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Analysis Of The Process Of Rate Making In Life Insurance Company; A Case Study Of Lead Way Assurance Limited




This research work analysis process of rate making in life insurance policies using lead way assurance limited as a case study. the researcher gave a detailed explanation of the rating process and also explored various literatures on similar topics. Data for this work was gathered through primary sources such as questionnaire administration and  personal interview and also secondary sources like text book, journal, the internet etc. the data were subsequently analyzed and interpreted using 50 as the sample size by employing the analysis of variance (ANOVA) two way model. The findings from the analyses reveal that premiums charged on customer vary significantly among the life insurance companies and as a result of this, some companies fix high premium rate which results to low or poor patronage of life insurance products by the insurng public. Also, the findings reveals that the government regulations on prmium rating do influence the insurer in under writing risks up to an is based on these findings that the researcher concluded that since life insurance is a major source of premium income to insurance companies, they should re-brand and introduced innovative product so as to attract more customers. The researcher recommended a thorough regulation of companies by (NAICOM) to ensure strict adherence to laid down regulations  and also for life companies to adequately train their staff and provide certain incentives so as to ensure optimium performance and a sound and professional under writing of life insurance policies.



This chapter intends to reveal all relevant issues that will be handled in this research


In insurance contract, the policy holder (insured) pays a certain amount of money in consideration for the insurer’s promise to cover the risk insured against. This money paid is called premium. Irono and Akoji (2003:8) maintain that by paying premium and by indemnity the loss is mitigated and as far as possible prevented.

Oluoma (1999:7) was of the view that rating or pricing involves the determination of appropriate premium for a risk to ensure that a sound and equitable underwriting is achieved. Rate making or insurance pricing according to Spaulding (2014:internet) is the determination of rate charged by insurance companies. The benefit of rate making is to ensure insurance companies are setting fair and adequate premiums given the competitive nature. The rating must be precise, simple, competitive and stable but reasonably flexible to accommodate changing risk factors, environment dynamic and perhaps inflation or any tendencies. Indeed, price is an essential ingredient in the marketing mix.

Anyanwu (2000:121) was of the opinion that the prices of goods and services play a very important role in any given economy and it determines both the money wage and the real wage. The wages labour attracts is directly related to the price of its output. Prices determines real wages  in the sense that they determine what quality of goods and services that a given unit of money can buy the price of life insurance product can to a large extent depend on its demand or acceptability by the INSURED. Pricing has become a competitive tool in the insurance industry. The premium rates of most insurance companies product differ relatively depending on the segment of the market, customer characteristic, the frequency or severity of loss, the cover granted, government regulation e.t.c.

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Nduka (2005:143) was of the view that premium for any kind of insurance must be adequate, reasonable and equitable in some lines of insurance, these are legal as well as practical recruitment. Premium for life insurance must be adequate in the sense that they must be sufficient, with interest, to pay the benefit promised, as well as the expenses of administrating the plan. They must also be reasonable because insurance is a highly competitive that other companies cannot offer substantially the same benefit at a significantly lower premium. Even if there were on completion, however, good business sense suggested that a company would not sell very much insurance it is premium unreasonably high.


Osoka (1999:52) observed that providing the right price (premium) of insurance is a difficult task, in view of the intangible nature of insurance, and the fact that benefits are not realized until the happening of an unfortunate incident. Decision and Steel (1999:119) maintained that rate making is a highly complex and technical job, therefore needs the services of specialist.

These specialist must carry out inspection, collect data and analyse the various factors that determine the hazards of different rate in detailed  for a through work to be done. If an insurance company in its premium rating exercise decides to cut rate in order to grab more business to its self the company may wind up in the happening of an event. If the premium rating of an insurance company results to a high premium, there will be low patronage on the size of the life assured and low premium may cause the operation of the insurance company to cease.

Rate making system in insurance is usually linked with the company’s underwriting policy, scope at cover granted, cash inflow needs etc. as a result, rate structure in insurance has not been easily ascertained. Premium rating or rate making in Nigeria has become a problem since some of the insurance companies practice rate cutting which is an ethical practices that affects the company in terms of claims and creates a poor image of insurance industry. If premiums are not adequately and reasonably rates, the insurer may encounter total loss in settlement of claims and this will automatically affect its management.


