AN ASSESSMENT OF RISK MANAGEMENT PRACTICES ON CLAIMS
MANAGEMENT AMONG SELECTED NON-LIFE INSURANCE COMPANIES IN
NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The insurance industry supports economic development by transferring risks from individuals
and businesses to insurers, thereby fostering stability, investment, and growth (Hofmann and
Sattarhoff, 2023, as cited by Horvey and Odei-Mensah, 2024). Insurers enable continued
business operations amid unforeseen losses and offer financial security to households and
investors. The efficiency of core operations such as underwriting and claims management
directly determines insurers’ capacity to honor obligations and achieve sustainable
profitability (Hodula et al., 2021, as cited by Horvey and Odei-Mensah, 2024; Akotey et al.,
2022, as cited by Horvey and Odei-Mensah, 2024).
Claims management represents the “moment of truth” in insurance, revealing an insurer’s
commitment to policy promises. Insurers balance three interdependent objectives: minimizing
claims volume, controlling administration costs, and maximizing customer satisfaction
(Mahlow and Wagner, 2014). Effective claims handling from notification through
investigation, adjustment, settlement, payment, and reinsurance recovery lowers
administrative costs, improves loss ratios, and fosters customer loyalty (Fadun, 2021).
Risk management practices play a pivotal role in shaping claims outcomes. Strong
underwriting, reinsurance strategies, fraud detection, and risk retention frameworks reduce
claim frequency and severity, enabling efficient handling (Fadun, 2021). Risk retention, often
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measured through the net retention ratio, determines the portion of premiums and risks an
insurer keeps after ceding to reinsurers, directly influencing exposure to claims volatility
(Oladunni and Okonkwo, 2022). In non-life insurance, which is characterized by volatility
from events like motor accidents, property damage, and liability claims, effective risk
management is critical to contain losses and support solvency.
Reinsurance as a risk transfer tool significantly impacts gross and net claims ratios in
Nigerian non-life insurers. Empirical evidence shows that risk retention (via the risk retention
ratio) has a statistically significant effect on claims management outcomes, such as the
reinsurer insurer claims ratio (Oladunni and Okonkwo, 2022). Studies indicate links between
net claims, loss adjustment expenses, and underwriting profits, underscoring claims
management’s financial implications.
Financial performance in the sector is assessed through metrics like return on assets, return
on equity, net profit margin, underwriting results, and solvency indicators (Fadun, Ochonogor
and Aduloju, 2025; Agboola and Obalola, 2024). Efficient claims management, bolstered by
sound risk practices, controls costs, enhances loss ratios, and safeguards revenue, thereby
promoting financial robustness and policyholder protection (Oyerinde, Aduloju and Fadun,
2025).
These dynamics also matter for regulators and policymakers. Insights into risk and claims
management in Nigerian non-life insurers can inform measures to boost operational
efficiency and enhance consumer protection (Nafiu et al., 2024; Oyedokun and Gabriel,
2018). Addressing these areas supports sustainable sector growth, stronger solvency, and
greater market confidence amid low insurance penetration.
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This study assesses risk management practices and their influence on claims management
among selected non-life insurance companies in Nigeria. It examines key factors affecting
claims handling, evaluates their effects on profitability and efficiency, and identifies practices
that could improve performance. The findings offer practical guidance for insurers,
regulators, and policymakers to strengthen the Nigerian non-life insurance industry’s
effectiveness and financial stability.
1.2 Statement of the Problem
Insurance companies in Nigeria continue to face persistent inefficiencies in claims
management, which severely undermine their financial performance, operational
sustainability, and public credibility. Policyholders frequently report poor claims handling
practices, including prolonged delays, partial or non-payment of legitimate claims,
inadequate communication during processing, and disputes over settlement amounts or policy
interpretations (Adeyele, 2020). These issues generate significant reputation risks, erode trust
in the industry, and contribute to low insurance penetration rates in the country. Effective
claims processing and settlement depend on robust operational elements such as risk
reserving, internal control systems, management expense control, underwriting accuracy, and
staff competency under the Approved Persons regime (APER) (Adeyele, 2020). However,
weaknesses in these areas often result in elevated loss adjustment expenses, heightened fraud
exposure, litigation, and reputational damage that further weaken solvency and profitability.
