52.1%) have agreed with the statements that measure about the level of switching
barriers in the industry, NISCO and other insurance companies. An average of 5.8%
remained neutral on the matter. The following diagram presents the results in a pictorial
way.
Figure 4: General feeling of Respondents about switching barrier
4.5 Cross Tabulation of Variables
After the respondents response to the independent variables is assessed using the above
results, the next task is to correlate between the independent variables and dependent
variable. This section presents the data found by cross-tabulating each independent
variable with the dependent variable.
4.5.1 Cross tabulation of Customer Satisfaction and Retention
Table 7: Crosstab: Customer Satisfaction with Retention
Retention
Yes No Total
Satisfaction Yes Count 62 10 72
% within Satisfaction 86.1% 13.9% 100.0%
% of Total 48.1% 7.8% 55.8%
28
No Count 26 31 57
% of Total 20.2% 24.0% 44.2%
Total Count 88 41 129
% of Total 68.2% 31.8% 100.0%
Generally, 72 respondents (55.8%) said they are satisfied with the service of NISCO while
57 respondents (44.2%) are not satisfied. From the satisfied customers, only 10 (13.9%) do
not see themselves in the company in the future while 62 (86.1%) believe they will
continue using the service of NISCO. From the 57 people who are not satisfied with the
service of the company, 31 (54.4%) do not want to continue with NISCO. However, 26
(45.6%) want to continue with the company even though they are not satisfied with the
service.
Overall, 48.1% of the respondents are satisfied with the service and want to continue; 7.8%
percent of the respondents are satisfied with the service but do not want to continue with it.
In addition, 20.2% of the respondents are not satisfied with the service but want to
continue with NISCO and finally, 24% of the respondents are not satisfied with the service
and hence do not think they will continue with company.
4.5.2 Cross tabulation of Trust and Retention
Table 8: Crosstab: Trust with Retention
Retention
Yes No Total
Trust Yes Count 70 9 79
% within Trust 88.6% 11.4% 100.0%
% of Total 54.3% 7.0% 61.2%
No Count 18 32 50
% within Trust 36.0% 64.0% 100.0%
% of Total 14.0% 24.8% 38.8%
% within Trust 68.2% 31.8% 100.0%
% of Total 68.2% 31.8% 100.0%
29
From the respondents, 79 (61.2%) have an overall trust on the insurer. The remaining 50
respondents (38.8%) do not have a trust on the company. Among those who have trust on
the company, 9 customers (11.4%) do not see themselves as customers of their current
insurer in the near future. But an overwhelming 88.6% of the respondents with trust to the
company believe they will continue using the company. From the 50 respondents who have
no trust on the company, 32 respondents (64%) predict themselves not using the
company‟s services in the future. Only 18 respondents with no trust to the company (36%)
believe they will continue with the company albeit lack of trust.
Overall, 70 respondents (54.3%) of the total respondents have trust on the company and
want to continue with the company. Nine respondents (7%) have a trust on the company
but they do not want to continue using the company‟s services. 18 respondents (36.0%) do
not have trust but they do not want to quit their business with the organization. Finally, 32
respondents (24.8%) of the respondents do not have trust on the company and they want to
exit NISCO.
4.5.3 Cross tabulation of Premium and Retention
Table 9: Crosstab: Premium with Retention
Retention
Yes No Total
Price Yes Count 34 20 54
% within Price 63.0% 37.0% 100.0%
% of Total 26.4% 15.5% 41.9%
No Count 54 21 75
% within Price 72.0% 28.0% 100.0%
% of Total 41.9% 16.3% 58.1%
% within Price 68.2% 31.8% 100.0%
% of Total 68.2% 31.8% 100.0%
In summary, 54 of the respondents (41.9%) believe the price, service charge and pricing
mechanism are fair. But a little higher number (75) of the respondents (58.1%) believe the
price is not fair. From those who believe the premium is fair, 34 (63%) of the respondents
predict they will continue with the company. The remaining 20 respondents (37%) will not
30
continue with the company although they believe the premium is fair. From the 75
respondents who believe the price is not fair, 54 respondents (72%) forecast a continued
attachment with the company. The other 21 respondents (28%) are not willing to continue
with the company due to the price.
Overall, 26.4% of the whole respondents believe the price is fair and want to continue with
NISCO. But 15.4% of the respondents want to quit the organization though they believe
the company‟s premium is fair. The other 41.9% of the respondents do not believe the
price of the insurer is fair but they want to continue using their current services. The
remaining 16.3% of the respondents do not think the premium price and service charges of
the company are fair and want to leave it.
4.5.4 Cross tabulation of Switching Barrier and Retention
Table 10: Crosstab: Switching Barrier with Retention
Retention
Yes No Total
Switch Barrier Yes Count 60 20 80
% within Switch Barrier 75.0% 25.0% 100.0%
% of Total 46.5% 15.5% 62.0%
No Count 28 21 49
% of Total 21.7% 16.3% 38.0%
% of Total 68.2% 31.8% 100.0%
In general, 80 respondents (62%) believe the switching barriers of the insurance sector are
keeping them from changing their current insurer. However, 49 respondents (38%), believe
there are no binding strings in their relation to their current insurer or changing between
insurance companies. From those who believe there are switching barriers capable of
challenging their decisions, 20 respondents (25%) believe they do not see themselves in the
company for the future. But the majority of those who believe there is switching barrier, 60
respondents (75%), believe they will continue with NISCO. From the 49 respondents who
31
believe there are no feasible barriers that can compromise a planned switch between
insurance companies, 21 (42.9%) do not see themselves as a sustained customer of NISCO.
The remaining 28 respondents (57.1%) believe they will continue with the company in the
future.
Overall, 46.5% of the whole respondents believe there is a barrier to switch and want to
stay with NISCO. But 15.5% of the respondents want to quit the organization even though
they believe there is barrier to switch between companies. The other 21.7% of the
respondents do not believe there is a barrier to change but they want to continue using their
current services anyway. The remaining 16.3% of the respondents do not think there is a
barrier to switch and want to switch from their current insurer.
4.6 Result of Pearson Correlation Analysis
To measure the type and magnitude of correlation between variables, a Pearson correlation
was carried out. The following table shows the result of the test.
Table 11: Result of Pearson Correlation Analysis
Satisfaction Trust Premium Switching

