British International Journal of

Applied Economics, Finance and Accounting

B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
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EFFECT OF INSURANCE SECTOR CLAIMS SETTLEMENT CAPACITY ON

INSURANCE DEMAND IN NIGERIA, 2007-2022

1Prof. Okwo, Ifeoma Mary, 2Amobi, Mary Chinwe, 3Okparaka, Vincent

Chukwuka, Ph.D. and 4 Okeke, Daniel Chukwudi, Ph.D
1Department of Accountancy, Enugu State University of Science and Technology
2,3,4Departmentof Insurance and Risk Management, Enugu State University of Science and
Technology
Keywords: Abstract: This study investigated the effect of insurance sector claims settlement
Claims capacity on insurance demand in Nigeria using annualized time series data from
settlement, 2007 to 2022. The specific objectives of the study were: to determine the effect of life
gross insurance claims settled on the gross premium income of Nigeria's insurance
premium, industry; to find out the effect of non-life insurance claims settled on the gross
life premium income of Nigeria's insurance industry; and to ascertain the effect of total
insurance claims settled on gross premium income of Nigeria insurance industry. Expected
claims, non- Utility Theory propounded by Daniel Bernoulli in 1738 was adopted as the
life theoretical framework. While ex-post facto research design was used for the study.
insurance The stationarity test was carried out using the Augmented Dickey-Fuller unit root
claims test. Three hypotheses were tested in line with the objectives of the study at a 5% level
of significance utilizing the Error Correction Mechanism (ECM) Test. It was
discovered that: life insurance claims settled had a significant negative influence on
the gross premium income of Nigeria's insurance industry with a probability value
(0.0329) and coefficient of (-0.118607); non-life insurance claims settled had a
positive but non-significant influence on gross premium income of Nigeria insurance
industry with the probability value (0.2406) and coefficient of (0.020914); total
insurance claims settled had significant positive influence on gross premium income
of Nigeria insurance industry with the probability value (0.0063) and the coefficient
of (0.050550). It was therefore concluded that the Nigerian insurance sector claims
settlement capacity had a significant influence on the gross premium income of the
Nigerian insurance sector. This implies that Nigerian insurance sector claims
settlement capacity had significant influence on the demand for insurance in Nigeria
between 2007 to 2022 because the probability value of the f-statistics (0.003005)
was below 0.05 level of significance. It was therefore recommended that more effort
should be directed towards prompt settlement of genuine life insurance claims so as
to improve awareness and demand for Insurance in Nigeria. Effort should be made
by insurance companies to improve non-life insurance claims settlement to benefit

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

54
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
Advance Scholars Publication
Published by International Institute of Advance Scholars Development
https://aspjournals.org/Journals/index.php/bijaefa

from its positive effect on insurance demand in Nigeria. Nigerian Insurance Industry
regulators should enhance their supervisory frameworks to ensure that genuine
claims of both life and general insurance business are settled promptly.

1.1 Introduction membership or belonging within a particular

Claims settlement is an important aspect of the group of customers, thereby providing the
insurance business in that poor claim settlement company with opportunities to retain existing
records of an insurance company may spell doom customers while attracting new ones. In other
for such a company, while a good reputation for words, claims settlement is the activity of
good claim settlement on the other hand may insurance companies that truly portrays what
mean prosperity concerning the acquisition of they are there for [Braers, 2004 & Onosede,
more business. In other words, the claim 2013]. Chiejina (2017) states that insurers take
settlement decision of an insurance company can in premiums based on anticipated loss costs,
make or mar its fortunes (Agu, 1999). Oshinloye keeping a small portion to cover operating
(2009) asserts that the Nigerian Insurance expenses, and investing the rest until needed to
industry will experience growth and pay claims or to hold aside to cover extraordinary
development as long as they are prepared and losses. To operate profitably, insurers must earn
ready to settle all genuine claims on time. more from premiums, which are invested across
Augustine and Bamidele (2013) state that the a range of asset classes, than they pay out in
image problem suffered till today by insurance claims.
companies in Nigeria is mainly because of what Many studies affirmed that prompt claims
is seen as the insurance companies’ posture of settlement contributed to organization
“smile to collect premium and frown to pay performance, while some disagreed with the
claim. The insuring publics do not even trust the assertion that claims payment contribute to the
insurers because they believe that they would insurance companies’ performance. For
always look for a way out at time of payment even instance, Butler and Francis (2010) discovered
when the claims are genuine. that prompt claims settlements has positive and
Insurance companies sell protection to their significant relationship with insurance
customers who pay premiums, and hold performance in terms of customer satisfaction
investments to cover future claims (Stroud, and loyalty. Albert cited in Pandey (2007) notes
2016). Thus, prudent claims administration that one of the reasons for low penetration of
strategy promotes customer satisfaction and insurance business in the country is due to
loyalty as it helps to develop a perception of insurers’ delay in settling claims. Insurance

