Role Of Claims Settlements In The Growth Of An Insurance Company

Project and Seminar Material for Insurance

Role Of Claims Settlements In The Growth Of An Insurance Company


Abstract


This study was designed with the aim of investigating the role of claim settlement in the growth of insurance company within the Nigerian insurance industry. To this end, the researchers have been able to assess the effectiveness and efficiency of claims handling process and thus, examine its promptness in relation to the organizational productivity of insurance companies in Nigeria. Claims handling procedures should be promptly managed to avoid deficiency in organization’s operational objectives, and lastly, Government should ammonize their resources and technical knowhow with the Nigerian insurance industry in ensuring that insurance claims are well designed to curtail fraudulent claims experienced in the past


Chapter One


Introduction

1.1 Background of the Study

Insurance is a unique industry and one of the contributing tractors to its uniqueness is the product on the insurer that is, the promise to indemnity at a future date, is tangible. It has been generally accepted that insurance industry exist to guarantee the continued existence of other industries (Mehr and Camack (1976).

As an illustration if a factory that is insured is destroyed, insurers will indemnify the insured by replacing or reinstating the factory thereby guaranteeing the continued existence of the factory. The reputation of any insurance company depends to a large extend on the sort or claims services provided by that insurance company to its policyholders. A company may be run very efficiently and soundly in every respect, its policies may be delivered promptly and renewals handle efficient claims department may ruin the reputation of the insurance company (OJUKWU 2006: 32).

And company maybe run very efficiently and delivered promptly and renewals handled efficiently, but an unreliable and in efficient claims department many ruin the reputation of the insurance company.

However, any insurance company that wants to safeguard its future and sustain growth must take its claim settlement obligation very serious in order to survive in the comparative insurance markets.

1.1.1 Background of the Organization

I.G.I (industrial and general insurance) commences business in 1992 as a composite insurer to transact the business of life and general insurance (including pensions and special risk).

The company quickly established a reputation for exceptional competence in the delivery of customer centric services as well as product innovation with a strong capital base, highly qualified professional and deployment of modern technology for speed and efficiency, insurance companies has become the preferred insurer for individual and corporate clients seeking premiums insurance and related financial services and related financial services.
In 1996, four years after the insurance company in Nigeria achieve N1billion in premium income.

We have, within our few years of existence been able to power ourselves as market leasers in the insurance companies. In 2004, manicured its leadership position in insurance company with a premium income in excess of N 4billion, the highest in volume of business by any private insurance company in Nigeria.

In insurance company it also has a wide and diversified invest profile which include ownership and majority equity holing.

In companies engaged in telecommunications services, mortgage banking, aviation, oil and engineering services, forestry and health care delivery services amongst others.

From inception, insurance companies has demonstrated exceptional competence and expertise in the underwriting of specialized risk in oil and energy marine, aviation, engineering and industrial risk management.

This reputation earned the company national recognition in 1996 when it was appointed by federal government as the leading member of a consortium of four insurance companies to handle the insurance program of the Nigerian national petroleum corporation (NNPC), the federal government owned oil exploration and refining company.

The remarkable performance achieved in 1996 led to the re-appointed of the insurance companies from 1997 and 1998.

Insurance companies also handles the insurance programmes of foreign oil companies operating in Nigeria including the shell petroleum development companies of Nigeria, ELF petroleum Nigeria, agip oil company, addax petroleum and pan ocean oil corporation, among others.

In 2005, insurance company underlined its resolve to be a key player in the African insurance market when it acquired 60 percent majority shareholding in the national insurance corporation limited (NICL) of Uganda after a competitive international binding exercise.

Through recruiting, deploying, people with diverse talents and capabilities, the company has been able to build solid and sustainable value added relationship with customers and other stakeholders.

Above all, the corporation emphasizes the prompt settlement to claims, several measure have been put in place to ensure that genuine claims are paid when due without any bottleneck.


1.2 Statement of Problem

Most business organization aim at achieving and sustaining growth in insurance business, however, efficient claim settlement immensely contributed to the growth of an insurance company.

However, in their bid to attain growth through claim settlement, insurers encounter the following problems.

  1. Members of the public do not think/believe insurance companies settle claims.
  2. Death of professionally qualified insurance personnel is responsible for poor underwriting results/loss in insurance companies.
  3. Most of the claims lodge on companies are fraudulent.
  4. Most of the insured do not insure for full value of risk because they do risk want to pay proportional premium (i.e) (full premium) under insurance a major problem to insurance companies.
  5. Too much restriction on investment through legislations affect the investment income of insurance companies.
  6. Too much restrictions on investment through legislation affect the investment income of income companies.

1.3 Objective of the Study

The major aims of this study is to investigate the role of claims settlements in the growth of an insurance company.

Therefore it specific objectives include

  1. To study the meaning of claim settlement
  2. To study the causes of delay in claim
  3. The researcher will also evaluate the problems of the effects of government restriction to insurers to invest their funds.
  4. To examine the impact of claims settlement in growth of an insurance company examine the challenges of claim settlement.

1.4 Research Questions

  1. What is claim settlement?
  2. To evaluate the causes of delay in claim settlement by an insurance company.
  3. How does government policies affect the way insurers invest their funds.
  4. To evaluate the extent of claims settlement on the growth of an insurance company.

1.5 Statement of Hypotheses

Hypothesis One
  • H0: delays in claims settlement do not affect the performance of can insurance companies.
  • H1: delays in claims settlement affects the performance of insurance companies.
Hypothesis Two
  • H0: prompt settlement of claims does not increase public confidence n insurance and gradual guarantee of growth of the insurance company.
  • H1: prompt settlement of claims increases public confidence insurance and gradual guarantee of growth of insurance company.
Hypothesis Three
  • H0: government policies affects or restricts the way insurers invest their funds.
  • H1: government policies does not affects or restricts the way insurers invest their funds.

1.6 Significance of the Study

The study will be of significance to the insuring public investors, underwriters and government.

As it deals with the ways of settling claims and how affects the growth of the insurance industry.

The insurance industry will understand the more, the effect claim settlement has people and maximize the knowledge by giving claims settlement without unnecessary delay thereby increasing the confidence the public have in insurance business.

The people will definitely be at the receiving end when the insurance companies efficiently pay settlement claims.

The investor on the other hand will have a rosy dividends on their investment when people’s confidence on the insurance company increases which will turn and also bring about increased profits. The government will symbiotically receive from the positive development by the spiral effect that the insurance business boom is going to have on the economy through increased taxed and other indirect means.


1.7 Scope of Study

This research work cover the aspects, the role of claims settlement in the growth of an insurance company is a case selected for this project work. The name and address of the selected company is industrial and general insurance (I.G.I) plc; located IGI House 2, Agoro Odiyan Street, off Adeola Odeku Street, Victoria Island Lagos; Nigeria.

The above mentioned company is used as a case study due to the fact it is one of the founding pioneer o insurance companies in Nigeria and is a major stakeholder and playmaker in the Nigeria insurance setup. And its occupies a major part of the Nigerian insurance market.


1.8 Definitions of Terms

i. 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).

ii. 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.

iii. 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.

iv. Insured:

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

v. Insurer:

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

vi. Claims Settlement:

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

vii. Delay:

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

viii. Funds:

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


Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study is to ascertain the role of claims settlement in the growth of an insurance company.

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 settlement of claims or indemnity by insurance companies


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


5.3 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.


5.4 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:

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.

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.

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.

Insurance company should create and improve on their Customer Service Units so that complaints and suggestions could be addressed promptly.


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