Barrier
Retention Pearson Correlation .432** .550** -.096 .186*
Sig. (2-tailed) .000 .000 .021 .015
N 129 129 129 129
**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).
As it is seen on the table above, satisfaction has a correlation coefficient oft 0.43 (at p-
value 0.000). Trust has a coefficient of 0.550 at p-value of 0.000. Price has a Pearson r-
value of -0.096 with a p-value of 0.21. Finally, switching barrier has a correlation
coefficient of 0.186 at p-value of 0.15.
The explanations of these coefficients, as presented in the discussions section, are based on
the standard classification of Pearson correlation coefficients. According to the standard
interpretation, the value of r can be . If r is zero, that means there is no
32
correlation at all (Taylor, 1990). If it is greater than zero, the correlation is positive, and the
higher the number, the stronger the correlation.If r is less than zero, the correlation type is
negative, and the lower the number, the stronger the correlation is (Taylor, 1990).
4.7 Result of Binary Logistic Regression
The previous section shows the correlation between each of the independent variables with
the dependent variable. As it is presented in the discussion section, it has showed the type
and magnitude of the relationship. But to see the combined effect of all of the independent
variables on customer retention, another method was used. Using binary logistic
regression, the type and magnitude of the relationship between all of the independent
variables (satisfaction, trust, premium and switching barrier) and the dependent variable
(retention) was computed. The following table presents this finding. An odds ratio (OR) is
a measure of association between an exposure and an outcome. Odds ratio can be one, less
than one or greater than one. If OR is one, that means there is no relation between the two
variables. If it is higher than one, that means there is a positive correlation. The higher the
number, the stronger the correlation is. If OR is less than one, it means the correlation
between the variables is negative. The lower the number, the higher the correlation is.
Table 12: result of Binary Logistic Regression
Variables Retention P-value 95% C.I. for