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

55
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
Advance Scholars Publication
Published by International Institute of Advance Scholars Development
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business is based on trust, but is fraught with claims is an important function of insurance
fraud as perpetrated by the various actors in this companies.
sector in Nigeria. Daniel (2013) also discovers Nigeria insurance company’s attitude to claims
that failure to settle claims and delay claims settlement has in the past provoked a lot of
settlement are the causes of insurance failure in public criticism and even attracted the attention
Nigeria. of governments (Harry, 2012). Worthy of note
Hewitt (2006) also found that prompt claims though, is the tremendous improvement in
settlement by insurance companies influence claims settlement in the Nigerian insurance
customer loyalty in advance countries. However, industry because of increased regulation and
findings of Bates and Atkins (2007) and supervision of the industry over the last decade.
Ndubuishi (2008) conflicted with previous Insurance claims reported during the fourth
studies. They discovered that claims payment quarter of 2022 stood at N318.2 billion
could be very costly as claims constitute the representing a thirty-one (31.2%) percent
largest cost of an insurer and this has contributed Quarter on Quarter growth. In a similar pattern,
to poor performance of insurance companies. the net claims paid were reported at N244.3
This study therefore is set out to investigate billion, growing at about eighteen percent
whether claims settlement had influenced (17.9%) during the same period. The Non-Life
insurance demand in Nigeria between the business pulled about 50.8 per cent representing
periods 2007 to 2022. N164billion while on the Life business, a total of
1.2 Statement of the Problem N159.3 billion was reported as claims, indicating
Claim settlement is the defining moment in the a proportion of 49.2 percent of all registered
relationship between insurance companies and claims during the period. The data reveals an
their customer as it creates the chance to show impressive development with regards to claims
that the money spent paying premiums was settlement in Nigeria (NAICOM Annual Report,
worth the expense. In the same vein, claim 2022).
provides an insurer the opportunity to make a On the other hand, NAICOM Annual Report,
favorable impression on the policyholder. The 2022) indicted that the gross premium income
reputation of any insurance company depends to generated as at the fourth quarter of 2022 stood
a large extent on the sort of claims service at N726.2billion, representing a growth
provided by that insurance company to its proportion of about thirty-Six per cent (36.3%),
policyholders. Therefore, effective claims quarter on quarter and indeed, about eighteen
management and prompt settlement of valid per cent (17.8%) year on year. Similarly, in 2021
Nigeria insurance sector recorded a substantial

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

56
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
Advance Scholars Publication
Published by International Institute of Advance Scholars Development
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growth at the rate of 23 percent to close at 1.3 Objectives of the Study

N631billion in gross premium income, obviously The broad objective of the study was to
at a sharp progression compared to the 1.3 per determine the effect of insurance sector claims
cent growth recorded in the prior period of the settlement capacity on insurance demand in
COVID-19 ridden economy. The Non-life sector Nigeria. While the specific objectives of the study
accounted for 57.9 per cent, growing by three include, to:
points more in proportional relevance while the  Access the effect of life insurance claims
life Insurance business contributed 42.1 per cent settled on gross premium income of Nigerian
of the gross premium income generated. What insurance industry;
could be the reason for this positive stride in the  Examine the effect of non life insurance
gross premium income generated by the claims settled on gross premium income of
Nigerian insurance sector? Could it be because of Nigerian insurance industry; and
the improvement in claims settlement recorded  Ascertain the effect of total claims settled
over the years? Existing empirical literature on gross premium income of Nigerian insurance
show that there is no consensus as to whether industry.
claims settlement affect demand of insurance. 1.3 Research Hypotheses
Nwite et al. (2020) found that total insurance Hypotheses of the study were stated in null
claims had positive but none significantly impact forms.
on insurance penetration and density (insurance HO1: Life insurance claims settled had no
demand) in Nigerian. Other studies found a positive and significant effect on gross premium
positive and significant effect, impact or income of Nigerian insurance industry.
relationship between claims settlement and HO2: Non life insurance claims settled had no
insurance business (Ofori-Attah, 2012; positive and significant effect on gross premium
Unachukwu et al., 2015; Caren & Mwangi, 2017; income of Nigerian insurance industry.
Ntwali et al., 2020). While on the other hand, the HO3: Total insurance claims settled had no
study of Ugwuanyi et al. (2021) found that claims positive and significant effect on gross premium
settlement negatively affected insurance income of Nigerian insurance industry.
companies earned premium. It is against this 1.5 Significance of the study
backdrop that this study therefore, aims to shed Insurance Industry Regulators: They will
light on the effect of insurance sector claims understand the influence of insurance sector
settlement capacity on insurance demand in claims settlement capacity on insurance demand
Nigeria using time series data from 2007 to in Nigeria. This will enable NAICOM and other
2022. market regulators of the industry to make

