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THE CORRELATION BETWEEN PROFICIENT CLAIMS ADMINISTRATION AND THE ADVANCEMENT OF THE NIGERIAN INSURANCE SECTOR: A CASE STUDY OF LEADWAY ASSURANCE COMPANY

1-5 Chapters
Simple Percentage
NGN 4000

CHAPTER ONE

INTRODUCTION

Background of the Study: The origin of the insurance industry in Nigeria, as stated by Augustine and Brennan (2012), can be attributed to the British colonial trading enterprises that set up agency offices in Nigeria on behalf of insurance companies in the United Kingdom. Following Nigeria's political independence in 1960, domestically held insurance businesses emerged. However, due to insufficient capital, these companies were unable to promptly settle claims. The insufficiency of cash, along with a deficiency in technical and managerial expertise, an inadequate insurance regulatory framework, and a lack of confidence, has led to a great reluctance to purchase insurance in Nigeria (Bamidele, 2012).

The insurance business is widely acknowledged worldwide as a catalyst for economic growth and development. The industry ensures the financial stability of policy holders by pooling and investing premiums, which are then used to compensate individuals who experience unforeseen losses (Singh, 2012). A claim payment is a pivotal time in the interaction between an insurance company and its customer. This is an opportunity to demonstrate that the years dedicated to paying premiums were justified in terms of the cost. From a business perspective, claims payment is the most significant expense for insurers, accounting for 80 percent of all premiums, including associated handling expenses (Butler and Francis, 2010 cited in Saunders, 2009). The insurance sector has recognised that an efficient and timely resolution of claims by insurance firms can significantly contribute to the industry's expansion (Singh, 2012). According to Robson (2002), one of the main purposes of insurance is to resolve and pay out claims. Claims settlement refers to the financial reimbursement provided to the policyholder after they experience a loss. Inadequate management of a company's claims service can damage its reputation and consequently impact the sales and marketing of its insurance offerings. The claims settlement practices of insurance companies have before incited significant public criticism and even garnered the attention of governments (Robson, 2002). Effective data management systems are critical for exploiting claims data to improve products and services, as claims management must be balanced with cost-effective operations (Pallant, 2011). Furthermore, as insurance is typically an intangible offering for customers until they obtain compensation for a covered loss, the claims process can greatly impact clients' comprehension of and contentment with insurance. An affirmative claims experience might lead to a lasting client who actively supports and promotes the insurance plan. Conversely, a negative encounter can result in a lack of confidence and the discontinuation of policies. Claims management is an essential component of an insurer's endeavour to deliver excellent customer service and maintain client loyalty (Pallant, 2011). Claims administration encompasses the whole of managerial choices and procedures related to the resolution and disbursement of claims, in accordance with the stipulations outlined in the insurance agreement (Rose, 2013). According to OECD (2004), enhancing claims departments entails implementing efficient procedures and activities such as claims reporting, claims evaluation, claim processing, fraud detection, and complaints and dispute settlements. However, even though this is the case, the process of claim settlement has always encountered difficulties for the majority of insurance firms in Nigeria. Furthermore, a company that is unable to efficiently resolve claims to the contentment of customers is bound to receive fewer customers, as it is likely to dissuade such clients from maintaining their insurance coverage with the company. These clients may even discourage their acquaintances, coworkers, and family members from doing business with such a company (Rose, 2013). This study investigates the correlation between efficient claims administration and the expansion of the Nigerian insurance business.

1.2    Statement of the Problem

The importance of claims management in driving the expansion of the insurance sector in Nigeria cannot be exaggerated. However, it is disheartening to observe that the insurance industry in Nigeria remains largely undeveloped, despite its crucial role in supporting individuals, businesses, and the overall economic progress of the nation.

Ojikutu (2011) identifies several obstacles to the growth of the insurance industry in Nigeria. These include a lack of trust and confidence in insurance institutions, inadequate claims management, insufficient reliable actuarial data for research, and an underdeveloped financial market. Efficiently handling claims is a multifaceted undertaking. Although Nigerian insurance businesses face numerous steps and differences in their processes, they encounter difficulties in continually enhancing their claims operations. This could be attributed to the inadequate claims process and lack of acknowledgment given to the claims department professionals inside the sector.

An insurance firm operates similarly to other profit-driven industries, aiming to generate financial profits while providing important services to their clientele. However, in recent times, inadequate management of claims has significantly hindered the effectiveness of insurance businesses. The pervasive threat has caused many insurance policyholders in Nigeria to consider cancelling their policies due to insurance firms failing to compensate them for their incurred losses.

The primary obstacles to claims management and its impact on insurance growth in Nigeria encompass inefficient and ineffective assessment and processing of claims, inadequate settlement procedures that negatively affect insurance companies' overall profitability, the incapacity of insurance companies to maintain solvency for timely claims settlement, and dispute resolutions that often fail to satisfy customers. Therefore, in order for the insurance industry to attract a large number of customers and fulfil its intended purpose of gathering financial resources from those with excess and directing them towards areas of need and efficient utilisation in Nigeria's modern business economy, it is crucial to have a well-functioning claims management system.This study intends to investigate the correlation between efficient claims administration and the expansion of the insurance sector in Nigeria, considering the current circumstances.

1.3    Objectives of the Study

The main purpose of this study is to investigate the relationship between effective claims management and the growth of the insurance industry in Nigeria. Other salient objectives are:

a.To explore the relationship between claims management and insurance companies’ underwriting.

b.To examine the effect of claims settlement on demand for insurance.

1.4    Research Questions

The study will be guided by the following research questions:

  1. Is claims settlement a significant predictor of insurance companies’ underwriting?

2.What is the correlation between claims settlement and demand for insurance?

1.5    Research Hypotheses

In the course of the study, the researcher will test the following hypotheses:

Hypothesis One

Ho:    Prompt claims settlement is not a significant predictor of insurance companies’ underwriting.

Hi:    Prompt claims settlement is a significant predictor of insurance companies’ underwriting.

Hypothesis Two

Ho:    There is no significant relationship between claims settlement and demand for insurance.

Hi:    There is a significant relationship between claims settlement and demand for insurance.

1.6 SIGNIFICANCE OF THE STUDY

The study will be significant to insurance company's as it will expose the lapses in the  customers claims management of insurance company's.

The study will be significant to the academic community as it will contribute to the existing  literature on claims management in Nigeria insurance company.

1.7 SCOPE OF THE STUDY

The study will explore the relationship between claims management and insurance companies’ underwriting. The study will also examine the effect of claims settlement on demand for insurance.  Hence the study is limited to Leadway Nigeria insurance company.