MOTOR INSURANCE PRACTICE IN NIGERIA: PROBLEMS AND PROSPECTS
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The aim of this research was examining the factors that affect motor insurance claim processing time in Awash Insurance Company S.C. The study has analyzed the effect of selected independent variables, which are assumed to have major impact on motor insurance claims processing time. The variables: competency of claims staff, customers’ awareness of motor policy and competency of service providers were selected. The researcher used both primary and secondary sources of data. As a primary source, the relevant data was gathered from customers of AIC, who had motor own damage claims previously through structured questionnaire that has four demographical and twenty three close-ended questions. Questionnaires were dispatched to 134 conveniently selected customers from top 10 motor claim paid branches in the year 2017/18, and 117 or 87.3% returned. For data analysis and interpretation, quantitative and qualitative research approaches are used and to show the cause and effect relationship between variables, explanatory research design was used. The collected data was analyzed with the help of SPSS version 20. Regression analysis was used to investigate the impact of independent variables on dependent variable. Major findings from the regression result of the research showed that competency of service providers are found to be the most significant factor in affecting motor insurance claims processing time in AIC. Next to competency of service providers, competency of claims staff has an impact on motor claims processing time. Customers’ awareness of motor policy was found to have no significant impact on process. Based on these findings, a recommendation which can facilitate motor insurance claims processing time to increase customer satisfaction has been forwarded. Therefore, the need for careful selection of garages based on the skilled manpower they have; punctuality to deliver; and quality of work are suggested. Furthermore, intensive training for claims staff in relation to customer handling; and underwriters need to disclose the contents of the policy up on underwriting are recommended.
This chapter presents a general background of the study, statement of the problem, objectives of the study, research questions as well as hypothesis. The chapter further describes the scope and limitation of the study, significance of the study and organization of the study.
1.1. Background of the Study
Insurance is a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties participating in the scheme (Hansell, 1974). It may be seen as a kind of fund, into which all who are insured will pay an assessed contributions called premium. In return, those insured will have the right to call on the fund for any appropriate payment should the insured events occur. Insurance exists to protect the adverse effect of risk in our daily activities. An individual or organization agrees to pay a fixed premium and in return, the insurance company agrees to meet any losses which fall within the terms of the policy (Vaughan & Vaughan, 1995).
Motor insurance is the major property insurance under non-life insurance category.
According to different reports from insurance industry, on the general insurance market in Nigeria, for most insurance companies, motor insurance premium contribution to the gross written premium is considerably high and it has a lion‟s share on the general insurance portfolio mix.
Motor insurance contract between the insurer company and the insured, like others, depends on the insurance company‟s ability to pay claims. The reputation of any insurance company and consumers demand for insurance depends, to a large extent, on the sort of claims services provided by the company to its customers. An insurance company which intends to maintain a competitive edge must perform better than competition in its management of the claims function (Earnest, 2012).
A claim is a demand made by the insured to the insurer for the payment of benefits under a policy (Asokere & Nwankwo, 2010). Claims are the defining moment in the customer relationship for insurance firms, with a firm‟s success often defined by one factor: the customer‟s experience around claims (Singh, 2007). Furthermore, prudent claims administration strategy promotes customer loyalty as it helps to develop a perception of
“membership‟ or belonging within a particular group of customers, thereby providing the company with opportunities to retain existing customers while attracting new ones and profitable ones (Braers, 2004).
Thus, to fulfill the demand of customers to be competitive in the market, insurance companies have to compensate adequately within a relatively shorter time. Otherwise, it erodes good names of the companies through time. The insurance industry is perceived as quick to collect premium, slow to pay claims, using small prints to confuse customers, providing poor services and engaging in sharp practices (Lijadu, 2002).
Awash Insurance Company S.C. has similar experience with other companies in the insurance industry regarding motor portfolio; the major part of the Company‟s written premium was from motor class of business. For the last five years, motor written premium constituted from 62% to72% of the gross written premium. Motor loss ratio of the company for the last five years was also on average 66 % (Annual reports of AIC, 2013-2018).
As motor holds the major written premium of the insurance business, it is vital to emphasis on facilitating motor claims to retain customers by addressing factors that can affect motor insurance claims processing time so as to ascertain the company’s sustainable growth and profit.
Thus, this study mainly focuses on examining the factors that can affect most in motor insurance claim processing time and to recommend constructive measures based on the findings.