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

57
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
Advance Scholars Publication
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informed adjustment in their regulatory and nominees/assignees of the insured on the

supervisory frameworks aimed at further happening event or risk insured. Irukwu (1989)
enhancing the demand for insurance products in defines an insurance claim as an insurance
the Nigeria insurance sector. extract in which the insurer undertakes to
Insurance Companies: They will understand indemnify the insured against a loss, which may
the effect of insurance sector claims settlement or may not arise at a future date or to pay a
capacity on insurance demand in Nigeria. certain amount of money in the happening of a
Scholars: The outcome of this study will be a certain event.
vital source of literature to future researchers in Life Insurance Claims
respect of impact of insurance sector claims Life insurance claims represent the proportion of
settlement capacity on insurance demand in claims (benefits) paid by the life insurance
Nigeria. companies to their policyholders at the time of
1.6 Scope of the Study death or maturity of the policy (Irukwu, 1989).
The study exclusively determined the influence Non-Life Insurance Claims
of insurance sector claims settlement capacity on Non-life insurance claims represent the
insurance demand in Nigeria using time series proportion of claims paid by non-life insurance
data from 2007 to 2022. The base year of 2007 companies to their policyholders at the time of
was chosen given that it was the deadline given loss (Irukwu, 1989).
for the implementation of 2005 recapitalization. Total Insurance Claims
The variables used in the study were: life Total insurance claims represent all the claims
insurance claims, non-life insurance claims and paid by both life and non-life insurance
total insurance claims as the independent companies to their policyholders at the time of
variables. While gross premium income was used loss or maturity of the policy by stipulated terms
as dependent variable for the study. (Nwite et al., 2020)
2.0 REVIEW OF RELATED LITERATURE 2.1.2 Gross Premium Income
2.1 Conceptual Review Gross premium income includes premium from
2.1.1 Claims Settlement new insurance agreements, from renewed
An insurance claim is a notification to an insurance agreements, changes of existing
insurance company requesting payment of an agreements and received reinsurance premium
amount due under the terms of the policy. Yadav (Bokšová, 2010). Gross premium income is the
(2014) state that insurance claims is a right of the total direct and assumed premium written by an
insured under a contract of insurance. The insurer before deductions for reinsurance and
insurer promises to save the insured or ceding commissions. This includes additional

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

58
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
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and/or return premiums. Written does not imply agents. This theory notes that the utility of
collected but is the gross policy premium to be money is not necessarily the same as the total
collected as of the issue date of the policy, value of money. This explains why people may
regardless of the payment plan. In relation to a take out insurance policies to cover themselves
Contract of Insurance, the amount of premium for the variety of risks. The expected value from
payable by the insured in respect of that contract, paying for insurance would be to lose out
excluding any excise taxes levied on premiums monetarily. But, the possibility of large-scale
and receivable by the Insurer but without any losses could lead to a serious decline in utility
deduction for commissions or other acquisition because of diminishing marginal utility of
expenses (Dubai Financial Services Authority, wealth. The choice of this theory was based on its
2004). usefulness in evaluating situations without
2.2 Theoretical Framework immediate payback, such as decisions to buy
Expected Utility Theory insurance. When one weighs the expected utility
This paper adopted Expected Utility Theory as to be gained from making payments in form of
the theoretical framework for the study. The insurance premium to insurance company for a
theory was propounded by Daniel Bernoulli in guaranteed income or compensation at the
(1738) as a tool to solve the St. Petersburg happening of an insured contingency and the
Paradox. The theory is used to estimates the expected utility of retaining the premium
likely utility of an action – when there is amount and spending it on other opportunities
uncertainty about the outcome. It suggests the and products, insurance seems like a better
rational choice is to choose an action with the option.
highest expected utility. Expected utility theory 2.3 Empirical review
is used as a tool for analysing situations where Viswanadham (2005) studied claims settlement
individuals must make a decision without operations of Life Insurance Companies in India
knowing which outcomes may result from that with the objectives of evaluating performance in
decision, i.e., decision making under terms of both maturity and death claims before
uncertainty. These individuals will choose the and after IRDA period. Claim settlement
action that will result in the highest expected processing time expressed in speed ratios and
utility, which is the sum of the products of adjudicatory measures of the corporation to
probability and utility over all the possible redress the grievances of policyholders in
outcomes. settlement of claims. The study concluded that
The decision made will also depend on the corporation should provide efficient service with
person’s risk aversion and utility over other courtesy in the matters of claim settlements. A

