Motor Insurance Practice In Nigeria Problems And Prospects

Project and Seminar Material for Insurance

Motor Insurance Practice In Nigeria Problems And Prospects


Abstract


The aim of this research was examining the factors that affect motor insurance claim processing time in Awash Insurance Company S.C. The study has analyzed the effect of selected independent variables, which are assumed to have major impact on motor insurance claims processing time. The variables: competency of claims staff, customers’ awareness of motor policy and competency of service providers were selected. The researcher used both primary and secondary sources of data. As a primary source, the relevant data was gathered from customers of AIC, who had motor own damage claims previously through structured questionnaire that has four demographical and twenty three close-ended questions. Questionnaires were dispatched to 134 conveniently selected customers from top 10 motor claim paid branches in the year 2017/18, and 117 or 87.3% returned. For data analysis and interpretation, quantitative and qualitative research approaches are used and to show the cause and effect relationship between variables, explanatory research design was used. The collected data was analyzed with the help of SPSS version 20. Regression analysis was used to investigate the impact of independent variables on dependent variable. Major findings from the regression result of the research showed that competency of service providers are found to be the most significant factor in affecting motor insurance claims processing time in AIC. Next to competency of service providers, competency of claims staff has an impact on motor claims processing time. Customers’ awareness of motor policy was found to have no significant impact on process. Based on these findings, a recommendation which can facilitate motor insurance claims processing time to increase customer satisfaction has been forwarded. Therefore, the need for careful selection of garages based on the skilled manpower they have; punctuality to deliver; and quality of work are suggested. Furthermore, intensive training for claims staff in relation to customer handling; and underwriters need to disclose the contents of the policy up on underwriting are recommended.


Chapter One


Introduction

This chapter presents a general background of the study, statement of the problem, objectives of the study, research questions as well as hypothesis. The chapter further describes the scope and limitation of the study, significance of the study and organization of the study.


1.1. Background of the Study

Insurance is a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme (Hansell, 1974). It may be seen as a kind of fund, into which all who are insured will pay an assessed contributions called premium. In return, those insured will have the right to call on the fund for any appropriate payment should the insured events occur. Insurance exists to protect the adverse effect of risk in our daily activities. An individual or organization agrees to pay a fixed premium and in return, the insurance company agrees to meet any losses which fall within the terms of the policy (Vaughan & Vaughan, 1995).

Motor insurance is the major property insurance under non-life insurance category.

According to different reports from insurance industry, on the general insurance market in Nigeria, for most insurance companies, motor insurance premium contribution to the gross written premium is considerably high and it has a lion‟s share on the general insurance portfolio mix.

Motor insurance contract between the insurer company and the insured, like others, depends on the insurance company‟s ability to pay claims. The reputation of any insurance company and consumers demand for insurance depends, to a large extent, on the sort of claims services provided by the company to its customers. An insurance company which intends to maintain a competitive edge must perform better than competition in its management of the claims function (Earnest, 2012).

A claim is a demand made by the insured to the insurer for the payment of benefits under a policy (Asokere & Nwankwo, 2010). Claims are the defining moment in the customer relationship for insurance firms, with a firm‟s success often defined by one factor: the customer‟s experience around claims (Singh, 2007). Furthermore, prudent claims administration strategy promotes customer loyalty as it helps to develop a perception of
“membership‟ or belonging within a particular group of customers, thereby providing the company with opportunities to retain existing customers while attracting new ones and profitable ones (Braers, 2004).

Thus, to fulfill the demand of customers to be competitive in the market, insurance companies have to compensate adequately within a relatively shorter time. Otherwise, it erodes good names of the companies through time. The insurance industry is perceived as quick to collect premium, slow to pay claims, using small prints to confuse customers, providing poor services and engaging in sharp practices (Lijadu, 2002).

Awash Insurance Company S.C. has similar experience with other companies in the insurance industry regarding motor portfolio; the major part of the Company‟s written premium was from motor class of business. For the last five years, motor written premium constituted from 62% to72% of the gross written premium. Motor loss ratio of the company for the last five years was also on average 66 % (Annual reports of AIC, 2013-2018).

As motor holds the major written premium of the insurance business, it is vital to emphasis on facilitating motor claims to retain customers by addressing factors that can affect motor insurance claims processing time so as to ascertain the company’s sustainable growth and profit.

Thus, this study mainly focuses on examining the factors that can affect most in motor insurance claim processing time and to recommend constructive measures based on the findings.


