CHAPTER ONE

1.0 INTRODUCTION                  

1.1 BACKGROUND STUDY

In economic literature, the connection between the finance sector and economic growth is still a point of contention (Adu, 2013; Kabir and Halder, 2018). According to Neoclassical economists, if there is no changes in the technological environment in the economy, growth will be stable. Endogenous growth theory, on the other hand, disagreed with the earlier contributions, claiming that the presence of investment and growth in one sector of the economy can result in positive spillover for other sectors.

 As a result, the finance sector such as the insurance company has recently been acknowledged as one of the viable channels for strengthening the economy if adequately controlled, as it can move the economy far beyond a steady state by converting and improving industries and creating positive external costs for other areas of the economy (Yusuf, Ajemunigbohun, &Alli 2017).

This merely demonstrates that the financial sector has the ability to consistently encourage economic real economic growth. The insurance industry is one of the most important parts of the financial system, and it has a lot of potential for spreading positive externalities to other parts of the economy.

The insurance industry has the potential to promote good externalities through financial intermediaries, risk transfer, and job creation, all of which will help the economy thrive (Outveviller, 2013; Ward &Zurbruegg, 2011).

It's also worth noting that most developing countries, particularly Nigeria, have experienced financial market effects on their economic growth (Chukwulozie, 2011).

Although, among other things, an absence of meaningful market functioning is one of the key restrictions causing disparities in the sector's operations among nations (Kabir&Halder, 2018).

Authorities and policymakers did not help the issue by providing or enacting accommodating and friendly laws, making matters tense for the operators and clients. The legal features of the market, economic and political variables, as well as social factors/ considerations, were all points of focus that the government needs to concentrate on

These elements will go a long way toward not only generating more positive externalities but also promoting economic development. Notably, the primary goal of the insurance industry in a given country is to make the market more secure for the general public. It is one of the security methods used to protect oneself, one's family, and one's property against unexpected or unforeseen disasters.

Selling guarantees to people in order to indemnify or return them to their former position financially in the event of a loss is what the insurance business is all about. Clients appreciate promises in the formulation of policies (policy holders). This appears to imply that the policyholder (the insured) must pay the insurer a sum defined by the insurer in advance in the form of a premium within a given timeframe

The policyholder gets an insurance policy, which outlines the terms and conditions under which the covered will be reimbursed monetarily. When an event occurs, the policyholder contacts the insurer to reclaim or redeem the premium payments, as the business has committed to reimburse the money if the event occurs within or over a specific time period.

The funds mentioned are a claim from the insurance company. It is critical for the insurer to adhere to all of the laws and ideas that govern insurance practice in order to maintain the policyholder's trust, not only in terms of timely payment of claims, but also in respect of equivalent amounts as stated in the insurance contract. To do this the premium income must be sufficiently enough using a standard insurance rate to cover the claim cost as well as other underwriting costs (Diacon, 1983; Harrington and Niehaus, 2011; Epetimehin andEkundayo, 2012; cited in Afolabi, 2018).

Any attempt to deviate from this basic insurance idea would not only make it impossible for the insurer to pay claims, but it will also damage the company's image and have long-term negative consequences for its revenue. Furthermore, it has been highlighted that accumulated claims from past years, as well as rising claim expenses, make it impossible for some insurance companies to pay claims on time, which has had a detrimental impact on the performance of companies (Yusuf and Dansu, 2014;Lalithchanadra and Kumari, 2015).

Firms in such circumstances always look for alternatives by offering lower claims or not trying to pay at all, in some cases causing pain to clients in what was clearly started as a strong relationship with the salesperson promising to be there when things go wrong, but observations have reportedly been harsh in the majority of cases.

According to Oyekunle and Momoh (2013) Corruption, misuse of funds, and fraud are all elements that make it easier for substandard claims to be filed in the Nigerian insurance system. Despite the significance and benefits of the insurance industry to economic development and growth, it is regrettable that in Nigeria, with a populous of over 200 million people, the predicted increase from 1921 has not been substantial until the 1980s (Tajudeen, &Adebowale, 2013).

The sector had failed to persuade the majority of the population that the better claims were true. The majority of Nigerian insurers struggled to settle claims and other financial commitments owed to previous clients (Uranta, 2016 cited by Aduloju,Awoponle&Oke, 2014; Akinbola 2014) Similarly, policyholder expertise did not appear to be adequate to persuade prospective customers to sign the contract. As a result, the business underwent reform, and many issues were handled, with the exception of fire insurance policies on both motor vehicles and burnt-out housing claims, which stayed unsolved (Ayuba&Isyaka, 2020). As a result, the connection between poor claims resolution and insurance policy demand in Nigeria is still developing (Tajudeen, et al 2013).