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

59
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
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satisfied customer will be a brand ambassador using descriptive statistics, coefficient of

for the insurance company; claim settlement determination (R2), ANOVA (F), standard error
should be given more importance. test, test of correlation (T), multiple linear
Ofori-Attah (2012) studied the effects of slow regression and ordinary least square Regression
claims settlement on the sales and marketing of techniques. The results revealed that PBT
insurance products; a case study of enterprise (profitability) correlates directly with Net Claims
insurance co. Ltd Takoradi branch Ghana. The and Expense Ratio but correlates inversely with
research utilized qualitative research method LR (Loss Ratio).
and Computer software was used to further Unachukwu et al. (2015) investigated the effect
process the data. The result established that of claims settlement on the performance of
prompt and satisfactory claims payment had Nigerian insurance companies with special
positive effects on the sales and marketing of reference to the selected insurance companies in
insurance products. Ilorin metropolis. Linear regression analysis was
Kalani el al. (2013) examined claim settlement employed to analyze data collected with aid of
ratio of LIC with other insurance companies in Statistical Package for Social Science (SPSS). The
India. Study observed that there are cases of result confirmed that prompt claims settlements
frauds in claim settlement that may happened has positive significant effect on customer
but if the policyholder uses proper precautions satisfaction and loyalty respectively.
he will prevent himself from fraud. LIC of India Caren and Mwangi (2017) investigated the effect
provides better corporate services for settling the of underwriting and claims management
customers claim. D-mat may improve practices on the performance of general
transparency and efficiency of the claim insurance firms in East Africa from 2010 to2014.
settlement. Authors studied comparison of claim The findings show that there was a significant
settlement ratio of LIC with other life insurance positive relationship between underwriting and
industry and survey of policyholders and claims management practices and non-financial
opinions regarding claim settlement. performance, but the relationship with financial
Yusuf and Dansu (2014) examined the performance was insignificant.
relationship between claims cost and Torbira (2018) investigated the impact of
profitability in the Non – life sector of the insurance risk management through the window
Nigerian insurance industry. Data were of claims payment on the growth in output level
generated from the financial statements of ten of GDP in Nigeria. Claims payment – economic
(10) insurance companies covering a period of growth model was patterned after multivariate
ten years (2002 – 2011). Data were analyzed regression, causality and dynamic model of

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

60
 British International Journal of
Applied Economics, Finance and Accounting
B. J. Int. J. A. Econ. Fin. & Acc.
Volume: 8; Issue: 2
March-April, 2024
ISSN 2234-2418
Impact Factor: 5.23
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linear formation. The result revealed that, in the comprised operational data on premium earned
long run, insurance claims paid on fire, accident, and direct claims settled by insurance companies
motor vehicle, employers’ liability and marine Nigeria over a period of six (6) years. They found
policies significantly impact of the output level of that direct claims settlement negatively affected
GDP in Nigeria. insurance companies’ earned premium.
Afolabi (2018) studied the Effect of Claims 2.3.1 Gap in empirical Review
Payments on Profitability in The Nigerian Based on the empirical review carried out the gap
Insurance Industry for the period’s 2011 to 2016 that necessitated this study include:
using descriptive statistics and the multiple 1. To the best of my knowledge and evident
regression techniques. The result reveals that from empirical review, no previous study was
ROA (profitability) has an indirect relationship carried out in relation to life insurance claims
with LR (loss ratio) and NC (net claims), but a and demand for insurance. Moreover, the two
direct relationship with ER (expense ratio). It previous studies on life insurance claims: Kalani
further reveals that net claims have a et al. (2013) Viswanadham (2005) which were on
significantly positive impact on loss ratio. life insurance were not carried out in Nigeria.
Ntwali et al. (2020) assessed the effects of claims 2. In terms of Non life insurance claims and
management on financial performance of total insurance claims, existing empirical
insurance companies. The study used descriptive literature show that there is no consensus as to
approaches to collect quantitative and whether claims settlement affect demand of
qualitative data using questionnaire and insurance. Nwite et al. (2020) found that total
interview guide. The study established that there insurance claims had positive but none
is a positive correlation between claims planning, significantly impact on Insurance penetration
claims control and claims management on ROE. and density (insurance demand) in Nigerian.
Nwite et al. (2020) studied the impact of claims Other studies found a positive and significant
settlement on the development of Nigerian effect, impact and relationship between claims
insurance industry. Using Ordinary Least settlement and insurance business (Ofori-Attah,
Squares (OLS) regression technique, they found 2012; Unachukwu et al., 2015; Caren & Mwangi,
that: total insurance claims had positive but none 2017; Ntwali et al., 2020). While on the other
significantly impact on Insurance penetration hand, the study of Ugwuanyi et al. (2021) found
and insurance density in Nigerian. that claims settlement negatively affected
Ugwuanyi et al. (2021) evaluated the insurance companies earned premium. Hence,
performance of motor insurance companies in the need to embark on this study.
Nigeria. Panel data obtained for their study

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and Okeke, Daniel Chukwudi, Ph.D

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3.0 METHODOLOGY In order to adequately capture the broad