1.2. Statement of the Problem

Various researches conducted on motor insurance related issues. Some of them are

Tsegereda Zeru(2016) the effect of opportunity and challenges on motor insurance, and Ayele Desalegn(2016) assessment of motor insurance business financial performance of the same insurance company. They discussed the major income of most insurance companies is from motor insurance and wider resources has been taken by high motor claims. In addition to them, Moltot A.(2016) conducted a research on assessment of challenges and prospects of motor claims management in Africa Insurance Company. He discussed the challenges in motor insurance claim and the gap between customers‟ expectation and management perception of service quality in motor claim management due to internal and external factors of the studied Company. Fasika Tatek(2018)on his study and finding entitled assessment of factors affecting satisfaction of motor insurance customers: in selected insurance companies, in Uyo, there is delay in compensation due to longer motor claims process that lead to low customer satisfaction. None of them has addressed the factors that affect motor insurance claims processing time.

As one of the employee working in the insurance industry, the researcher observed that most of the time customers‟ dissatisfaction in relation to motor claim arises from two main reasons: motor claims compensation adequacy or delay in settlement. In addition to that, there is a decrease in customer retention rate caused by complain related to claims processing time in motor insurance that makes claims management poor which needs improvement to maximize customer satisfaction.

Annual reports of Awash Insurance Company S.C. for last two years show that retention of customers is 73% and 70% which has decreasing trend. Even if AIC‟s minimum retention rate is 80%, the reported retention is below expectation. As per the branches annual performance reports, from few challenges of retention, the grievance on motor insurance claims is the bigger one. Due to this AIC cannot meet its annual target of year 2016/17 by 1.5% shortfall and for the year 2017/18 by 2% short fall. Thus, the researcher believes that the longer claims processing time is one of the reasons for bad performance in motor claims.

On the other hand, in order to maximize customers‟ satisfaction to be competitive, profitable and grown market share in the insurance industry, settlement of claims should be fast. Thus, factors that affect motor insurance claim processing time will be discussed under this study.


1.3. Research Objective

1.3.1.General Objective

The general objective of this study is to identify the factors affecting motor insurance claim processing time in Awash Insurance Company S.C.

1.3.2. Specific Objectives

The specific objectives of the study are to:-

  1. Identify the effect of competency of claims staff on motor insurance claim processing time.
  2. Determine the effect of customers‟ awareness of policy on motor insurance claims processing time.
  3. Identify the effect of competency of service providers on motor insurance claim processing time.

1.4. Research Questions

From the objective of the research, the following questions are raised in order to determine the effect of independent variables on the dependent variable.

  1. What is the effect of competency of claims staff on motor claims processing time?
  2. What is the relationship between customers‟ awareness of motor policy and motor claims processing time?
  3. What is the effect of competency of service providers on motor claims processing time?

1.5. Research Hypothesis

In order to achieve the objective of the study stated above, the following hypothesis is framed.

  • H1: There is a positive and strong relationship between competency of claims staff and motor insurance claim processing time.
  • H2: There is a positive and strong relationship between customers‟ awareness of motor policy and claims processing time.
  • H3: There is a positive and strong relationship between competency of service providers and motor insurance claim processing time.

1.6. Scope and Limitation of the Study

This study is focused only on investigation of the factors affecting motor insurance claim processing time in Awash Insurance Company S.C. Among other factors, it examined the effect of competency of claims staff, customers‟ awareness of policy and competency of service providers. As the unit of data analysis, the researcher used structured questionnaire among the different data collection methods. It might limit customers‟ responses. Besides, due to time and resources constraints, the population of the study is limited to customers of Awash Insurance Company S.C. some Uyo branches. Thus, generalizing to all including up-country branch customers may be difficult, as claim is centralized.


1.7. Significance of the Study

This study is expected to provide empirical evidence on the factors affecting motor insurance claim processing time. By identifying the factors that affect motor insurance claim processing time, the management of Awash Insurance Company will take necessary actions to improve the performance of the company in this area and choose the right decisions. Since the competitiveness and strength of the Company is based on its claims management efficiency, it can also help the company to identify the gap between its customer‟s expectation and the existing performance in motor claims to fill the unsatisfied demand by indicating the root cause for poor motor claims performance. In addition to this, fleet customers, be part of a solution by understanding the problem of the company in relation to service providers like garages, towing services, spare part providers. Investors of the area will provide efficient services with the interests of their customers as well as insurance companies.


Chapter Five


Summary, Conclusions and Recommendations

This chapter is the final part of the study, which provides summary of major findings, conclusion, recommendation and limitation of the study.