Yes No Exp(B)
(OR)
Satisfaction 0.001 3.015
Yes 62 10
No 26 31
Trust 0.000 6.694

Yes 70 9
No 18 32
Premium Price 0.001 0.94

Yes 34 20
No 54 21
Switching barrier 0.06 1.201

Yes 60 20
No 28 21
Remark: Association is significant at 0.05 levels.
33
As it can be seen in the table above, all the independent variables are significant at the 0.05
level except to switching barrier. This makes the variable insignificant. The other variables
are all significant. Trust has happened to be the most determining factor of all variables in
determining retention. Its OR is 6.69. The second most determining factor is satisfaction.
Its OR is 3.0. Finally, the OR for premium price is 0.94.
4.8 Discussion of the Results
In this section, the main findings of the data presented in the previous sections were
discussed in detail. Some of the key findings of the research were presented and have
augmented with results of similar research endeavors in other settings.
4.8.1 The Attrition Rate of NISCO
Customer retention plays a pivotal role to the profitability of any kind of companies.
Especially, for those companies which rely on the longevity of relationship with customers,
it is a matter of life and death to keep customers as long as possible. But the ever
increasing competition, the entrance of new rivals, advancement in technology and
globalization are making retaining customers tougher than ever. Gaining sustainable
competitive advantage over competitors through satisfying customer relationships has
become one of the strategic weapons for a modern day service firm (Zeithaml et al, 2000).
Within this extremely competitive market it necessitates insurance companies to
follow a structured, data-driven approach to identify “at risk” customers and to launch
proactive retention campaigns based on identified drivers of customer attrition.
Customer attrition rate varies from sector to sector. According to Fluss (2010), annual
customer attrition rates range from 7% in industries that have high exit barriers such as
banking and insurance, to almost 40% in the mobile phone industry. Another more
meticulous and all inclusive computation of churn rates has put a wider range from 1% in
Cable TV sector all the way to 93% in HD TV and Home Mortgage sectors (Kohs, 200). In
this list of turnover rates, two insurance companies with attrition rate of 12% and 14% are
registered (Kohs, 200).
The company under research, however, has already a 30% attrition rate in the last year
annual calculation. The finding of this research does not have good news either. From the
respondents, 31.8% do not see themselves with the company for a long period of time. This
means an increase of 1.8% in attrition increase to the already alarming current rate. Since
34
all of the respondents of this research are current customers of Company, this shows the
likelihood of increasing attrition rate.
This is uncharacteristic of an insurance company. This might mean two things: (1) the
switching barrier of insurance sector in Ethiopia is significantly lower than the setting
Fluss (2010) has done, or (2) the company has other severely pushing factors that force its
customers to leave at the cost of the switching barriers. But since the switching barriers
emanate from the basic essence of insurance sector, it is irrational to expect the Ethiopian
scenario as unique. So, the tentative logical reason seems there are some inherent problems
in the company that drive customers away.
4.8.2 Factors that Lead to Attrition in NISCO
Customer turnover of the company show a hugely alarming problem. Hence, the research
has directed at finding out what leads customers to leave the company and which of the
independent variables play the most determining factor in increasing the churn rate.
4.8.2.1 Customer Satisfaction
From the literature review, it was undisputedly found out that customer satisfaction has a
positive impact on customer retention. According to a research conducted on financial
sector enterprises, customer satisfaction has a great co-relation with customer value,
especially customer lifetime value (Execution Mih, 2012). A satisfied customer adds to his
current value, but more importantly it‟s the lifetime value which the organization will gain
(Execution Mih, 2012).
From the univariate descriptive analysis of customer satisfaction, it is found that the
respondents are almost equally divided into two categories. While 55.8% of them the
respondents are satisfied with the service of the company, 44.2% are not happy with the
service of the company. In some of the indicator questions of customer satisfaction also the
score seems to be almost evenly divided on the Likert scale. On general, the satisfaction
level of the respondents does not seem satisfactory.
From the literatures, it seems a conventional wisdom that with increase in satisfaction,
retention will increase. Nam et al (2007) found that a 10% increase in service quality
35
(customer satisfaction) leads to a 7% increase in customer lifetime value. Ranaveer et al.
(2003) also showed that perceptions of service quality have a direct linear relationship with
customer retention even in mass services with low customer contact. Havaldar et al (2012)
also show that organizations providing superior basic customer service had a higher rate of
customer retention (51.08%) than organizations delivering inferior basic customer service
(33.18%). A study by Leeds (1992), claimed that approximately 40 percent of customers
switched banks because of what they considered to be poor service. Leeds further argued
that nearly three-quarters of the banking customers mentioned teller courtesy as a prime
consideration in choosing a bank.
This research is not an exception. As it is shown in the cross-tabular table, from the
respondents who say they are satisfied with the service, the overwhelming majority (86%)
think they will continue with NISCO while only 14% are willing to leave the company. On
the contrary, less than half (45.6%) of the non-satisfied respondents want to stay while
more than half (54.4%) want to leave.
This result was further augmented by the correlation analysis. Using the bivariate
correlation analysis, it was found that customer satisfaction has a positive relation with
retention. With a Pearson correlation of coefficient of 0.432 (at p-value of 0.0), customer
satisfaction shows a significant impact on retention rate. According to the scale of
Pearson‟s R-correlation, the type of correlation is positive and the magnitude is very
strong.
Finally, the logistic regression commends this finding. The resulting OR of customer
satisfaction to retention is 3.01 (at p-value of 0.001). This means a satisfied customer is
