THE PROCESS OF CLAIM SETTLEMENT ON PROFIT MAXIMIZATION IN THE INSURANCE INDUSTRIES

ABSTRACT
This project work has critically highlighted the compact of claims settlements on profit maximization in insurance industry, the problems affecting effective claims settlement in Nigeria have been identified and how they can be controlled is also included in the study.

1. INTRODUCTION
   A number of empirical studies have been conducted to explore issues relating to claim handling
   and settlement, and to a lesser extent issues on claim cost. Most of these studies focused on claim fraud
   and litigation (for example, see Crocker and Tennyson, 2002; Derrig, 2002; Doerpinghaus, Schmit, and
   Yeh, 2003; Studdert, Mello, Gawande, Gandhi, Kachalia, Yoon, Puopolo, and Brennan, 2006). Few other
   studies aim at investigating the profitability of insurance business are conducted in the developed
   economies (Malik, 2011; Born and Boyer, 2011; Ayele, 2012; Charumathi, 2012). Their findings generate
   the need for a similar study in a developing economy like Nigeria.
   The basic theory of insurance provides that a fair premium must be adequate to cover claim cost,
   administrative and underwriting expenses and reasonable profit (Diacon, 1983; Harrington and Niehaus,
   2006; Epetimehin and Ekundayo, 2012). This can only be achieved with a high level of accuracy in the
   underwriter‟s forecast since insurance claim is prospectively estimated. The possibility of this is further
   complicated by the economic theorem that actual result sometimes differ from the expected. An insurer
   only knows with relative certainty how much profit or loss it made during a given period after several
   years because only 40% of their incurred losses are paid as at the close of a financial year (McClenahan,
   nd). This means that claims incurred in previous years could find its way into the present year‟s account
   thereby increasing the expenses. It seems apparent that the difficulty created by the nature of insurance
   business makes the achievement of profitability doubtful since profit is simply the excess of income over
   expenses and claim cost constitute a higher portion of the insurer‟s expenses(SAS, 2012; Boor, 1998).
   An observation of the financial reports of insurance companies in Nigeria between 2007 and 2011
   reveals significant fluctuations in profits. It further shows that a higher percentage of the premium income
   is spent on claim payment. This suggests that claim cost is a key factor that determines the profitability of
   insurance firms.
   The main purpose of this study is to find out the influence of claim cost and associated expenses to
   the profit margin of Nigerian insurers. It aims at examining the significance of determinants of claim cost
   and its ratio to total cost components of Nigerian insurers. The outcome of the study will help Nigerian
   insurers to focus more on constituents of total claims management (TCM) – an integrated process through
   which the insurer takes control over every element of the claim (Bates and Atkins, 2007) and to adopt a
   model of claims management that will enhance their profitability. Such model will identify the limit of
   premium that should be expended on claim and dependence on brokers and agents in acquisition of
   business during the financial and policy periods in order for the firm to achieve its profitability objective.
   In other to achieve these objectives, the study hypothesizes that components of net claims is not
   significantly related to profitability of Nigerian insurers, and that loss ratio is negatively related to growth
   rate of written premiums. The remaining part of this paper focuses on the review of relevant literatures,
   methodology, data analysis, findings and discussion, recommendation, and conclusion.

Also circumstances given rise to claims, fraudulent claims and effect of inflation on claims settlement have been discussed and ways to solve them are inductive in the study.This study also examines the lapses and recommends some viable point (s) that can also contribute to the image of the industry.In conclusion, for effective claims settlement to arise, the insurer and the insured must agree as to the actual amount to be paid in the event of claims taking into consideration the principles and the risk guiding the handling of insurance claims.

TABLE OF CONTENT
Title page 

Approval page

Dedication

Acknowledgement

Abstract

Table of contents
CHAPTER ONE

1.0 Introduction

1.1 Background of the study.

1.2 Statement of problem

1.3 Purpose of the study

1.4 Significance of the study

1.5 Limitation of the study

CHAPTER TWO

2.0The Review Of Related Literature

2.1 Classes of insurance

2.2 Principles of insurance

2.3 Notification of claims

2.4 Investigation of claims

2.5 Circumstances given rise to claims

2.6 Claims report

2.7 Claim settlement under individual

2.8 The problems affecting effective claims settlement.
CHAPTER THREE

3.0Research Design And Methodology

3.1 Source of Data3.2 Location of Data

3.3 Method of Data collection

CHAPTER FOUR

4.0Findings
CHAPTER FIVE

5.0Recommendation And Conclusion

5.1 Conclusion

5.2 Recommendation.

BIBLIOGRAPHY