1.1 BACKGROUND TO THE STUDY
Insurance industry is a subsector of
the Nigerian financial system that deals with uncertainties, that is, events
which are likely to occur and cause loss. It is also a service oriented
industry that exist to absorb or transfer the risk of individuals, groups of
people, other business ventures or government to ensure and encourage their
continuous growth and development. They evolved to safeguard the financial
interest of people from uncertainties by providing indemnity if an unexpected
event occurs. Insurance companies are financial institutions set up to provide
insurance covers to individuals and corporate bodies against possible risk
occurrences, (Akpan, 2005).
Insurance must do with managing the
unknown, which itself is associated with the future. To insure, as it is
commonly used is to guard against the unknown, to ameliorate risk; or to
compensate the risk.
According to Butler’s et al (2010),
to insure, in a way is to make a contract that promises to pay one or somebody
an amount of money in case of accident, injury, death etc. Butler’s definition
links closely with the description of insurance by Akpan (2005) who defines
insurance as a contract which is based on the pooling and sharing of risks of
diverse persons and institutions, on the premise that institutions will suffer
actual losses at a given point in time.
The normal activities of daily life
carry the risk of enormous financial loss thus, the emergence of insurance
industry to cushion the effect of risk or loss occurrences to enhance
However, despite the relevance of this
industry, there is a false notion held by the masses that the Nigeria insurance
industry does not effectively pay claims or liabilities and this notion has had
an adverse effect on the profitability of the industry.
Claims management in insurance industry
is an organized and efficient method of handling and settling claims accrued to
an insured under an insurance policy as speedily and practicable, as it is the
bedrock upon which the general operation of insurance industry rest on. Claims
are demands made by an insured for the benefit, right, compensation or
indemnity which he is entitled to under an insurance contract.
The ability and willingness of an insurance
company to settle claims may be an acid test to its efficient operation. Butler
(2010) concurring with this asserts that claims management is central to
insurance industry because it determines the operational efficiency and
profitability of this subsector of the Nigerian financial system.
Poor and bad claims management is
prejudicial to the insurance subsector and may jeopardize the entire operation
of the industry. Butler (2010) states that a bad impression received on the
settlement of claims or a blatant withholding of loss payment may give rise to
a general loss of business, court action, regulatory censure or even withdrawal
of license to carry out further operations. Thus, the profitability of the
Nigerian Insurance industry is anchored on its ability to effectively and
efficiently manage and settle claims when due to build public confidence in its
1.2 STATEMENT OF THE PROBLEM
Insurance industry is one of the key
players in the financial sub-sector of the economy. As an integral part of this
sector its paramount roles, functions or obligations are the provision of
coverage against risks or losses and the settlement of claims as at when due,
to enhanced economic efficiency.
The Nigerian insurance industry over the
years has under-performed its roles in the financial subsector of the economy
when compared to its counterpart in other parts of the world. The major factor
that has caused this is poor claims management.
Poor claim management is exhibited in the
following ways: the inability to settle claims properly to stimulate the
interest of the populace, the failure to live up to expectation in payment of
claims has led to poor public perception of the industry, high and fraudulent
claims by insurance claimants which has hit the reserve base of the industry,
low level of professionalism ethical standard and lack of commitment to the
insurance profession about payment of claims.
These myriads of lapses in the system
operation are encapsulated in poor claims management which has affected the
profitability of the Nigerian Insurance Industry adversely. This state of
affairs has aroused the concern of the researcher to investigate the
relationship between payment of claims and profitability of the insurance
companies in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to
investigate the relationship between payment of claims and performance of
insurance companies in Nigeria.
specific objectives are:
To examine the effect
of payment of claims on profitability of the insurance companies.
To assess the gap
between payment of premium and payment of claims.
To examine the process
of payment of claims.
To examine the
intervention of government in payment of claims by insurance companies in Nigeria.
1.4 RESEARCH QUESTIONS
What is the effect of
payment of claims on profitability of insurance companies?
What is the gap between
premium and claims in the Nigerian insurance sector?
What is the process of
payment of claims?
How is government
intervening in payment of claims by the insurance companies?
1.5 RESEARCH HYPOTHESES
Ho: There is no significant relationship between claims settlement
and profitability of the Nigerian insurance industry.
Hi: There is a significant relationship between claims settlement
and profitability of the Nigerian insurance industry.
Ho: There is no significant relationship between claim settlement
and premium received by insurance industry in Nigeria.
Hi: There is a significant relationship between claim settlement and
premium received by insurance industry in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
It is hoped that the findings of this
study will be of immense benefit to the government and the Nigerian Insurance
industry in addressing claims management problem and revamp its operations to
stimulate and instil the public interest and confidence in its services to
The study will form a very useful
information resource base for future researchers, the students, the government,
the insuring public and the insurance companies on issues of claims management
in the industry to enable them to know their strength, weaknesses and
challenges and how to improve and overcome them to enhance their profitability.
Finally, the research work will add to already existing literature on the
1.7 SCOPE AND LIMITATION OF THE STUDY
This study is designed to cover the
Nigerian Insurance Industry in relation with claims management and
profitability. It will also examine some measures adopted in claims management.
However, a study like this cannot be
carried out without some limitations. The most obvious problems faced by the
researcher is that of obtaining reliable data on claims issues and claims
settled in print like textbook in the library. Funds were not sufficiently
available for this study due to poor economic situation in the country.
However, the researcher has been on top
of the problems and the findings made in this study are valuable, authentic and
valid for consideration.
1.8 ORGANIZATION OF THE STUDY
The research project is divided into five
chapters with introductory chapter focusing on the background to the study,
statement of the problem, objectives, scope and limitations of the study,
research hypotheses, research questions and definition of terms used in the