three times more likely to be retained to the company than non-satisfied customer.
Therefore, customer satisfaction is found to have a strong and positive influence on
customer retention. The result implies NISCO should give much attention to its customer
satisfaction in order to retain them.
4.8.2.2. Trust
As literatures and researches suggest, trust is the most fundamental determiner of customer
retention, especially on service firms. This is even more evident in insurance sector. As it
can be said, insurance companies‟ sale is mainly a promise. Therefore, what makes
customers pay a premium is the trust they have to the company that it will come to their
rescue in time of hardship and unexpected damage or crisis. This makes how vivid is trusts
impact on retention. Jobber (2007, 903), says customer retention relies heavily on building
36
trust. This is the case especially with service companies due to the difficultly of comparing
and assessing services before buying. According to Isomuotia (2014), feeling is an
important resource of the customer relationship and the stronger the mutual feeling is the
more durable the relationship will be. These researches show how significant trust is in
determining customer satisfaction. But the researcher does not find a quantitative endeavor
to quantify the magnitude of trust on retention.
The research has found out that the impact of trust on retention is so high. In the crosstab
analysis, it was found that from a total of 79 respondents (61.2%) who have trust in the
company, only 11.4% consider living the company while 88.6% want to stay. From the 50
respondents (38.8%) who say they lack trust on the company, on the other hand, 88% do
not see themselves with the company while only 12% want to stay. This much contrast is
not registered in the other variables which shows how much significant trust is in keeping
customers. Furthermore, the Pearson correlation value is the highest of all the variables at
0.550 (with significance level of 0.000).This is on the scale of very strong positive
correlation. Besides, logstic regression result shows the OR of trust to retention is 6.7,
which means a customer who has trust to NISCO is almost seven times more likely to stay
with the company than a customer who have no trust to the company. This result shows
that trust has the strongest impact on customer retention among other determinant
variables. Further, the result shows NISCO customers are more sensitive with regard to
trust in order to decide to stay or to leave the company. This gives a valuable feedback to
the company to focus and work on developing customer trust in order to maximize its
retention rate.
4.8.2.3. Premium
Obviously, price has a negative correlation with retention. The higher the price, the lower a
customer would like to stay. But, previous research findings suggest that repeat (existing)
customers focus less on price savings than new customers do (Reichheld and Sasser,
1990).
In the research, it was found out that price has a negative impact on retention. But its
magnitude is not strong. In the crosstab of retention with price, price is found to be the
least determining factor of retention. From those who believe the company‟s price is not
fair, only 28% believe they will not continue with the company while a greater share (72%)
certain they will continue with the company. On the other hand, from those who believe
the price is fair, still 37% of them are not certain if they would continue with the company
37
or not while the rest 63% believe, they will continue with the company. In the Pearson
correlation, price is found to have a negative 0.096 impact on retention, which is a
negligible result. But since the significance of these correlation (p-value) is found to be
0.08, which is higher than 0.05, this result is not taken into consideration. The logistic
regression also found an OR of 0.94 (at p-value 0.01). This means, a customer who feels
the price of the company is not fair is 0.94 likely to stay than a customer who feels the
opposite. But since the OR is close to one, its impact is negligible. In general, the research
has found out that premium has a negative correlation with retention, but it is not
significant as compared to the previous two factors. Thus, the result confirms the less
price sensitivity behavior of the existing customers as previous researches found.
4.8.2.4. Switching Barrier
Switching barrier, the costs and discomforts customers would incur if they opt to change
their current insurer, is one of the research agendas of customer retention in the insurance
sector. According to one research, even with relatively low levels of satisfaction, the
customer continues to patronize the service provider because repurchasing is easier and
more cost effective than searching for a new provider or sampling the services of an
unknown provider (Curasi and Kennedy, 2002). In a qualitative research conducted on the
effect of switching barriers on customer retention in the banking sector, Suryani &
Chaniago (2008) conclude that switching barriers have a positive impact in keeping
customers with their current banks.
In this research, it is found out that from the respondents who believe there is a strong
barrier, three quarters (75%) have agreed that they would have changed their insurer if
there were not inconveniences and hassles. But this seems to change in those who believe
there is no significant barrier in the sector. From those who believe there is no significant
barrier, only 42.9% are not certain if they would continue with NISCO. Respondents who
feel there is a barrier want to continue their relation with the company while those who do
not feel there is a barrier are not determined by it.
The Pearson correlation coefficient is 0.186 (at p-value of 0.10) which is a positive yet not
significant correlation. This result was in line with the previous finding. But since the p-
value is higher than 0.05, this result is not taken into consideration. In the logistic
regression, the OR of switching barrier to retention is found 1.20, which means a customer
who feels there is a barrier to switch is 1.20 times more lenient to retain its subscription to
the company than a customer who does not believe there is a barrier. But again, this result
38
comes at a significance value of 0.06, which is slightly higher than the CI that is acceptable
for this research. Therefore, this finding is also proves there is no significant relation
between retention and switching barrier. This is due to the prevalence of brokers and sales
agents who can act on behalf of the insured, which might avoid the hassles of switching
between insurers.
39
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