3.1 Research Design objectives of this study, their model was modified
Ex-post facto research design was adopted for as follows:
this study. This is a type of research which aims The functional relation of the model was given
at determining the relationship or the effect of as:
one variable on another and the variables GWP = f (LIC, NIC, TIC) … (i)
involved are not manipulated by the researcher While the general model was specified as follows:
(Onwumere, 2020). The choice of this research GWP = β0 + β1 LICt1 + β2 NICt2+ β3 TICt3+
design was based on the fact that the researcher μ … (ii)
utilized time series data to carry out this study. Where:
3.2 Area of the Study GWP = Gross Written Premium, LIC = Life
The study was conducted in Nigeria. It focused Insurance Claims,
on effect of insurance sector claims settlement NIC =Non-life Insurance Claims, TIC= Total
capacity on insurance demand in Nigeria. Insurance Claims,
3.3 Nature and Sources of Data β0 - β3 = Constant parameters; μ = error term
Already existing statistical data were used for 3.5 Description of Variables
this study. Data were sourced from Central Bank 3.5.1 Independent Variable
of Nigeria Statistical Bulletin, National Variables used in this study (Life Insurance
Insurance Commission’s (NAICOM) and NIA- Claims, Non-Life Insurance Claims and Total
Digest for various years. insurance claims.
3.4 Model Specification Life Insurance Claims: This refers to the total
The study adopted a multivariate model of value of all life insurance claims paid by the
Charles and Fabian (2014) which was specified Nigerian insurance industry. It covers all the life
as: claims that the Nigerian insurance industry paid
INFR = f (MS, INT, EXR) to their clients for the periods under review.
The linear equation of their model was written Non-Life Insurance Claims: This refers to
as: the total value of non-life insurance claims paid
INFRt = ß0 + ß1MSt + ß2INTt + ß4EXRt + £t by the Nigerian insurance industry. It covers all
Where: INF = Inflation Rate; MS = Money the non-life claims settled by the Nigerian
Supply; INT = Interest Rate; EXR = Exchange insurance industry for the periods under review.
Rate Total insurance claims: This refers to the
ß = Constant Term ß1 – ß3 = Parameters of the total value of all life and non-life Claims paid for
variables to be estimated, £t = Error Term by the Nigerian insurance industry. It covers all

Prof. Okwo, Ifeoma Mary, Amobi, Mary Chinwe, Okparaka, Vincent Chukwuka, Ph.D.
and Okeke, Daniel Chukwudi, Ph.D

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the claims that the insurance industry paid to analysis utilizing Error Correction Mechanism
their clients for the periods under review. (ECM) Test. While hypotheses were tested using
3.5.2 Dependent Variable p-value at 5% level of significance.
Gross Premium Income: This refers to the 4.0 DATA PRESENTATION AND
total value of all life and non-life insurance ANALYSIS
premium written by the Nigerian insurance 4.1 Data Presentation
industry. This was used to proxy insurance This study determined the effect of insurance
demand. sector claims settlement capacity on insurance
3.6 Method of Data Analysis demand in Nigeria from 2007-2022. Insurance
Data for the study were subjected to stationarity demand served as the dependent variable and
test using The Augmented Dickey-Fuller unit was proxied with gross written premium which
root test. Thereafter, a test of Model adequacy represents actual demand for insurance in
was run. This was estimated using Coefficient of monetary terms. While insurance sector claims
Correlation (R) and Adjusted Coefficient of settlement capacity was decomposed into three
Determination (AR2) and Durbin Watson independent variables: Life claims, Non-Life
parameters. The Durbin Watson Statistic is a claims and total insurance claims settled by the
number that tests for autocorrelation in the Nigerian insurance Industry. The dataset is an
residuals from a statistical regression analysis. annualized time series report sourced from
The Adjusted Coefficient of Determination (AR2) NAICOM and NIA-Digest for various years
is a modified version of R2. It indicates how well required for empirical analysis as adopted in line
terms fit a curve or line, but adjusts for the with the model which was specified in section
number of terms in a model. The Least Square three.
multiple regression method was used for data

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4.2 Data Analysis

4.2.1 Descriptive Statistics
Table 4.3: Descriptive Statistics Test Result
LOGGWP LOGLIC LOGNIC LOGTIC
Mean 11.70150 9.470723 9.905899 8.338846
Median 11.71961 9.224771 9.777017 10.11280
Maximum 13.35572 11.92080 11.42756 12.39743
Minimum 10.27359 7.321651 7.464051 4.775477
Std. Dev. 1.006407 1.354675 1.042499 3.273232
Skewness 0.107984 0.285545 -0.445415 -0.066569
Kurtosis 1.504584 1.977272 2.400050 1.100897