1.2. Statement of the Problem
Various researches conducted on motor insurance related issues. Some of them are
Tsegereda Zeru(2016) the effect of opportunity and challenges on motor insurance, and Ayele Desalegn(2016) assessment of motor insurance business financial performance of the same insurance company. They discussed the major income of most insurance companies is from motor insurance and wider resources has been taken by high motor claims. In addition to them, Moltot A.(2016) conducted a research on assessment of challenges and prospects of motor claims management in Africa Insurance Company. He discussed the challenges in motor insurance claim and the gap between customers‟ expectation and management perception of service quality in motor claim management due to internal and external factors of the studied Company. Fasika Tatek(2018)on his study and finding entitled assessment of factors affecting satisfaction of motor insurance customers: in selected insurance companies, in Uyo, there is delay in compensation due to longer motor claims process that lead to low customer satisfaction. None of them has addressed the factors that affect motor insurance claims processing time.
As one of the employee working in the insurance industry, the researcher observed that most of the time customers‟ dissatisfaction in relation to motor claim arises from two main reasons: motor claims compensation adequacy or delay in settlement. In addition to that, there is a decrease in customer retention rate caused by complain related to claims processing time in motor insurance that makes claims management poor which needs improvement to maximize customer satisfaction.
Annual reports of Awash Insurance Company S.C. for last two years show that retention of customers is 73% and 70% which has decreasing trend. Even if AIC‟s minimum retention rate is 80%, the reported retention is below expectation. As per the branches annual performance reports, from few challenges of retention, the grievance on motor insurance claims is the bigger one. Due to this AIC cannot meet its annual target of year 2016/17 by 1.5% shortfall and for the year 2017/18 by 2% short fall. Thus, the researcher believes that the longer claims processing time is one of the reasons for bad performance in motor claims.
On the other hand, in order to maximize customers‟ satisfaction to be competitive, profitable and grown market share in the insurance industry, settlement of claims should be fast. Thus, factors that affect motor insurance claim processing time will be discussed under this study.
1.3. Research Objective
The general objective of this study is to identify the factors affecting motor insurance claim processing time in Awash Insurance Company S.C.
The specific objectives of the study are to:-
- Identify the effect of competency of claims staff on motor insurance claim processing time.
- Determine the effect of customers‟ awareness of policy on motor insurance claims processing time.
- Identify the effect of competency of service providers on motor insurance claim processing time.
1.4. Research Questions
From the objective of the research, the following questions are raised in order to determine the effect of independent variables on the dependent variable.
- What is the effect of competency of claims staff on motor claims processing time?
- What is the relationship between customers‟ awareness of motor policy and motor claims processing time?
- What is the effect of competency of service providers on motor claims processing time?
1.5. Research Hypothesis
In order to achieve the objective of the study stated above, the following hypothesis is framed.
H1: There is a positive and strong relationship between competency of claims staff and motor insurance claim processing time.
H2: There is a positive and strong relationship between customers‟ awareness of motor policy and claims processing time.
H3: There is a positive and strong relationship between competency of service providers and motor insurance claim processing time.
1.6. Scope and Limitation of the Study
This study is focused only on investigation of the factors affecting motor insurance claim processing time in Awash Insurance Company S.C. Among other factors, it examined the effect of competency of claims staff, customers‟ awareness of policy and competency of service providers. As the unit of data analysis, the researcher used structured questionnaire among the different data collection methods. It might limit customers‟ responses. Besides, due to time and resources constraints, the population of the study is limited to customers of Awash Insurance Company S.C. some Uyo branches. Thus, generalizing to all including up-country branch customers may be difficult, as claim is centralized.
1.7. Significance of the Study
This study is expected to provide empirical evidence on the factors affecting motor insurance claim processing time. By identifying the factors that affect motor insurance claim processing time, the management of Awash Insurance Company will take necessary actions to improve the performance of the company in this area and choose the right decisions. Since the competitiveness and strength of the Company is based on its claims management efficiency, it can also help the company to identify the gap between its customer‟s expectation and the existing performance in motor claims to fill the unsatisfied demand by indicating the root cause for poor motor claims performance. In addition to this, fleet customers, be part of a solution by understanding the problem of the company in relation to service providers like garages, towing services, spare part providers. Investors of the area will provide efficient services with the interests of their customers as well as insurance companies.