This chapter is the final part of the study, which provides conclusion of major findings,
recommendation and limitation of the study.
5.2. Conclusions
In conclusion, Nyala Insurance has an attrition rate which is higher than average attrition
rate of global insurance companies. The company has lost 30% of its customers in the last
year and, if it does not take the necessary measure, according to this research, it might
increase to at least 31.8% or higher in the next few years. This is an alarming sign for the
company. From the findings of the research, it can be concluded that from the four factors,
trust is the most determining factor of customer retention. The research proves that
customer trust has a direct and strong relation with customer retention. A customer who
have trust for the company almost seven times likely to be retained than who have no trust.
Customers need to have trust in the company‟s brand, reputation, reliability and promises.
The second most determining factor is customer satisfaction. As the result indicates,
customer satisfaction has a positive and strong relation with customer retention. The
logstic regression shows a satisfied customer is three times more likely to be retained than
unsatisfied customers.
The research also found that price has negative but insignificant effect on customer
retention. According to the finding, a customer who feels the price of the company is not
fair is 0.94 times only likely to stay than a customer who feels the opposite. This signifies
that NISCO Customers react less considerably regarding price matters in order to decide
whether to continue or to leave the company.
Finally, the study come across switching barrier has positive relation but again
insignificant effect on customer retention. The result shows customers of NISCO less
determined by switching barrier.
40
5.3 Recommendations
Undoubtedly, no business can exist without customers. Customer value is an asset to the
organization. Hence, in order to maintain the customer, the organization needs to ensure
that customer satisfaction and trust always be guaranteed.
As the result shown, customers of Nyala insurance give a high value for trustworthiness of
the company and their satisfaction in order to maintain their relationship. Therefore taking
into consideration with these fact Nyala insurance is expected to work on enhancing the
customer satisfaction level through intensively studying of the customer demand and
forwarding the quality service as they wish at the right time.
The company needs to confirm its trustworthiness by keeping its promise during claim
services. The company can build the trust over its customers by giving an example of
reference of huge claim settlement with in a shortest time through advertisement, and
informal communications. NISCO has a motto which says your seal of protection thus, the
managements and all the staffs need to show the demonstration of this motto so that the
customers acknowledge it whenever they see it.
Together with other things, trustworthiness of a company, can be strengthened by its level
of capital base. So ensuring an adequate and competitive capital should be worked upon by
the company. Maintaining the capital is not by itself enough but together with the way
how that is placed in the minds of the customers. This could be demonstrated with aspects
like having different investment activities for example with having different buildings and
maintaining a high standard of assets based on the requirements of the regulator. An
arrangement of a reliable reinsurance partnership with the highest rated reinsurance
companies is vital for winning the majority of customers especially the informed ones.
This also should be well communicated to the customers in the medium that is convenient
to them.
In addition to the above, the company should device a strategy in order to build a strong
customer relationship, which involves in acquiring, developing and maintaining activities.
All the actions of the company including its promotional activities should be based on the
actual capacity and facts on the ground to create a balance between the customer's
expectation and the real service experience. As a service giving company, Nyala Insurance
S.C., should make an exhaustive study in order to determine the range of factors that
41
influence satisfaction. Customer's satisfaction and the associated factors are expected to
change as time passes due to the change in the overall context. Thus, the company should
make its activities on a continued basis.
In practice, all what is built over period of time might be eroded immediately if the
customer is not satisfied with the claim service of the company. Claim service is the vital
and main reason why a customer joins an insurance company. Thus, the service should be
monitored regularly with a set of prepared standards and frameworks to ensure that it is in
line with the promised one and based on customer's expectation level. A regular customer
survey should be made so as to get a feedback in areas of weaknesses and to upgrade the
strength. The feedback could be obtained by different mechanisms amongst which an
arrangement of a customer representative group and the subsequent discussions are usually
preferred in the service industry. The main part of the system is the employees that are
directly or indirectly related with customers. Accordingly, the company should invest
much in training and development activities having an emphasis on customer service. The
other aspect that should be focused is an assessment of the overall service delivery
procedure in claims and underwriting with the aim of eliminating non-value adding ones.
5.4 Limitation of the study
This study has limitation with regard to sampling method. The sample selection method
used in this paper is availability-sampling method. But since the objective of the research
is studying the determinant of retention, it would be more better if purposive sampling
method selected to make them more representatives of those customers who left insurance
company. However, this is not possible due to the fact that difficulty of finding customer
who left the company to fill the questionnaire. Hence, the respondents of this research are
not those who left the company, they rather are those who stay with the company.
Therefore, the researcher believes some of their insights may not show the real scenario of
those who leave.
The other limitation of the study is as it was conducted via cross sectional study, the
changes of the customer retention determinant over a period of time couldn't be identified.
42
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45
APPENDIX:
QUESTIONNAIRE
SAINT MARY'S UNIVERSITY

