The mediating role of customer satisfaction towards customer loyalty in the motor takaful industry in Malaysia

Abstract

Customer loyalty is the key to profitability and survival to a particular firm. Loyal customers would purchase from the firm over an extended time while satisfied customers are more likely to be repeat customers and even become loyal customers. Takaful (Islamic insurance) industry is experiencing significant expansion in the past two decades, mainly in Islamic countries and countries with large Muslim communities. Even though customer satisfaction and customer loyalty are considered fundamental in the profitability and survival of motor Takaful, few researchers have attempted to link customer satisfaction to customer loyalty in this industry. This study aims to determine the effects of the three exogenous variables, namely service quality, price fairness and Shari’ah compliance on customer loyalty through customer satisfaction as the mediator. Applying the theory of customer satisfaction, a structural equation model was developed and tested on 322 respondents from the Klang Valley, using a self-developed questionnaire. The findings suggest that customer satisfaction partially mediates the relationship between the independent variables of Shari’ah compliance and price fairness and the dependent variable, customer loyalty. The theory is partially supported where only price fairness and Shari’ah compliance are significantly correlated with customer loyalty while customer satisfaction mediates their relationships. Shari’ah compliant framework provides motor Takaful operators a competitive edge over their conventional motor insurance operators. Therefore, motor Takaful operators must be very transparent in their pricing policies; customers would not mind if they know what exactly they are paying for even though the price is higher. This study contributes significantly to the motor Takaful operators in focusing on their core areas of competency in preparation for the implementation of the deregulation of tariffs by 2016. The deregulation of compulsory motor insurance/Takaful pricing will create strong competition from new and existing players and set off unhealthy undercutting.