Jarque-Bera 2.663398 1.600802 1.345770 4.228373

Probability 0.264028 0.449149 0.510234 0.120731

Sum 327.6420 265.1802 277.3652 233.4877

Sum Sq. Dev. 27.34711 49.54888 29.34372 289.2793

Observations 16 16 16 16
Source: Authors Computation from E-views, 2023
The condition for normal distribution is that the (independent variables) for the sampled period
skewness value falls within the range of 0 and 1; 2007-2022 are (0.107988, 1.504584, p-
the kurtosis value falls within the range of -3 and value= 0.264028), (0.285545, 1.977272, p-
3, and the probability value of the Jarque-Bera value=0.449149), (-0.445415, 2.400050, p-
statistic is greater than 5 percent level of value= 0.510234) and (-0.066569, 1.100897, p-
significance (that is, 0.05). Thus, the descriptive value= 0.120731) respectively. Since the
statistics result above shows that the skewness, skewness, kurtosis and probability values stated
kurtosis values and Jarque-Bera probability above are in conformity with the decision rule
value for the values of all the variables under stated earlier, therefore, all the variables under
study: log value of gross written premium study follow a normal distribution.
(explained), life insurance claims, non-life
insurance claims, total insurance claims

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4.2.2 Unit Root Test

Unit root test was used to explore the nature of
the time series data.
Table 4.4: Result of the Unit Root Test
VARIABLES ADF test 5% critical Order of
Statistics Value Integration
LOGGWP -3.533846 -3.195026 I(1)
LOGLIC -4.138851 -1.954414 I(1)
LOGNIC -4.357160 -3.587527 I(0)
LOGTIC -4.688725 -1.954414 I(1)
Source: Authors Computation from E-views, 2023
From the result of the stationarity test conducted
through E-view statistical software, log value of Table 4.5: Co-integration Test Result
gross written premium, life insurance claims and t-Statistic Prob.*
total insurance claims are stationary at first Augmented Dickey-Fuller test -3.762494 0.0356
difference, I(1) whereas log value of non-life statistic
insurance claimsis stationary at level form, I(0). Test critical values: 1% level -4.356068
Since all the variables are not stationary at level, 5% level -3.595026
there is the need to conduct a cointegration test 10% level -3.233456
so as to ascertain if there is long run relationship
among the variables under study. Source: Authors Computation from E-
4.2.3 Co-integration Test views, 2023
To test for co-integration among the variables, In the E-view generated co-integration test result
we carried carry out using ADF test on the above, the ADF test statistics (-3.762494) is
regression residuals as proposed by Gujarati greater than the 5% critical value (-3.595026) in
(2004). The ADF unit root test on the residuals absolute term. This implies that the residuals are
work with the same decision rule as unit root stationary (that is, the variables are co-integrated
test. Accept the null hypothesis if the Augmented or that the linear influence of the independent
Dickey-Fuller test statistic is lower than the 5% variables cancels out) and the variables have
level of significance, otherwise, reject the null the long-run relationship.
hypothesis. The co-integration test result is
summarized as follows:

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4.2.4: Normality Test and Interpretation

6
Series: Residuals
Sample 2007 2021
5 Observations 26

4 Mean 3.84e-17
Median -0.001692
Maximum 0.186188
3 Minimum -0.115539
Std. Dev. 0.068657
Skewness 0.657873
2
Kurtosis 3.627525

1 Jarque-Bera 2.302054
Probability 0.316312

0
-0.10 -0.05 0.00 0.05 0.10 0.15 0.20

Fig. 4.1: Output of Normality Test

Source: E-views Output, 2023
Based on the probability value (0.316312) of the normality test which is above the 0.05 level of
significance, the null hypotheses is accepted which implies that the residual are normally distributed.
From the normality table, the Jaque-Berra does not draw close to zero (0) as stated, in order words the
residual are normally distributed.
4.3 Test of Hypothesis
Table 4.6: Multiple Regression Result for Test of Hypotheses
Dependent Variable: D(LOGGWP)
Method: Least Squares
Date: 08/11/23 Time: 12:31
Sample (adjusted): 2007 2022
Included observations: 16 after adjustments
Variable Coefficient Std. Error t-Statistic Prob.
C -0.089948 0.174031 -0.516852 0.6107
D(LOGLIC) -0.118607 0.051931 -2.283946 0.0329
LOGNIC 0.020914 0.017317 1.207722 0.2406
D(LOGTIC) 0.050550 0.016640 3.037854 0.0063
ECT(-1) -0.251945 0.232496 -1.083649 0.2908
R-squared 0.518343 Mean dependent var 0.115052
Adjusted R-squared 0.426599 S.D. dependent var 0.098927
S.E. of regression 0.074911 Akaike info criterion -2.174003
Sum squared resid 0.117843 Schwarz criterion -1.932061
Log likelihood 33.26203 Hannan-Quinn criter. -2.104332
F-statistic 5.649878 Durbin-Watson stat 1.862789
Prob(F-statistic) 0.003005
Source: E-view output, 2023