SCHOOL OF GRATUATE STUDIES
DEPARTMENT OF BUSINESS
Dear Respondents,
I am a student of St. Marry University, School of Graduate Studies undertaking Master

of Business administration. As partial fulfillment of my study, I am conducting a
research project Titled ''Determinants of customer retention in Nyala Insurance'' using
Nyala Insurance s.c. as a case study. You are invited to take part in this research by
filling the attached questionnaire honestly. I would like to assure the confidentiality of
this study because it is solely used for academic purpose and all respondents will
remain anonymous to safeguard their privacy.
Your responses will make the paper interesting and its results will be significantly
important. I would like to thank you in advance for the time you are willing to devote
to fill out this questionnaire.
Feel free to contact me if you have any question by the following address
Tel: 09-12-09-19-48
E-mail [email protected]
Thank you very much!
Part 1: General Information
Please circle the letter of your choice from the alternatives.
1. Gender A. Male B. Female
2. Age A. Less than 25 B. 25-35 C. 36-50 D. Above 51
Part 2: analytical Information

Please encircle the number and the word which expresses your opinion towards Nyala
insurance. The numbers indicate the following statement.
5. Strongly Agree 4. Agree 3. Neutral
2. Disagree 1. Strongly Disagree
Please, circle only one option.
S/N Dimension & Items Rate

