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IMPACT OF SERVICE QUALITY ON SMALL AND MEDIUM ENTERPRISES INTENTION TO PURCHASE INSURANCE IN KADUNA STATE
1.1 Background to the study
Prior to 1960s, investments on capital intensive and large scale industrial projects were seen as the major means of achieving economic growth and economic development (Ihua, 2009). ILO (1973) posited that many policyholders‟ attention started shifting from concentrating on large scale enterprises to small and medium size enterprises as a path to achieving economic growth and development. This shift in the attention of policyholders may not be unconnected with the rapidly expanding labour force, low employment elasticity of modern large- scale production, and uneven distribution of economic growth experienced all over the world in the mid 1960s(Ekpenyong & Nyong,1992). SMEs‟ potential to generate employment, utilize local resources, ensure even distribution of industrial development, as well as their ability to facilitate the growth of non-oil exports had made both developed and developing countries pay special attention to SMEs subsector; such as the creation of Small Business Agency (SBA) in USA; Small Business Service (SBS) in the UK; and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in Nigeria (Aremu & Sidikat, 2011; Legg, Battista, Harris, Lamm, Massey, & Olsen, 2009; Anna, 2014). SMEs account for at least 95% of India‟s industrial units and contributes 45% of their manufacturing output as well as about 40% of their export(Nikaido, Pais, & Sarma, 2015). Sipa, Gorzen-Mitka, and Skibinski (2015) and Bates and Nucci (1989) also established that in the European Union, SMEs contribute to over 99% of all enterprises. Duale and Karemu (2015) identified Japan, Zambia, South Korea, Malaysia, as some of the countries that have benefited immensely from SMEs in terms of their contributions towards employment generation, export earnings, and Gross Domestic Product (GDP). Despite these enormous contributions of SMEs to the economic, the rate at which they fail shortly after their establishment in Nigeria is alarming (Aremu & Sidikat, 2011; Achie & Sado, 2014). Empirical research had shown that managerial inability and financial constraints are not the only major factors militating against the success of SMEs in Nigeria (Ihua,2009). Ihua (2009) identified external factors such as crises and disasters as the major causes of SMEs‟ failure in Nigeria.
Also, Azende (2012), revealed that the inability of SMEs operators to efficiently manage the risks they are exposed to as well as their unwillingness to purchase insurance policies for their business operations contribute greatly to their failure. Amaefula, Okezie, and Mejeha (2012), argued that intention regarding insurance depend largely on the extent to which individuals perceive insurance firms‟ service quality as well as their willingness to bear risks. Insurable risks could take various dimensions ranging from fire outbreak, theft of business assets, damage of goods on transit, crisis and disaster outbreaks, etc resulting to loss of businesses and business properties. According to Ihua (2009), Azende (2012), and Kadams (2014) insurance protection could guaranty the continuous existence of some of the businesses that had failed. Bala, Sandhu, and Nagpal (2011), and Toran cited in Siddiqui et al (2010), asserted that quality should be at the core of what the insurance industry does. Their findings showed that the quality of services and the achievement of customer satisfaction and loyalty are fundamental for the survival of insurers. Despite the call on insurance industry to render quality service, the high rate of insurable risks that SMEs are exposed to in Kaduna state as well as the age of insurance industry in Nigeria in which according to Obasi (2010), Usman (2009), and Arena (2008) all argued that the industry in Nigeria started early 1920s which is older than those of China, India and Malaysia. The intention to purchase insurance by Nigerians may still be very low as the findings of both World Bank (2009) and Klynveld Main Goerdeler and Peat Marwick KPMG(2012) showed that only 3% of
potential loss is insured in developing countries, and that insurance penetration ratio in Nigeria is 0.68% which is far below the minimum standard of 6.5% .
The need to investigate SMEs operators‟ intention to purchase insurance in Kaduna state is also necessitated by the encounter of the researcher with some of the people that were affected by the fire outbreak at Sabon Gari Market, in Sabon Gari LGA of Kaduna state. When some of the fire victims were asked whether or not they had insurance covers for their businesses. Some of them perceived insurance as a scheme that is meant to cater for the survivor(s) of a deceased. Some of the sampled people understood that insurance could also offer protection for businesses but believed that when the insured peril occurred, the insurers may or may not indemnify the insured.
Parasuraman et al. (1988), identified five dimensions of service quality that could be used to evaluate the quality of service a firm renders to its customers as follows:
(i) Reliability: it is the ability to perform the promised service accurately and at the appropriate time.
(ii) Assurance: is the knowledge and courtesy of employees and their ability to inspire trust and confidence.
(iii) Tangibles: the state or appearance of physical facilities, equip ment, personnel and materials
(iv) Responsiveness: this is the willingness to help customers and provide prompt service.
(v) Empathy: is the caring and individual attention the firm provides its customers.
Rendering service quality should create a win-win scenario for both the insurers and the SMEs operators. This is because, insurers‟ premium income will increase owing to the SMEs intention to purchase insurance as they are assured of reinstatement to their former financial position before the loss should the insured peril occurred
1.2 Statement of the Problem
Most SMEs particularly in Nigeria die within their first five years of existence, smaller percentage goes into extinction between the sixth and tenth years while only about five to ten percent of young companies survive, thrive, and grow to maturity(Aremu & Sidikat 2012). In Kaduna state, the rate of SMEs failure is more disturbing as Archie and Sado (2014), found that 60% of SMEs failed in the first three years of establishment and 80% of most start-ups failed within their first five years.
Ihua (2009), argued that mana gerial inability is not only the major cause of SMEs‟ failure in Nigeria, but rather, disasters and crises as 73% of the respondents in Nigeria agreed that disasters and crises lead to SMEs failure.Azende (2012), also identified flood and fire outbreaks as some of the major causes of SMEs failure in Nigeria. Crises, such as ethno-religious and post election violence had caused a lot of business interruption in Kaduna state. United States Institute for Peace (2011), revealed that many businesses were destro yed in Kaduna state during the 2011 post election violence. This claim was supported by Lemu (2011), who found that 827 out of the total number of 938 persons killed during the 2011 post election violence were recorded in Kaduna state.
Kaduna State Emergency Management Agency (SEMA), revealed that there were 385 cases of fire outbreaks in Kaduna state in 2013 which led to the loss of over 1.1 billion Naira. SEMA (2015), reported that in the last quarters of 2015, Kaduna state experienced 163 fire outbreaks which affected a lot of SMEs operators as well as economic activities considerably.
Kadams (2015), opined that the major losses of SMEs operators in Kaduna state were owing to frequent fire outbreaks and other disasters, hence, they can be minimized if SMEs operators had purchased appropriate insurance covers for their businesses. Daniel (2014), confirmed that the Federal government commitment towards ensuring that the insurance industry is strong enough to handle most of the risks that are peculiar to N igeria‟s culture locally through implementation of various policies are aimed at strengthening the industry so as to boost the insuring public‟s intention to purchase insurance..