Effects Of Non Life Claims On The Development Of The Nigerian Insurance Industry

ABSTRACT

 This study was on effect of non life claims on the development of the Nigerian insurance industry. The specific objectives were to investigate the effect of motor insurance claims on insurance premium growth ratio in Nigeria; to ascertain the effect of fire insurance claims on insurance premium growth ratio in Nigeria; and to evaluate the effect of marine insurance claims on insurance premium growth ratio in Nigeria. The study used Ex-post facto research design. Three hypotheses were formulated and tested using Simple Regression as analytical technique. It was found that motor insurance sector claims payment did not significantly contribute to insurance premium growth ratio in Nigeria; fire insurance sector claims payment did not significantly contribute to insurance premium growth ratio in Nigeria; and marine insurance sector claims payment did not significantly contribute to insurance premium growth ratio in Nigeria. Based on the findings of the study it was concluded that non-life insurance sector claims payment did not significantly contribute to insurance development in Nigeria. In line with the findings of the study it was recommended that the insurance industry should put in place a scheme that drastically reduces the volume of fake policy holders on our roads. This will make the public to apply for genuine motor insurance cover thereby increasing premium generated by the industry and in extension deepen insurance penetration. Also, central markets across the country should be encouraged to buy group insurance to cover the market against market engulfing fires. This will bring in a lot of person under the general umbrella and deepen insurance penetration.

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study

Insurance is security that is needed by all human beings. No animal, no plant nor mountains and oceans want any security, like man does. Man is afraid of uncertainty, fears and death. Although a reality, one day each one will die; early or later, timely or untimely is the question, which has no answer. He is afraid of risk & losses in future. He is ever in search of security & certainty. Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses (Kagan, 2023). Insurance is an arrangement by which a company undertakes to compensate a person, property, company, or entity for a specific loss (MarketBusinessNews, 2023). The insured usually feel the effect of insurance when a claim arises. Claim is an official request submitted to the insurance company demanding payment as per the terms of the policy (Hayes, 2023). When you make a claim on an insurance policy, you are formally notifying the insurance company that you have suffered a loss or damage that you believe is covered by the policy and you are requesting action. The insurer will review your claim and see if the event or circumstances are risks covered by the policy. You will need to provide proof it is a genuine claim and the insurer will need to be certain the claim satisfies the terms and conditions of your insurance policy. If your claim is accepted, the replacement or repair of your property or any payment by the insurer is called the benefit or payout. The insurer will work out the value of the claim and provide the appropriate benefit specified in your insurance contract.

For the insurer the actual test does not come until such a claim comes up from the insured or other party concerned. In insurance business, what an insured purchases is just a promise to pay a claim arising after the purchase and consistent with the policy sold (Agu, 1999). If the insurer at that time makes good his promise, the insured is satisfied that he made a good bargain. Where the insurer fails, the insured is disappointed. His disappointment may result in serious consequences for the insurer. The insured may feel so badly injured that he may resort to the court action with its attendant bad publicity for the insurer. In other words, the claim settlement decision of a insurance company can make or mar its fortunes. Thus the development of the insurance industry is to an extent dependent on how it handles its claims settlement.

When referring to a society or to a socio-economic system, “development” usually means improvement, either in the general situation of the system, or in some of its constituent elements.  In other words, development can be seen as improving the well being of people and expanding the choices and opportunities they have. Therefore, insurance industry development points to the degree of positive significant shift in the use of insurance within a society or an economy. Insurance premium growth ratio is a measure that shows the level of development of insurance sector in a country (Chen, 2019). It is an indicator of growth rate of gross written premium of the insurance industry. At their most basic level, growth rates are used to express the annual change in a variable as a percentage.

The Insurance industry in Nigeria is segmented into life, non-life and re-insurance, with non-life insurance accounting for the bulk (48.7%) of total Gross Premium Written (GPW) while life and re-insurance account for 30.1% and 21.2% respectively (Proshare, 2018). A total of 59 companies operate in the industry – 14 operate in life, 28 in non-life, 13 are composite insurers (licensed to carry out both life and no-life insurance), 2 are reinsurers and 2 operate takaful insurance. Furthermore, the insurance business in Nigeria is titled towards non-life given that it accounts for 48.7% of total Gross Premium Written (GPW). Across this segment, the most prominent insurance products are motor insurance, general accident, fire, oil & gas and marine insurance. The Insurance Claims reported during the fourth quarter OF 2022 stood at N318.2billion representing a thirty-one (31.2%) per cent QoQ growth (NAICOM 2022). Possible attainment as a result of growing awareness and Market expansion as well as consumer’s confidence. In a similar pattern, the net claims paid were reported at N244.3billion, growing at about eighteen per cent (17.9%) QoQ during the same period.  Insights into the Non-life segment shows that Motor Insurance led with regards to claims settlement vis a vis gross claims reported at about ninty-two (92.3%) per cent signifying a nine points improvement as against its prior position. Fire Insurance was the least at about forty-six per cent (46.3%), the only class below average proportion. All other portfolios of General Accident Insurance (80.7%), Oil & Gas (51.6%), Marine & Aviation (74.4%), miscellaneous Insurances (86.1%) recorded a proportion above the average, of paid claims against gross claims reported (NAICOM 2022). Life Insurance business on the other hand reported two points less in comparison to the position held in the prior period of ninety-five (94.6%) per cent of net claims paid compared to total claims reported during the same period of 2021. As the leading sector in the industry in claims settlement the non-life sector through expected to wield significant influence on the development of the industry in Nigeria (NAICOM 2022).

