ABSTRACT
The purpose of the study was to determine the relationship between number of claims complaints and non-life insurer profitability in Ghana between 2010 and 2016. The focus was to find the impact of claim complaints on profitability of insurance firms in Ghana using panel data regression. The study randomly sampled 12 operating insurers and used secondary data from the National Insurance Commission (NIC) during the period 2010-2016 of the selected insurers. The study revealed that complaints correlated negatively with ROA, premium growth, claims incurred, investment yield, leverage and the lag of ROA. The study however revealed complaints was correlated positively with liquidity. The model indicated that 64% variation in ROA was explained by the independent variables. The panel fixed effect estimation result of the study revealed that there exist a significant and negative relationship between complaints and profitability of insurance companies in Ghana. The study concluded that increased number of complaints reduces ROA, lag of ROA, investments yield, growth of premium and claims incurred significantly. Empirically, complaints on the average reduce ROA by 31.3% annually. Increase in complaints however was found to increase the liquidity base of insurance companies. The study forecast that the performances of high claims paying Ghanaian non-life insurance companies would be less profitable and suggests all claims issues must be investigated before payment is made. Other variables that impacted positively on ROA were investments, growth and leverage even though their impact was insignificant except investments yield. Amongst others, the study recommended that complaints should be handle with the need attention in order to retain customers and protect long-term stream of profit because of its negative impact.
Keywords: complaints, claims, Ghana, non-life insurance firms, premium, profitability.
CHAPTER ONE INTRODUCTION
Background of the study
This study relates to the insurers main work to the general public and what the customers’ expectations are when eventualities happen. The insurance business is a just assignment of the likelihood of a financial/material loss, from an insured to insurer in exchange for payment. An insurer is a company who pays the loss when it happens as stated in the policy to the insured. The insured (policyholder) is the person or entity who suffers the loss when it occurs. This relation between them brings about mutual agreement between the insured and the insurer. This is a mitigation strategy of risk management principally used to guide against the risk of indeterminate loss. The mutual agreement serves as a contract, where an amount of money is paid to the insurer by the insured. The insurer also is expected to pay for the loss when it happens to the insured. The amount paid by the insured in the contract to the insurer for insurance cover is known as premium. This premium could be paid monthly, quarterly, semi-annually or annually. Whiles the one paid to the insurance company to the insured is called benefits/claims.
The contract involves the insured forecasting certain comparatively minor loss in a payment form to the insurer in exchange for the promised made by insurer to pay compensation to the insured when financial (personal) loss happened.
The contract becomes binding through document known as insurance policy, this gives the material facts, terms of conditions and circumstances upon which compensation will be paid to the insured.
This compensation known as claims/benefits in insurance business, can restore the claimant to its previous state or a little closer to the initial position.
The real work of every insurance company is claims settlement, which constitutes the most important aspect of the functioning of an insurance business. This claims settlement becomes very effective through proper underwriting of risk by insurers. For the purpose of this work we will focus on an issue relating to claims settlement which might affect both insurer and insured financially. One of the expectations of every insured is that when eventualities happen, claims should be settled quickly to his/her satisfaction, whilst the ultimate agenda for every insurance firm is to pay customers claims and still be in profitable business. This has not been achieved in the insurance industry in Ghana because of complexities surrounding claims payment. Claims in reality has a negative impact on insurers’ profitability because cash is taking out of the company’s finances because claims must be investigated thoroughly before payment is made to beneficiaries. When eventualities happen and claims benefits are rejected and the amount is kept in insured account in order to become more liquid and eventually leaving the customers dissatisfied, this can impact positively and negatively on the insurer’s finances. Customer dissatisfactions lead to customer complaints which most often could have great impact on customer base of a firm thereby affecting the finances of the company. The effect of complaints could be both positive and negative on company’s reputation/finances depending on how complaints are managed. When a customer is satisfied after settlement of a dispute that customer can bring in new customers to the company thereby increasing the market share of the firm leading to a positive impact on the company’s finances. In the same manner, a dissatisfied customer complaint could have negative impact on the finances of the company.
In non-life insurance operations, not all insurance contracts result in claims, but in life insurance almost all contracts definitely result in claims- either at maturity or death. According to research about 85% policies in general insurance will not result in cl aims benefits due to the short term nature of non-life contracts (Qaiser, 2011).
Claims in insurance operations can have a serious economic problem for the industry and the country as a whole, if not managed well, therefore there is a need to manage claims properly. How policy holders who deserve claims are managed/handled during settlement period is of great importance to the regulator and the industry as a whole. The services being rendered during claims process will determine the attitude of the customers towards the insurer and their products after the service. The question of how the exercise above being giving out is appraised by the customers, needs to be kept in mind, because dissatisfied customer can easily cause the downfall of the company. It is also very expensive to acquire a new client than to keep an old customer.
Competitiveness in the insurance sector has increased due to globalization and advancement in technology. There is a need for companies to adopt strategies which are very competitive in order to sustain them in profitable business. This means that, the competition in the insurance market demands that companies should employ strategies to encourage new customers and maintaining existing customers through proper claims management thereby increasing their market share and profitability. According to Komunda and Oserankhoe (2012), high customer satisfaction given through counter- measures (before, during and after sales) can greatly expand the company’s market shares.
Gruber (2011) posits that companies can implement integrated counter-measures customer service with embedded customer complaints managing component. The expression of dissatisfaction towards a product, service or purchasing situation, most often result in customer complaints (Nakibin, Ismail, Marimuthu & Abu-Jarad, 2011). A good customer care has enduring effects on company’s profitability because a satisfied client will always transact business with the firm and also make referrals to others.
In conclusion, insurers in the country must make sure that any genuine claims are paid to the customers’ satisfaction. By so doing they may get more customers to patronize their insurance products in the market, hence increasing their profitability and insurance penetration in the country.