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The multiple regression output shown in table 4.3.2 Test of Hypothesis Two
4.3 above was used to test hypothesis one, two Restatement of Hypothesis Two
and three. HO: Non-life insurance claims settled has no
4.3.1 Test Hypothesis One significant influence on gross premium income
HO: Life insurance claims settled has no of Nigeria insurance industry.
significant influence on gross premium income HI: Non-life insurance claims settled has
of Nigeria insurance industry. significant influence on gross premium income
H1: Life insurance claims settled has significant of Nigeria insurance industry.
influence on gross premium income of Nigeria Decision Rules: Accept alternate hypothesis if
insurance industry. p-value of (t-statistic) is less than (0.05) level of
Decision Rules: Accept alternate hypothesis if significance, otherwise reject alternate
p-value is less than (0.05) level of significance, hypothesis and accept the null hypothesis.
otherwise reject alternate hypothesis and Estimated Model Result for Hypothesis
accept the null hypothesis. Two
Estimated Model Result for Hypothesis Using extract from Table 4.6 for test of
one hypothesis two, the regression result shows that
Using extract from Table 4.6 for test of the p-value was [0.2406]; t-Statistic was
hypothesis one, the regression result shows that (1.207722), and the estimated coefficient for
the p-value was [0.0329], t-Statistic was (- LOGNIC was (0.020914). Therefore, based on
2.283946) and the estimated coefficient for the p-value of the second hypotheses (LOGNIC)
LOGLIC was (-0.118607). Based on the p-value the null hypothesis was accepted because the
of the first hypotheses (LOGLIC), the null probability value (0.2406) is above the (0.05)
hypotheses was rejected because the probability level of significance.
value (0.0329) is less than 0.05 level of Conclusion: Based on the p-value and the sign
significance. The estimated coefficient for of the estimated coefficient which was (+), it was
LOGLIC of (-0.118607) has a negative sign. concluded that non-life insurance claims settled
Conclusion: Based on the p-value and the sign had non-significant influence on gross premium
of the estimated coefficient which was (-), it was income of Nigeria insurance industry.
concluded that life insurance claims settled had 4.3.3Test of Hypothesis Three
significant negative influence on gross premium Restatement of Hypothesis Three
income of Nigeria insurance industry. HO: Total insurance claims settled have no
significant influence on gross premium income
of Nigeria insurance industry.

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HI: Total insurance claims settled have rejected because the probability value (0.0329) is
significant influence on gross premium income less than 0.05 level of significance and it was
of Nigeria insurance industry. concluded that life insurance claims settled had
Decision Rules: Accept alternate hypothesis if significant negative influence on gross premium
p-value of (t-statistic) is less than (0.05) level of income of Nigeria insurance industry. The
significance, otherwise reject alternate estimated coefficient for LOGLIC (-0.118607)
hypothesis and accept the null hypothesis. implies that, if other variables affecting gross
Estimated Model Result for Hypothesis written premium are held constant, a unit
Three increase in life insurance claims will bring about
Using extract from Table 4.6 for test of a 0.118607 decrease in gross written premium on
hypothesis three, the regression result shows the average. Which implies that an increase in
that the p-value was [0.0329]; t-Statistic was life insurance claims will lead to decrease in the
(3.037854) and the estimated coefficient for gross premium income gap. The coefficient of
LOGTIC was (0.050550). Based on the p-value of determination (R2) was (0.518343). This implies
the third hypothesis (LOGTIC), the null that 51.8343% of the variation in gross written
hypothesis was rejected because the probability premium is explained by the variations in
value (0.0063) is less than (0.05) level of LOGLIC, LOGNIC, LOGTIC on the average. The
significance. Durbin Watson statistics of (1.862789) fall
Conclusion: Based on the p-value and the sign within the zero autocorrelation
of the estimated coefficient which was (+), it was regions.1.58<1.862789<2.42. This implies that
concluded that total insurance claims settled had there is no presence of autocorrelation problem
significant positive influence on gross premium in the model as the computed.
income of Nigeria insurance industry. 2 Discussion of Result on effect of Non-life
4.2 Discussion of empirical results insurance claims and demand for
1 Discussion of Result on effect of Life Insurance
insurance claims and demand for Using extract from Table 4.6, the regression
Insurance result shows that the p-value was [0.2406]; t-
Using extract from Table 4.6, the regression Statistic was (1.207722); (R2) was (0.518343)
result shows that the p-value was [0.0329], t- and the estimated coefficient for LOGNIC was
Statistic was (-2.283946); (R2) was (0.518343) (0.020914). Therefore, based on the p-value of
and the estimated coefficient for LOGLIC was (- the second hypotheses (LOGNIC) the null
0.118607). Based on the p-value of the first hypothesis was accepted because the probability
hypotheses D (LOGLIC), the null hypotheses was value (0.2406) is above the (0.05) level of

