The Analysis Of The Relationship Between Premium And Claim Settlement In Nigeria Insurance Industry

Project and Seminar Material for Insurance

The Analysis Of The Relationship Between Premium And Claim Settlement In Nigeria Insurance Industry


Abstract


Insurance industry plays active in economic development of any nation. No developed or developing nation can do without insurance. For the proposed insured to be covered there must be a consideration. It is this consideration that is called premium, the law of Insurance States that no cover without premium on the other hand, as far as insurance is concerned. There is no tangible product to test, what the insured purchases is just a promise to pay a claim arising after the purchase and consistent with the policy sold.

The actual test therefore does not come until such a claim comes up from the insured of other party concerned. If the insurer at that time makes good his promise, the insured is satisfied that he has made a good bargain. But where however the insurer fails, the insured is disappointed. This disappointment may result in serious consequences to the insurer. Claim settlement is a very vital issue that may cause dispute between the insurers and the policy holders. Infact most of the disputes that arises in insurance contract has to do with settlement of claims and quantum to be paid, so an important factor that distinguishes a good insurance company is it claims settlement services. Therefore there is a big relationship between premium and claim settlement.


Chapter One


Introduction

1.1 Background of the Study

The role of insurance in the economic development of the country is paramount and vital. In the observation of this fact, the federal government gave approval for the establishment of more insurance companies in the past century.

Ever since the establishment and formation of insurance industry, premium has been a vital tool for the contract of insurance to be effectively binding on both parties to the contract.

Premium is the monetary consideration passing from the insured to the insurer for the undertaking to pay the sum insured in the event of the risk insured against happening. It is a necessary element and ingredient in the formation of an insurance contract.

Insurers have table in rates of premium chargeable by them for each class of risk underwritten. In construction these tables, they are guided as far as possible by experience. The rates of premium ordinarily charged may be increased or decreased depending on whether the insured seeks a wider protection than that which the insurers are willing to provide for property similar to that for which insurance is sought of if the insured is prepared to accept a narrow cover or to comply with any special requirement imposed by the insurers.

On the other hand, when a person buys some product, his major or primary objective, aim or concern is whether that product will be fit for the purpose for which he is buying it. Most of the time, he would have satisfied himself by inspecting the product and that it is performing before eh actually pays for it.

But as far as insurance is concerned, there is no tangible product to test, what the insured purchase is just a promise to pay a claim arising after the purchase and consisted with the policy sold. The actual test therefore does to come until such a claim comes up from the insured or other party concerned. If the insured is satisfied, then he made a good bargain. But where however the insurer fails, the insured is disappointed. His disappointment may result in serious consequences to the insurer. The insured may feel so badly injured that he may resort to court action with its attendant bad publicity for the insurer. Therefore, an insurer will be regarded as good if he has a good reputation as far as settling of claim is concerned.

Meanwhile, claims settlement is a very vital issue that may cause dispute between the insurers and their policy holders, infact, most of the disputes that arise in insurance contact have to do with settlement of claims and “quantum” i.e. the amount to be paid. So an important factor that distinguishes a good insurance company is its claims settlement services.

It does not mean therefore that an insurer should be over liberal in order not to edge it’s self out of the market. Meanwhile, admitted genuine claims should be settled promptly for an insurance company to maintain a good public image and confidence.


1.2 Statement of Problem

  1. Poor relationship between premium payment and claims settlement in Nigeria insurance industry.
  2. Inadequate knowledge of the effect of claims settlement on insurance practice.
  3. Lack of proper management of premium payment by the insured.
  4. Challenges facing insurance that hinders effective claim settlement in insurance business in Nigeria.

1.3 Objective of the Study

  1. To evaluate and analysis the relationship between premium payment and claim settlement in Nigeria insurance industry.
  2. To determine if adequate premium payment will have impact on claim settlement in insurance industry.
  3. To determine the role of premium payment will have impact on clam settlement in Nigeria insurance industry.
  4. To find out and highlight problems facing insurance that hinders effective claim settlement in insurance business in Nigeria.

1.4 Research Questions

Based on the objectives of the study, the following questions were formulated:

  1. Is there any relationship between premium payment and claim settlement in Nigeria insurance industry.
  2. Is there any implication of inadequate premium payment on claim settlement.
  3. Is there any role of premium payment towards claim settlement in Nigeria insurance industry.
  4. Are there problems facing insurance practice that hinders effective claim settlement in insurance business in Nigeria.

1.5 Research Hypotheses

  1. H0: There is no direct relationship between premium payment and claims settlement.
    H1: There is a direct relationship between premium payment and claims settlement.
  2. H02: Adequate premium payment will not have any effect on claim settlement in insurance industry.
    H2: Adequate premium payment will have any effect on claim settlement in insurance industry.
  3. H03: Insurance Industry does not face challenges due to premium payment and claims settlement
    H3: Insurance Industry faces challenges due to premium payment and claims settlement

1.6 Significance of the Study

The Student

It will serve as a secondary data for students who will carry out related research study in future.

