IMPACT OF CLAIMS COMPLAINTS ON PROFITABILITY OF NON-LIFE INSURANCE OPERATIONS IN GHANA

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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.