This study is founded on this concept, as it has been revealed that insurers were only able to cover fewer than 5% of the fully insured population, and that less than 1% of the insured adds to the Nigerian economy's Gross National Product (Usman and Salami, 2014).Therefore, in view of the above assertion, this study intends to Explore the impact of poor claim settlement on the demand of insurance

1.2 STATEMENT OF THE PROBLEM

Insurance firms in Nigeria, like insurance providers in other areas of the world, pay claims, but they have a tarnished reputation among the insuring public.

The difficulty of running an effective claims management that would satisfy clients, earn their trust, and encourage them to renew insurance plans has lingered in the insurance sector in the sub-region and around the world for far too long.

Claims settlement serves as a mirror whereby the general public can view an insurance firm. A firm that fails to resolve customer claims to their satisfaction will undoubtedly lose business, as such clients are unlikely to continue to insure with the company. Such customers may even urge their friends, coworkers, and family members to avoid doing business with such a firm.

The foregoing problem's consequences could include declining sales and marketing figures, poor premium income, low capital formation (savings and loan associations), and a little contribution of an insurance firm to Nigeria's gross national product

An insurance company is set up in the same way as any other profit-oriented business to make money while providing important services to their customers. However, in recent years, insurance companies' success has been hampered by inadequate claim handling. The problem has become so widespread in Nigeria that many customers are considering canceling their policies because their insurance firms are refusing to compensate them for damages they have incurred.

 Omar (2007) Lack of trust and faith in insurance institutions, poor claims administration, a lack of trustworthy actuarial data for research, and a poorly developed financial market are all identified as obstacles in the insurance industry.it is on this the study center’s on impact of poor claims settlement on the demand for insurance

1.3 AIM AND OBJECTIVE OF THE STUDY

The main aim of the study is impact of poor claims settlement on the demand for insurance. Other specific objective includes:

1) To examine the effect of late payment of settlement by insurance companies

2 To examine the impact of poor claims on the demand for insurance

3 To examine the relationship between poor claims settlement and the demand for insurance

4 To outline other factors that influences the demand for insurance

5 To recommend ways of improving demand for insurance through prompt claim settlement

1.4 RESEARCH QUESTIONS

The following research questions shall guide this study and in the course of this research, we shall attempt to find answers to the following questions:

1) What is the effect of late payment of settlement by insurance companies?

2 what is the impact of poor claims on the demand for insurance?

3 what is the relationship between poor claims settlement and the demand for insurance?

4 what are the factors that influences the demand for insurance?

5 what are the ways of improving demand for insurance through prompt claim settlement?

1.5     HYPOTHESES

In line with the statement of research problems and the objectives of this study, the following hypotheses will be tested:

HO: There is no significant impact of poor claims settlement on the demand for insurance services

H1: There is a significant impact of poor claims settlement on the demand for insurance services

HYPOTHESIS 2

HO: There is no significant relationship poor claims settlement and demand for insurance

H1: There is a significant relationship poor claims settlement and demand for insurance

1.6 SIGNIFICANCE OF STUDY

The payment of claims is not only a legal obligation but also a strong public relations instrument and a marketing strategy that has a lot of bearing on the sale of insurance products. This study aimed at identifying whether poor claims settlement affect the demand for the company‟s insurance products and customers choices. This study will help AIICO PLC identify and adopt the best ways to settle claims that will ensure customer satisfaction, which will have the positive effect of improving the image of the insurance company in the sub-region. This improved image will, in turn, increase demand for their insurance products and increase premium income generation/sales and marketing figures, capital formation and contribution to the economy of the country in the sub-region.

1.7 THEORETICAL/CONCEPTUAL FRAMEWORK

1.7 Theoretical Framework

1.7.1 EXPECTED UTILITY THEORY

This study adopted Expected Utility Theory as the theoretical framework. This theory was propounded by Daniel Bernoulli in (1738) as a tool to solve the St. Petersburg Paradox. The theory is used to estimates the likely utility of an action – when there is uncertainty about the outcome. It advocates that, rational choice is to choose an action with the highest expected utility. Expected utility theory is used as a tool for analyzing situations where individuals must make a decision without knowing which outcomes may result from that decision, i.e., decision making under uncertainty. These individuals will choose the action that will result in the maximum expected utility, which is the sum of the products of probability and utility over all the possible outcomes. The decision made will also depend on the person‟s risk aversion and utility over other agents. This theory notes that the utility of money is not essentially the same as the total value of money. This explains why people may take out insurance policies to cover themselves for the variety of risks. The expected value from paying insurance premium would be to lose out monetarily. But, the possibility of large-scale losses could lead to a serious decline in utility because of diminishing marginal utility of wealth. The choice of this theory was based on its usefulness in evaluating situations without immediate payback, such as decisions to buy insurance. When one weighs the expected utility to be gained from making payments in form of insurance premium to insurance company for a guaranteed income or compensation at the happening of an insured contingency and the expected utility of retaining the premium amount and spending it on other opportunities and products, insurance seems like a better option

1.7.2 Conceptual framework

Conceptual framework for the study includes concepts and empirical findings from the literature. It has been used to show relationships among these ideas and how they relate