The Stakeholders

This work will review the activities of insurance companies as concerning premium payment and claims settlement.

The Insurance Company

The knowledge gained in this work will help insurance companies to know the effect of claim settlement on insurance practice.

The Country At Large

It will help the general public to know the effect and advantages of adequate premium payment on claims settlement growth and development of insurance companies.


1.7 Scope and Limitation of the Study

The scope of this study covers an analysis of the relationship between premium and claims settlement in Nigerian insurance industry. In the course of the study, there were some factors which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study.

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Finance:

The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.


1.8 Operational Definition of Terms

Claims:

Is a formal request to an insurance company asking for a payment based on the terms of the insurance company. Farlex financial dictionary (2012).

Settlement:

The payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines stipulated in the insurance policy.

Insurance:

Is a contract represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.

Insured:

The person who obtains or is otherwise covered by insurance on his or her health life, or property.

Insurer:

A person or company that underwrites and insurance risk, the party in an insurance contract undertaking to pay compensation.

Claims Settlement:

Is an agreement between at least two parties to settle a legal claim with a payment.

Delay:

Is an occurance which can be sometimes deliberate in which an insurance company does not compensate the insured as at when due.

Funds:

A sum of money saved or made available for a particular purpose


1.9 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
  2. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to analyze the relationship between premium and clams settlement in Nigeria insurance industry.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of premium and claims settlement in Nigeria insurance sector.


5.2 Summary

Claims management is considered to be one of the most valuable possessions of any insurer. It is one aspect of insurance practice, the handling, which can make or mar the image of Insurance Company. In fact, one of the principal functions of Insurance is the settlement of claims because it is the fear that a loss might occur that induces individuals and economic institutions to take out Insurance policies. The problem of running an effective claims administration that would satisfy the customers, thereby earning the confidence of the customers and consequently inducing repurchase. There was therefore a need to carry out a research with a view to finding out a more efficient and effective method of handling claims that will meet customers‟ satisfaction and in turn, redeem the sinking image of the insurance companies in the eyes of the insuring public, pave way for better performance and hence contribute to the economic development of Ghana. The emphasis here was to investigate the relationship between fast claims settlement and the sales and marketing of insurance products. Due to the constraints of time, the inability to measure the level of demand using the total sales and marketing figures of the selected company and the fact that the total amount of 93 claims settled as reflected on their financial statements is not a true reflection of the extent of customer satisfaction in the claims service provided by the insurers, the researcher relied more heavily on the responses from the insured who were randomly picked from the company’s clientele


5.2 Conclusion

Even though the demand for certain insurance policies might have been affected by contractual and legal requirements such as Bond, Motor, Workmen‟s Compensation Insurances etc, the results of the analysis of data as presented in chapter four showed that prompt and satisfactory claims settlement has positive effects on the sales and marketing of insurance products and vice versa. This confirmed the supposition by the researcher that the dented image of the insurance industry in the West African sub-region and the consequent effects on the economies of Nigeria may not be unconnected with the poor claims administration. This inference drawn from the results of the analysis of the study data is supported by opinions strongly held by some authorities; In a paper presented before the Image Committee of the Chartered Insurance Institute of Nigeria (CIIN), Irukwu (2000) concluded that, “claim settlement must be done promptly and equitably because the best form of advertisement for insurance companies is prompt claims settlement.” Several years earlier, Green (2000) in his write up in Annals of the Society of Chartered Property and Casualty Underwriters stated that, “Public perception of the industry (Insurance) is bound to affect the attitudes of the insuring public.


5.3 Recommendation

The problem of claim settlement has plagued the Insurance industry in Nigeria for a long time giving it a poor image. This poor image is due to the complex and peculiar nature of the insurance business. However, there is the need to improve on the image of Insurance Company, which will lead to the growth of the company and the insurance industry as a whole. From this research findings and conclusions, it has been established that claims administration affects the sales and marketing of insurance products. Consequently, measures directed at running efficient and effective claims administration would go a long way in addressing the image problem of the industry. It is in line with this that the following recommendations are made:

  1. Claims must be settled promptly and equitably in order to earn the confidence of customers and to retain their loyalty. Reducing documents required to process a claim and minimize correspondence and claims communication and reporting could do this.
  2. Where ex-gratia payments are made, insurance company’s should use it as a launch pad for an effective public relations campaign through publication in the mass media.
  3. The underwriting and claims personnel in insurance business should be properly trained in order to appreciate the sensitive nature and the role claims play in the insurance industry.
  4. Insurance company should create and improve on their Customer Service Units so that complaints and suggestions could be addressed promptly.

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