Service Quality (Customer Satisfaction)
1. The Company has favorable terms and conditions to me. 5 4 3 2 1
2. The Company has branches and operating hours that are 5 4 3 2 1
convenient to me.
3. The Company workers are well informed, ethical and 5 4 3 2 1
supportive to customers.
4. The Company gives prompt customer services and attends 5 4 3 2 1
to customers‟ needs/problems.
5. Overall, are you satisfied with the service of the Yes No
Company?
Trust
6. The Company is dependable and consistent in solving 5 4 3 2 1
customers‟ complaints.
7. The Company is successful in the insurance industry of 5 4 3 2 1
the country.
8. The Company has a strong brand image and reputation in 5 4 3 2 1
the country.
9. The Company is truthful in keeping its promises and is 5 4 3 2 1
capable for the full settlement of insurance claim
10. Overall, do you have trust in the Insurance company? Yes No
Premium Price
11. The charges I pay as insurance premium is affordable and 5 4 3 2 1
reasonable as compared to other insurance companies.
12. The premium I pay in this insurance company are fair and 5 4 3 2 1
reasonable as compared to the service I get.
13. I do not compare prices with others since I have a belief in
the pricing mechanism of the Company.
14. I believe that my insurer‟s price is worthy as compared to
its convenience and access for me.
15. Overall, do you believe the prices you pay are affordable Yes No
and reasonable?
Switching Barrier
16. Once you start with a given insurer, it is difficult to 5 4 3 2 1
change to other insurers.
17. If it was easy to change insurers, I would have changed 5 4 3 2 1
my current insurer for the inconveniences I have.
18. I would like to continue with my current insurer rather 5 4 3 2 1
than adapting new insurer
19. I might have changed my insurer if I could do so without 5 4 3 2 1
any significant hassle.
20. Overall, do you believe that the switching barriers can Yes No
keep (are keeping) you from changing your insurer?
Retention
21. Overall, do you see yourself using this company in the future? Yes No
DECLARATION
I, the undersigned, declare that this thesis is my original work, prepared under the
guidance of Asst. Professor Shoa Jemal. All sources of material used for the thesis
have been duly acknowledged. I further confirm that the thesis has not been submitted
either in part or in full to any other higher learning institutions for the purpose of
earning any degree.
_________________________ ______________________
Name Signature
St. Mary’s University, Addis Ababa November, 2014

ENDORSEMENT
This thesis has been submitted to St. Mary‟s University, School of Graduate studies for
examination with my approval as a university advisor.
Shoa Jemal ___________
Advisor Signature
St. Mary’s University, Addis Ababa November, 2014

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ST.

DETERMINANTS OF CUSTOMER RETENTION IN

BY: HANNA DAGNE

BY: HANNA DAGNE

A THESIS SUBMITTED TO ST.MARY’S UNIVERSITY,

DETERMINANTS OF CUSTOMER RETENTION IN

APPROVED BY BOARD OF EXAMINERS

TABLE OF CONTENTS ...............................................................................................................................i

NISCO Nyala Insurance S.C.

SMU Saint Mary‟s University

SGS School of Graduate Studies

SPSS Statistical Package for Social Sciences

Table 1: Validity statistics

Table 2: Demographical Data of the Respondents

Table 3: Summary of Responses Related to trust

Table 4: Summary of Responses Related to Customer Satisfaction

Table 5: Summary of Responses Related to Price

Table 6: Summary of Responses Related to Switching Barrier

Table 7: Crosstab: Customer Satisfaction with Retention

Table 8: Crosstab: Trust with Retention

Table 9: Crosstab: Premium with Retention

Table 10: Crosstab: Switching Barrier with Retention

Table 11: Result of Pearson Correlation Analysis

Table 12: result Binary Logistic Regression

Figure 1: Conceptual framework of the study

Figure 2: Respondent‟s response to wards retaining service

Figure 3: General feeling of Respondents about Premium Price

Figure 4: General feeling of Respondents about switching barrier

Key Words: customer retention, Attrition, Trust, Customer Satisfaction, Premium,

1.1 Background of the Study

In this complex and dynamic business environment, organization‟s survival is highly

Insurance companies in Ethiopia are in expansion, targeting lucrative businesses favored

1.3 Research Questions

1. What is the relationship between customer satisfaction and customer retention?

1.4 Objective of the Study

1.4.1 General Objective

1.4.2 Specific Objectives

To assess the effect of customer satisfaction on retention

1.5 Definition of Terms

Retention rate: It is the percentage of maintained customer over a period. (Ramakrishnan

1.6 Significance of the Study

 It helps Nyala Insurance S.C. to identify determinants of customer retention and

1.7 Scope of the Study

1.8 Organization of the Study

2.1. Customer Retention

2.2. Factors Affecting Customer Retention

2.2.1. Customer Satisfaction

Customer satisfaction is defined as an "evaluation of the perceived discrepancy between

2.2.3 Premium Price

2.2.4 Switching Barriers

2.3.1 Relationship between Customer Satisfaction and Retention

A study by Leeds (1992), claimed that approximately 40 percent of customers switched

2.3.3 Relationship between Premium Price and Customer Retention

In a qualitative research conducted on the effect of switching barriers on customer

Figure 1: conceptual framework of the study

3.1 Research Design

characterized as the depicting of accurate profile of people, events, or situations. Finally,

explanatory research aims at gaining an explanation of a specific problem, generally in the

form of causal relationships (Robson, 2002).