CLAIMS MANAGEMENT AND PROFITABILITY OF INSURANCE COMPANIES IN NIGERIA

ABSTRACT

This study examined claims management and profitability of insurance companies in Nigeria. Claims management is widely regarded as one of the most sensitive aspects of insurance practice, as the way claims are handled directly shapes customer trust, retention, and, ultimately, an insurer's profitability. Recent Nigerian studies lend weight to this view: non-life insurance claims settlement has been found to have a measurable, if sometimes limited, relationship with the growth of insurance industry assets (Pere & Edike, 2024), insurance risk management practices, including claims handling, have shown mixed effects on capital formation depending on the class of business involved (Oluwaleye, Kolapo, & Osasona, 2022), while at the macro level, the link between aggregate insurance claims settlement and broader economic growth has itself been found to be inconsistent, underscoring how context-dependent the claims-performance relationship can be (Fadun, 2023). This study reviewed current literature on service marketing vis-à-vis claims management, determined the definition of "poor" claims service from the customer's point of view, established the relationship between poor claims management and customer repurchase of insurance, examined company and customer perceptions of existing claims management practices through questionnaires and interviews, and proffered recommendations for improving claims management to boost customer satisfaction and premium growth. A survey research design was adopted, with data collected from insurance company staff and customers and analysed using descriptive statistics. The findings are expected to guide insurance companies in strengthening claims management as a strategy for improving profitability.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Insurance is, at its core, a promise: policyholders pay premiums in exchange for the insurer's commitment to compensate them in the event of a covered loss. Claims management, the process by which insurers receive, assess, and settle these claims, is therefore central to whether that promise is seen to be kept. How efficiently and fairly claims are managed has direct implications not only for customer satisfaction but for the underlying financial performance of insurance companies themselves.

Nigerian research in recent years has explored this relationship from several angles, with findings that are informative but not always straightforwardly positive. A study examining non-life insurance claims settlement and the growth of total industry assets between 2000 and 2022 found that while claims settlement had a positive relationship with asset growth, the effect was not statistically significant, suggesting that claims settlement alone does not automatically translate into stronger industry-wide financial outcomes (Pere & Edike, 2024). Similarly, a study of insurance risk management and fixed capital formation in Nigeria found that life insurance claims had an insignificant positive effect on capital formation, while general insurance claims had an insignificant negative effect, indicating that the claims-performance relationship can vary considerably depending on the specific insurance business line involved (Oluwaleye, Kolapo, & Osasona, 2022). At the broader macroeconomic level, a study analysing the impact of insurance claims settlement on Nigeria's economic growth over a 28-year period found an insignificant negative relationship, a result the researcher described as surprising given the general expectation that prompt claims settlement should support economic growth (Fadun, 2023).

Taken together, this body of evidence suggests that the relationship between claims management and financial outcomes in the Nigerian insurance industry is more nuanced than commonly assumed, and that firm-level and customer-level dynamics, such as how customers perceive "poor" claims service and whether this affects their decision to repurchase insurance, deserve closer examination alongside the aggregate industry-level findings that dominate the existing literature. It is against this background that this study examines claims management and profitability of insurance companies in Nigeria.

1.2 Statement of the Problem

Despite claims management being recognised as central to insurer profitability, recent Nigerian studies present an inconsistent picture of the relationship between claims settlement practices and financial performance, with some studies finding insignificant or even negative relationships between claims-related variables and outcomes such as asset growth (Pere & Edike, 2024), capital formation (Oluwaleye, Kolapo, & Osasona, 2022), and economic growth (Fadun, 2023). This inconsistency raises the question of whether the problem lies less in the aggregate claims figures examined in prior studies and more in how claims management is actually experienced by customers, and how that experience shapes their willingness to repurchase insurance products. Without firm-level, customer-facing evidence on how claims management practices are perceived and their effect on repurchase behaviour and profitability, insurance companies risk continuing to rely on assumptions rather than evidence when designing their claims processes. It is this gap that the present study seeks to address.

1.3 Objectives of the Study

1. To review current literature on service marketing vis-à-vis literature on claims management.
2. To determine the definition of "poor" claims service from the customer's point of view.
3. To establish the relationship between poor claims management and customer repurchase of insurance.
4. To examine the company's perception of the existing trend of claims management systems, through questionnaires and interviews administered to both company staff and their clientele.
5. To give recommendations on the best way to manage claims that would ensure customer satisfaction and increase premium growth.

1.4 Research Questions

1. What does current literature reveal about the relationship between service marketing and claims management?
2. How do customers define "poor" claims service?
3. What is the relationship between poor claims management and customer repurchase of insurance?
4. What are staff and customer perceptions of the company's existing claims management system?
5. What recommendations can improve claims management to ensure customer satisfaction and increase premium growth?

1.5 Research Hypotheses

Ho1: There is no significant relationship between poor claims management and customer repurchase of insurance.

Ho2: Claims management has no significant effect on the profitability of insurance companies in Nigeria.

1.6 Significance of the Study

This study will benefit insurance company management by providing evidence-based insight into how claims management practices affect customer retention and profitability. It will benefit customers, by drawing attention to service standards they should expect, and regulators such as NAICOM, who can draw on the findings when reviewing industry claims-handling standards. The study will also serve as a reference for future researchers in insurance and financial services management.

1.7 Scope of the Study

This study is limited to examining claims management practices and their relationship with customer repurchase behaviour and profitability among insurance companies in Nigeria, drawing on responses from company staff and customers.

1.8 Limitations of the Study

Time and resource constraints limited the study's sample to a manageable number of insurance companies and respondents. Some respondents, particularly staff, were reluctant to disclose full details of internal claims processes.

1.9 Definition of Terms

Claims Management: The process by which an insurer receives, evaluates, and settles claims made by policyholders.

Profitability: The extent to which a company generates financial gain relative to its expenses and investments.

Premium: The amount paid by a policyholder to an insurer in exchange for insurance coverage.

Customer Repurchase: A customer's decision to renew or purchase additional insurance products from the same insurer.

Service Marketing: The marketing of intangible products or services, as opposed to physical goods.

REFERENCES

Fadun, O. S. (2023). Analysis of the impacts of insurance claims settlement on economic growth: The case of Nigeria. International Journal of Business and Economic Sciences Applied Research, 5(3), 51–59.

Oluwaleye, T., Kolapo, F. T., & Osasona, A. V. (2022). Impact of insurance risk management on fixed capital formation in Nigeria. Acta Universitatis Danubius. Œconomica, 18(5), 21–36.

Pere, S. D., & Edike, J. B. (2024). Influence of non-life insurance sector claims settlement on the increase of total assets in Nigeria's insurance market (2000 to 2022). International Studies Journal, 8(4).