The primary objective of this study is to analyze the process of rate making in insurance industry in Nigeria but because of various polices covers by insurance companies and to reduce the ambiguity of this study we will concentrate in the study of rate making in life insurance. The following are the objective of the study we are going to look into:

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  1. To find out if premiums charged on customers vary significantly among the life insurance companies in Nigeria.
  2. To ascertain if premium rating contribute to poor patronage of life insurance products by the insuring public.
  3. To know wheather government regulations on rate making infuence the insurers in underwriting risks.
  4. To discern how satisfied customers are with premium charged and services rendered by the life insurance companies.
  5. To perceive the extent to which rate making practice create an enabling environment for the substainance of life insurance companies in Nigeria.
  6. To discover if there is any relationship between the premium paid by customers and the risk covered.
  7. To create and enabling understanding of the procedures for computation of life insurance premiums.

The research questions of this work serve as a guide to provide answer to the problems that are been investigated, it focuses on the major problems and gives rise to other minor research questions. Due to the very peculiar nature of this study, the following question are raised.

  • To what extent do premiums charged on customers vary among the life insurance companies in Nigeria?
  • To what level do premium rating contribute to poor patronage of life insurance product by the insuring public?
  • In what ways do government regulations on premium rating influence the insurers in under writing risks?
  • How satisfied are customers with premium charged and services rendered by life insurance companies?
  • To what extent do rate making practice create an enabling environment for the substance of life insurance companies in Nigeria?
  • What is the relationship between premium paid by the customers and the risks covered?


The research hypotheses of this study are states in null forms as:

H01: rate making do not contribute to poor patronage of life insurance products by the insuring public.

H02: premium charged on customers do not vary significantly among the life insurance companies.

H03: government regulations on premium rating do not influence the insurers in underwriting risk.


The study is on the process of rate making in insurance industry with a particular reference to LEADING ASUURANCE LIMITED in a study of this nature, it is usually necessary to define the scope of the study to reduce ambiguity.

This research work is designed to focus on the process of rate making  as applicable to life insurance business. This is so because life insurance business is one of the most conversant one with the insuring public in Nigeria.

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The scope of this study covers Owerri because it is an important center for commercial activities in Imo state where this research was strictly carried out.


In the course of writing this work the researchers would be under the following constraints.

Time constraint: it was very difficult to get materials from thelife  insurance companies to work out the premiums because for example, materials like the premium rate book of an insurance company is a confidential document but it was released on trust.

Financial constraint: difficulty was also experienced in financial aspect in terms of travelling to various branches of the case study, to get meaningful data.


By virtue of this research, the research will be equipped and also educated in understanding the basic principle of rating, its applications and also how premiums are being computed in life polices by the use of formula to arrive at the appropriate amount payable by the life assured. The government, as business regulator, will understand the needs of life insurance in national development, and customers will also appreciate the services of the life assurers in making reasonable premiums, thus, benefiting by purchasing the insurers products. This study is very essential to the life insurance companies because they may use it as a guide or mechanism to ascertain what the prospective customers feel about the life insurance products and their reaction over the premiums charged. However, the researcher has come to realized that this study in an indispensible one in life insurance industry and its needs cannot be overemphasized.


Policy holder: A person or entity who pays for, and therefore owns an insurance policy.

Premium: The money paid by the insured to the insurer for the insurance cover provided in the policy.

Premium rating: the calculation of the premium.

Rating : The process of arriving at a suitable premium for an insured risk.

Rates: The percentages of factors applied to the sum insured of a risk to determine the cost of a given unit of insurance.

Underwriting: The acts of assessing risks proposed by the insured to the insurer with a view to securing the most profitable risks and ensure a wise and safe distribution of risk.

Underwriter: Is the person who is employed by an insurance company to do its underwriting works.

Insurance: Is a contract whereby one person, called the insurer undertakes, in return for the agreed consideration, call the premium to pay another person, call the assurance sum of money or the equivalents , on the happening of a specific event.

Pages:  120

Category: Project

Format:  Word & PDF

Chapters: 1-5

Material contains Table of Content, Abstract and References

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