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significance and it was concluded that non-life hypotheses D(LOGTIC), the null hypotheses was
insurance claims settled had positive but non- rejected because the probability value (0.0063)
significant influence on gross premium income is less than (0.05) level of significance and it was
of Nigeria insurance industry. This implies that concluded that total insurance claims settled had
non-life insurance claims settled did not significant positive influence on gross premium
significantly influenced the demand for income of Nigeria insurance industry. This
Insurance in Nigerian from 2007 to 2022. The implies that total insurance claims settled
estimated coefficient for LOGNIC (0.020914) significantly and positively influenced the
implies that, if other variables affecting gross demand for Insurance in Nigerian from 2007 to
written premium are held constant, a unit 2022. The estimated coefficient for LOGTIC
increase in non-life insurance claims will bring (0.050550) implies that, if other variables
about a 0.020914 increase in gross written affecting gross written premium are held
premium on the average. The coefficient of constant, a unit increase in total insurance
determination (R2) was (0.518343). This implies claims will bring about a 0.50550 increase in
that 51.8343% of the variation in gross written gross written premium on the average. The
premium is explained by the variations in coefficient of determination (R2) was (0.518343).
LOGLIC, LOGNIC, LOGTIC on the average. The This implies that 51.8343% of the variation in
Durbin Watson statistics of (1.862789) fall gross written premium is explained by the
within the zero autocorrelation variations in LOGLIC, LOGNIC, LOGTIC on the
regions.1.58<1.862789<2.42. This implies that average. The Durbin Watson statistics of
there is no presence of autocorrelation problem (1.862789) fall within the zero autocorrelation
in the model as the computed. This result regions.1.58<1.862789<2.42. This implies that
contrasts with the findings of Ugwuanyi, there is no presence of autocorrelation problem
Onwuegbuchunam, Bartholomew and Anikpe in the model as the computed. This result
(2021). conforms to that of Ofori-Attah (2012). In the
3 Discussion of Result on effect of total same vain this result agrees with that of Nwite et
insurance claims and demand for al. (2020) in terms of direction but differs in
Insurance terms of magnitude.
Using extract from Table 4.3, the regression 5.0 SUMMARY OF FINDINGS, CONCLUSION
result shows that the p-value was [0.0329]; t- AND RECOMMENDATIONS
5.1 Summary of Findings
Statistic was (3.037854); (R2) was (0.518343)
Based on the analysis of data and test of
and the estimated coefficient for LOGTIC was hypotheses done in section four, the following
(0.050550). Based on the p-value of the third were the findings of the study:
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1. Life insurance claims settled had significant written premium which implies that an increase
negative influence on gross premium income of in the study explanatory variables will lead to
Nigeria insurance industry. With the probability decrease in gross written premium in Nigeria on
value (0.0329) and coefficient of (-0.118607);
the average. Whereas non-life insurance claims
2. Non-life insurance claims settled had positive
and total insurance claims have positive
but non-significant influence on gross premium
relationship on the gross written premium in
income of Nigeria insurance industry. With the
Nigeria which implies that an increase in life
probability value (0.2406) and coefficient of
insurance claims and total insurance claims will
(0.020914);
lead to increase in income gap in Nigeria.
3. Total insurance claims settled had significant
5.3 Recommendations
positive influence on gross premium income of
The following recommendations were made in
Nigeria insurance industry. With the probability
line with the findings of the study:
value (0.0063) and the coefficient of (0.050550).
1. Since life insurance claims settled had
5.2 Conclusion
significant negative influence on gross premium
In line with the findings of the study, it was
income of Nigeria insurance industry, it is
concluded that Nigerian insurance sector claims
expected that more effort should be directed
settlement capacity had significant influence on
towards prompt settlement of genuine life
gross premium income of the Nigerian insurance
insurance claims so as to improve awareness and
sector between 2007 to 2022. This implies that
demand for Insurance in Nigeria.
Nigerian insurance sector claims settlement
2. Given that non-life insurance claims
capacity had significant influence on the demand
settled had positive but non-significant influence
for insurance in Nigerian between 2007 to 2022
on gross premium, effort should be made by
because the probability value of the f-statistics
insurance companies to improve non-life
(0.003005) is below 0.05 level of significance.
insurance claims settlement in order to benefit
The coefficient of determination (R2) was given
from its positive effect on insurance demand in
as 0.518343. This implies that 51.8343% of the
Nigeria.
variation in gross written premium is explained
3. Nigerian Insurance Industry regulators
by the variations in LOGLIC, LOGNIC, LOGTIC
should enhance its supervisory frameworks to
on the average. This is believed by the researcher
ensure that genuine claims of both life and
to be relatively high.
general insurance business are settled promptly
More so, the study further conclude that the
variables under study (log value of life insurance
claims) had negative relationship on the gross

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