5.1. Summary of Major Findings

This part of the study aims to summarize the finding and results that have emerged from the data analysis presented in Chapter Four. From the study, the following particular findings were observed:

  1. Customers‟ respondents towards the competency of claims staff of AIC with regard to quick service to accept customers‟ accident notification and verify the policy then acknowledge acceptance of their claim shows that the majority of respondents were agreed.
  2. Respondents‟ view towards the claims staff service with regard to creating awareness on the required documents at the beginning; prompt towing and inspection; surveyors punctuality to see the damaged vehicle; prompt assignment of surveyors; carefulness to see vehicles to avoid repetition is in a moderate agreement.
  3. Respondents‟ observation regarding bid process and consistency to follow up vehicles while at garages is low.
  4. Responses regarding the overall promptness of claims staff to make the process relatively fast are low as aggregate mean is 2.97. As per the customers‟ perception, we can see that there is satisfaction gap between the intended and actual motor claims process due to claims staff performance, especially in areas of timely towing or inspection; bid process; in consistently follow up of vehicles in garages under repair and in settlement or payment process.
  5. Responses on customers‟ awareness to motor policy so as to be cooperative to facilitate motor claims process; most of them agreed as they know the policy well(Mean=3.37).
  6. Customers‟ response towards awareness of contribution in case of claim, it is low (Mean=2.52).
  7. Regarding the responses towards their awareness to agreement on sum insured at the time of contract and notifying the truth to the insurer is high(Mean= 4.1 & 4.09). Overall, the perception of customers towards the effect of awareness of policy on motor claims process is in low agreement(mean=3.37)
  8. When we see the customers‟ responses regarding service providers, most of them agreed with better standard garage selection of the Company.
  9. Customers‟ response regarding garages and workshops are equipped with skilled manpower is low.
  10. The perception of customers with regard to punctuality of garages and workshops to deliver services and to the accessibility of spare parts to repair the damaged vehicles is low.

On the other hand, the customers‟ perception in regard to service providers indicated there is a customer satisfaction gap in areas of garages/workshops punctuality and promptness to deliver; unavailability of spare parts which affect the process incredibly can also affect the claims process of the company.


5.2. Conclusion

The aim of this study was to determine the main factors that affect motor insurance claims processing time in AIC, from the findings of this research, it can be concluded that from the three factors selected, (competency of claims staff, customers‟ awareness of policy and competency of service providers), two of them have strong correlation with motor insurance claims processing time. The findings illustrated in regression function shows that competency of service providers have high degree of importance to influence claims processing time.

Competency of service providers is most determining factor. As the result indicated, service providers‟ competency has a positive and strong relationship with claims processing time. On the other side, it was evidenced that customers‟ awareness of the policy has no significant effect on claims processing time.

As discussed in the literature, in the service industry like insurance, contact employees are the face of the organization, and can directly influence customer satisfaction which can determine productivity of the company as well. Thus, pieces of tasks in the whole claims process should be considered and handled carefully.


5.3. Recommendations

Based on the major findings and conclusions of the study, the following recommendations are forwarded to the management and other stakeholders.

– In claims process, some tasks that are identified as longer time processes have to be minimized as per their relevance for the case by avoiding unnecessary activities. In addition to this, claims frontline officers should notify every procedure first in order to save time and avoid unnecessary procedure; surveyors have to be carefull in estimation of values and be punctual as well. The management of AIC should provide intensive training on customer handling and related issues to claims staff to have customer focused view. Moreover, punctuality, accuracy and cooperation should be developed among the team. Claim Directorate of AIC should assign staffs who are responsible to see the availability of spare parts and their price as well as prices of used vehicles in the market so as to update underwriting staffs.

– From the finding, the number of customers who have no enough understanding of policy, compulsory excess and contribution on accident is considerably high. Even if, as shown above, it has no significant effect on the claims process, it is evidenced that claim handling of the insurance company is highly affected by the policy the insured have which is the result of quality of underwriting. Thus, underwriting staff need to be careful enough at the time of issuing policy; and the relevant information such as excess/deductible, and other endorsements should be clearly disclosed to the customer and briefly stated or attach on the policy as well, so as to avoid ambiguity and disagreement at the time of claim settlement. Furthermore, as vehicles value varies from time to time, sum insured should be updated on the policy upon renewal of policies and market values should be carefully stated on new policies. In addition to this underwriters should explain motor policy to customers as much as possible about the covers, exclusions and conditions.

– Claims Directorate should select best service providers that are garages, and external surveyors so as to build trust in the minds of customers. They should be checked annually as they are keeping the standards and expectations of customers. Since the effect of service providers is high to motor claims management the Company should organize by itself own towing vehicles, garages and supply of spare parts.


Limitations and Future Research

The activities of the study have been affected by the following problems that the researcher faced while undertaking the study. This study has limitation with regard to sampling method. The questionnaires were dispatched for those who came to branch offices, though it would be better to get the insights of those who left due to dissatisfaction. Lack of researcher experience might also consider as limitation.

It is recommended that a further study be conducted on the effect of price based competition in the insurance industry; assessment on the impact of fraud in motor claims on insurance companies and assessment on opportunity and challenge of compulsory third party insurance in the insurance industry.


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