FACTORS INFLUENCING PERFORMANCE OF THE INSURANCE COMPANIES IN GHANA: A CASE STUDY IN METROPOLITAN INSURANCE COMPANY

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CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The insurance sector is one of the sectors with the highest investment ratio in the world. There are lots of insurance companies with large high capitalization density and funds employing very large numbers of employees with ease, and much larger numbers of people and business organizations which are covered by insurance benefits on the other (Majmudar and Diwan, 2005).

         Therefore the fundamental goal of every company is to improve organizational performance while meeting the interest of its stakeholders. Managers and business analyst have over the years been concerned about the significant factors that drive the increased performance of businesses. The reason for the attention to research on the performance of insurance companies is due to the importance of industry to economic growth and living conditions of the population together with its impact on national wealth. Kaya, E.O, (2015) identified the loss ratio, current ratio and premium growth rate to have a direct impact on profitability for non-life insurance companies in Ghana.

         A strong insurance industry can relieve pressure on the government budget, to the extent that private insurance reduces demands on government social security programs and insurance can be an important part of personal retirement planning programs (Das et al., 2003). The insurance sector also contributes to the development of capital markets because it makes a pool of funds (that is, net premiums generated) accessible to both borrowers and issuers of securities. This is due to the fact that they have longer term liabilities than insurance companies. Catalan, Impavido and Musalem (2000) studied the relationship between the development of contractual savings (assets of pension funds and life insurance companies) and capital markets and found that the growth of contractual savings Granger cause the development of capital markets.

         Leveraging their role as financial intermediaries, life insurers are a key source of long-term finance. Because life insurance is so important to trade and development, the United Nations Conference on Trade and Development (UNCTAD) in 2004 at its first session formally acknowledged that “a sound national insurance and reinsurance market is an essential characteristic of economic growth”. The importance of the industry cannot be overemphasized given the numerous benefits, as such there is a need to study what influences the growth of individual life insurance companies since the performance of any firm not only plays a role to increase the market value of that specific firm but also leads towards the growth of the whole industry which ultimately leads towards the overall prosperity of the economy.

1.2 STATEMENT OF THE PROBLEM

The insurance sector is one of the fast growing sectors in the Ghana economy; the contribution of the insurance companies ranges from socio-economic development to safe guarding lives and properties. Despite the contributions of the insurance companies in Ghana; there are still some constraints to tackle in order to enhance effectiveness and overall performance. Some of the issues faced by most of the insurance companies include government policies, the expectations from customers and maintenance of good structure of the insurance companies in Ghana. It is to this regard that the researcher desired to carry out a study on the factors influencing the performance of the insurance companies in Ghana using the metropolitan insurance company as the case study.

1.3 AIM AND OBJECTIVES OF THE STUDY

The main aim of this research is determine the factors influencing the performance of the insurance companies in Ghana. Other specific objectives of the study are:

1.  to determine the relationship between the determinants of the performance of the insurance companies and economic development in Ghana

2.  to determine the extent to which the insurance companies has secured life and properties in Ghana

3.  to ascertain the need for the introduction of insurance companies in Ghana

4.  to determine the relationship between the performance of the insurance companies and customers’ expectations in Ghana

5.  to determine the effect of government policy on the performance of the insurance companies in Ghana

6.  to proffer solution to the above stated problems

1.4 RESEARCH QUESTIONS

The study came up with research questions so as to ascertain the above stated objectives of the study. The research questions for the study are:

1.     What is the relationship between the determinants of the performance of the insurance companies and economic development in Ghana?

2.  To what extent has the insurance companies secured life and properties in Ghana?

3.  What is the need for the introduction of insurance companies in Ghana?

4.  What is the relationship between the performance of the insurance companies and customers’ expectations in Ghana?

5.  What is the effect of government policy on the performance of the insurance companies in Ghana?

6.  What is the way forward to the problem facing the insurance companies in Ghana?

1.5 STATEMENT OF RESEARCH HYPOTHESIS

H0: there is no significant relationship between the determinants of the performance of the insurance companies and economic development in Ghana

H1: there is significant relationship between the determinants of the performance of the insurance companies and economic development in Ghana

1.6 SIGNIFICANCE OF STUDY

The study on the factors influencing the performance of the insurance companies will be of immense benefit to the metropolitan insurance company and other insurance companies in Ghana in the sense that the study will address the issues faced by the insurance companies in Ghana. The study will look at the factors influencing the performance of the insurance companies and also try to relate the determinant of the performance of the insurance companies and economic development in Ghana. Secondly the study will serve as a repository of information to other researchers that desire to carry out similar research on the above topic. Finally the findings of the study will contribute the body of the existing literature on factors influencing the performance of the insurance companies in Ghana.

1.7 SCOPE OF THE STUDY

The study will cover on the factors influencing the performance of the metropolitan insurance company from 2000-2017

1.8 LIMITATION OF STUDY

Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, and bank of Ghana (BOG)).

Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

1.9 DEFINITION OF TERMS

Insurance: Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss

BOG: bank of Ghana

ROA: return on assets of the metropolitan insurance company, Ghana

ROE: return on equity of the metropolitan insurance company, Ghana

FACTORS INFLUENCING PERFORMANCE OF THE INSURANCE COMPANIES IN GHANA: A CASE STUDY IN METROPOLITAN INSURANCE COMPANY