SEMINAR PAPER ON AN APPRAISAL OF THE INSURANCE COMPANIES APPROACH TO CLAIM SETTLEMENT

Abstract

The objective of this research work is to look into the performance of the Nigerian insurance industry viz a viz the procedure and approach to claim settlement. Individuals hold diverse opinion about this industry and the general impression is that the insurance industry has failed to win the confidence of the insuring public. Often times, people make remark such as “unwilling to settle claim but always willing to collect premium and use its small prints in the policy to decline its liability”. It is the belief about the industry is allowed to continue and not corrected that the industry will totally collapse and the after effect will be over bearing on the economy. When we consider the importance of insurance in the economic development of any nation, it is therefore the intention of the researcher to find out if this allegation is true or otherwise, proffer solution and make recommendation that will help to solve these problems.

INTRODUCTION

Insurance is the equitable transfer of the risk of loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. It involves pooling of funds from many insured entities [known as exposures] to pay for the losses that some may incur. Insurance as a modern concept for solving risk related problems depends on co-operation of a large number of people for it’s success. The general insurance industry in India has gone around a full circle in its history over the years. Having started in the a private sector way back in the nineteenth century, the industry received a major jolt just over thirty years ago, when it underwent a major acquisition through a process of nationalisation. The private industry then became a public industry. Five large general insurance companies including a reinsurer, came into existence to handle the entire market business in India. Business of all the private insurers was merged into four direct writing companies. Incidentally, life insurance business of 245 Indian and foreign insurers was taken over earlier, in the year 1956, to form the Life Insurance Corporation of India. Changes in the Government policies brought about liberalisation in the insurance industry in the year 2000 and the insurance business was thrown open to private enterprise to compete with the existing public sector insurers. Foreign players are now permitted to enter the market but only with a maximum of 26% participation in the equity. There are now only 8 general insurers in the private sector but the number should increase in the coming years. These new players are now gradually increasing their share of the total market premium and have been able to get to over one fourth of the total gross premium income in India. The Insurance Regulatory & Development Authority {IRDA} oversees the insurance business in India. The IRDA regulations have now carved out an essential role for the actuaries in general insurance business. Each insurer must have an Appointed Actuary {AA}, who is a Fellow of the Actuarial Society of India aged not over 70 years. The IRDA approves the appointment each year. As of now, the AA is required only to certify the IBNR & IBNER claim reserves but it is evident that this role is set to expand in the near future. Only one transfer of business has recently occurred on the life side in the new environment. However, similar developments should be expected in the future as private players would be aiming to increase their market shares in the face of stiff competition. The general insurance market in India has for long been regulated by premium tariffs for most of the business. These tariffs are set to be abolished mostly by the end of this year, which should make the business very competitive and, inter alia, considerably enlarge the scope for actuarial input. The appraisal value exercise in connection with acquisition or merger should now be expected to become important. Further, Indian non – insurance entities currently have major participation in the equity of of almost all the new players – they are permitted to hold as much as 74% of an insurer’s shareholding. Thus, any new business house or financial company including banks, which may get interested in participating in insurance business, would need to seek a study of insurance profitability through a detailed appraisal value exercise. Thus, the actuary will have a major and essential role to play in this field. Since risk is an unavoidable event in every business venture, there will be need to understand events in like, there will be also need to understand what risk entails for. Example walking in the street imposes a danger of being knock down by a vehicle. Since risk is ever present it cannot be eliminated but can be prevented. Even men own habits, occupation, relationship with others, the society and his political activities are sources of danger.

The taste of good insurance transaction lies in the manner in which a claim is handled. This is why it is referred to as the acid test for insurance [Ogwo, Enwereuzor, Nwite, Ibeabuchi and Eche, 2000] one of the principal functions of an insurance company is the settlement of claims. It is infact the fear that a claim might occur that induces individual and economic institutions to take out insurance policies.

Therefore, the payment of claims can be said to be the major function of an insurance company. The acid test of viability of any insurance company is prompt settlement of claim and it is also a veritable cheapest means of advertisement.

STATEMENT OF THE PROBLEM

Unwilling to educate public properly on the scope, functions, and limitations of insurance as well as the basic rules that govern insurance transactions especially on the issue of claim settlement and how to abide by the rules and regulations guiding insurance company.

OBJECTIVES OF THE STUDY

The broad objective of this study is to appraise the approach of insurance companies to claim settlement in the Nigerian insurance companies.

The specific objectives include the following.

1. To find out if approach of insurance companies to claim settlement is effective.
2. To find out if insurance companies are capitalizing on the ignorance or illiteracy of the insuring public towards claim settlement.
3. To find out if the issue of under settlement is common.

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