Risk and Claims Management as Determinants of Profitability of Listed Nigerian Insurance Companies
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Date
2024-12
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Lead City University, Ibadan
Abstract
The study assessed Risk and Claims Management as determinants of Profitability of Listed Nigerian Insurance Companies. Specifically, the objectives of the study investigated the relationship between Underwriting Profit and Profitability; determined the influence of Reinsurance Cost on the Profitability; examined the relationship between Net Claim and Profitability; investigated the effect of Net Premium Growth on Profitability; and examined the effect of Claim Ratio on Profitability of the listed Nigerian Insurance Companies. However, data were collected across the twenty-three (23) listed or quoted insurance companies operating on the floor of Nigeria Exchange Group (NGX) as of 2022 as specified on her official website. Thirteen (13) of the insurers were randomly selected from the population on the basis of old and
new generation insurance companies prior to 2006 recapitalization. Several theories were used but the work leveraged on risk management theory which emphasized that an organization makes cost-effective use of risk management by developing and then embedding an approach comprised of well-defined risk management practices. But criticized by some weaknesses such as: no direct relation between risky and profit; the reward for uncertainty; neglects other factors. According to the profit, the reward for risk avoidance is minimizing risk rather than taking risks. With the use of this business ability, an insurer increases profit by lowering risk. This theory further stated that there is a direct relationship between risk and profit. However, there is no guarantee that a higher risk will result in a higher profit. and low-risk businesses can make a lot
of money, while high-risk businesses can lose a lot of money. It is not profitable to bear all risk type; but unpredictable or uninsurable risks. This theory held that profit is influenced by risk. However, profit is influenced by a variety of other factors such as government policy, entrepreneur ability, and so on. If an entrepreneur does not have a monopoly on the production and supply of a commodity, he can earn an excessive profit by charging high prices. Further, the data were collected for the period of 2012 – 2021 from the Nigeria Insurance Association Digest, while the researcher employed longitudinal research design on the panel data to establish sequence of events between risk, claim and profitability of selected insurance companies. The findings showed that underwriting profit, reinsurance cost, net claim, premium growth and claim
ratio have significant effects on Return on Assets (ROA) and Return on Capital Employed or profitability of listed insurance companies. The study therefore concludes that insurance companies should put in place sound under unit practice, reinsurance practice, with proper claims management; increases the proportion of profitability which in turn increases financial performance of insurance companies. The study also recommended that claims and underwriting managers should collaborate for sound practices at policy formation stage in order to create a satisfied customer and avoid payment of fraudulent claims. A satisfied customer during claims payment is an investment on the policyholders which will in turn bring increased patronage and consequent positive effect on the profitability of insurance companies
Keywords: Risk Management, Claim Management, Net Claim, Net Premium, Reinsurance, Premium Growth
Word Count: 500
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Keywords
Risk Management, Claim Management, Net Claim, Net Premium, Reinsurance, Premium Growth
Citation
Kate Turabia