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EFFECT OF CLAIM COST ON INSURERS’ PROFITABILITY IN NIGERIA
Abstract
This study examines the relationship between claims cost and profitability in the Non – life sector of the Nigerian insurance industry. The study also develops two linear regression models that can be used to forecast future events in the industry. Data were generated from the financial statements of ten (10) insurance companies covering a period of ten years (2002 – 2011). These data were analysed using descriptive statistics, coefficient of determination (R2), ANOVA (F), standard error test, test of correlation (T), multiple linear regression and ordinary least square Regression techniques. In addition, two hypotheses were also tested. The results revealed that PBT (profitability) correlates directly with NC (Net Claims) and ER (Expense Ratio) but correlates inversely with LR (Loss Ratio). It also showed that for every one percent increase in NC, there will be a corresponding increase of 36.7% in LR. The policy implications of this study for the stakeholders of the insurance industry are numerous. Nigerian insurers should pay due attention to their underwriting activities to ensure objective risk selection and management. In addition, insurers need to invest more on human capital development and staff motivation as these enhance productivity and subsequently profitability. Keywords: Profitability, Claim Cost, Underwriting, Claims Management