1.2     Statement of the Problem

The level of development of insurance in Nigeria is abysmally low. This is seen from the premium growth ratio of the industry. It has been less than one percent of gross domestic product of the country. In other words, the premium generated by the insurance industry shows the extent of economic activities covered by the industry is not up to one percent. This shows that the insurance industry has not been granting its services to a large section of the economy.

Quite a number of reasons have been adduced as being behind the low level of development of the insurance industry. From several empirical findings it’s been observed that low public confidence, not being high on the scale of priority needs of households, high public trust in religious beliefs, dependence on ones social network and poor understanding of the use of insurance. Others include, poor industry capacity, inadequacy of the insurance products on offer, focus of the industry on only corporate clients while neglecting the informal sector, low investor confidence, amongst others.

Despite these findings, there is still a gap for further empirical study. The insurance industry key strength is in claims settlement. A company may be run, very efficiently and soundly in every respect; its policies may be delivered promptly and renewals handled efficiently, but an unreliable and ineffi­cient claims department could ruin the reputation of the company. As such the claims settlement operation of insurance industry can influence public confidence in favour or against the industry. It therefore occupies a unique position to influence premium generation, and in extension industry development. Its impact on insurance development has not been given adequate empirical review, particularly from the perspective of Non-life insurance sector which is the segment of the industry that records the most premium and claims. Therefore, the problem of this study is to examine how significantly non life insurance claims settlement influences insurance development in Nigeria.

1.3     Objectives of the Study

The main objective of the study is to examine the effect of non life claims on the development of the Nigerian insurance industry. Its specific objectives are to:

1. Investigate the effect of motor insurance claims on insurance premium growth ratio in Nigeria
2. Ascertain the effect of fire insurance claims on insurance premium growth ratio in Nigeria
3. Evaluate the effect of marine insurance claims on insurance premium growth ratio in Nigeria

1.4     Research Questions

The following are research questions for the study

1. What is the degree of effect of motor insurance claims on insurance premium growth ratio in Nigeria?
2. To what level did fire insurance claims affect insurance premium growth ratio in Nigeria?
3. How far did marine insurance claims affect insurance premium growth ratio in Nigeria?

1.5     Statement of Hypothesis

The following null hypotheses were formulated for the study:

H₀1: Motor insurance claims did not significantly affect insurance premium growth ratio in Nigeria

H₀2: Fire insurance claims did not significantly affect insurance premium growth ratio in Nigeria

H₀3: Marine insurance claims did not significantly affect insurance premium growth ratio in Nigeria

1.6     Significance of the study

General Public: Through this study the general public will get to understand how important claims are in insurance business. The findings of the study will address their misconceptions that insurers are cheats and can encourage them to renew their polices as well as buy new ones or altogether turn away from their present insurer to a new one if not satisfied.

Insurance Companies: Insurance services providers from the findings of the study will discover the extent of influence Claims settlement exerts on their operations. They will learn how changes in Claims settlement per business year pressurises their expenditures, income and market penetration.

Scholars: The Academia through this study will derive a deepening of literature on Claims in the Nigerian context. It will help through its empirical review to validate already existing studies and through its results establish possibly new ones.

1.7     Scope of the Study

The study covers the activities of the insurance industry from 1985 to 2022. The spread of the years allows the use of large number of years of operations as sample size. Three classes of the insurance business (Fire insurance, Motor insurance and Marine insurance) were chosen given that they are the classes of insurance with most applications for claims settlements across Nigeria (NAICOM, 2022).  The base year of 1985 was used given that it marked the period of significant economic reform in the Nigerian economy which introduced Structural Adjustment programme.

Pages:  82

Category: Project

Format:  Word & PDF               

Chapters: 1-5                                          

Source: Imsuinfo

Material contains Table of Content, Abstract and References.