Inadequate risk management frameworks have historically been a primary driver of insurance
failures in Nigeria. Numerous companies have collapsed, merged, or voluntarily withdrawn
due to their inability to manage risks effectively, particularly in the non-life segment where
claims volatility is pronounced. Notable examples include the 2008 collapse of companies
such as Acen Insurance Plc, Amicable Insurance Plc, Baico Insurance Plc, Security
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Assurance Plc, and Sun Insurance Plc; the 2013 merger of Crusader Insurance Nigeria Plc
with Custodian and Allied Insurance Plc; the 2014 acquisition of Oasis Insurance Plc by FBN
Life Insurance; and the 2019 voluntary withdrawal of Great Nigeria Insurance Plc (Fali et al.,
2020). These failures are frequently linked to poor claims settlement practices, including non-
payment, delayed payments even when approved, settlement of only a negligible proportion
of reported claims, and recurring disputes between insurers and policyholders over amounts
or policy violations that vitiate contracts (Bassey et al., 2024). Claims expenses have risen
sharply in recent years, exceeding N40 billion by mid-2017 (a 17.3 percent increase from the
prior year) while premium income growth lagged, illustrating a structural imbalance that
pressures profitability and market share (Banmore et al., 2023). Ongoing delays and
unresolved claims in prominent firms such as Niger Insurance, Standard Alliance, and IGI
Insurance continue to fuel policyholder dissatisfaction and reduce repeat business (Banmore
et al., 2023). Problems arise when there is a claim report, ranging from nonpayment of
claims, delays in settlement even when paid, and only a negligible proportion of claims being
settled; disputes often emerge between the insured and insurer, with policy provision
violations capable of vitiating contracts and hindering settlement (Bassey et al., 2024).
Despite these challenges, empirical research on claims management in Nigerian insurance
remains fragmented and insufficiently focused on the specific mechanisms driving
inefficiencies. Existing studies have examined broad operational risks, underwriting, and
overall profitability (e.g., Olarinre et al., 2020; Afolabi, 2018), but a clear gap persists in
investigating how targeted risk management indicators such as risk retention levels (the
portion of risk retained after reinsurance), risk transfer strategies (including reinsurance
utilization and fraud controls), gross claims ratio (claims before reinsurance recovery), and
net claims ratio (claims after reinsurance) directly shape claims handling efficiency and
subsequent financial outcomes. While some analyses show mixed or insignificant
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relationships between total claims settlement and total premium income and profitability
(Bassey et al., 2024), others highlight significant influences from total expenditure and total
income (Bassey et al., 2024), yet few connect these findings to the specific risk indicators
central to non-life insurance operations. Moreover, most prior research concentrates on the
banking sector or general insurance, with limited attention to the unique volatility and
exposure characteristics of non-life lines (motor, property, liability), leaving a notable void in
sector specific evidence (Fali et al., 2020).
Empirical studies on risk management committee attributes further reveal conflicting results,
with expertise occasionally exerting a negative and significant effect on return on assets
(ROA) while size and independence show no influence (Fali et al., 2020), underscoring the
need for deeper exploration of how risk practices translate into claims outcomes.
Additionally, while marketing factors have been identified as potential moderators of claims
performance relationships (Banmore et al., 2023), there is scant investigation into how risk
retention and transfer interact with claims ratios to influence efficiency, fraud vulnerability,
loss adjustment costs, and solvency in the non-life context. These gaps are particularly
critical given the ongoing challenges of fraud, policy violations, manual claims processes,
and regulatory pressures that exacerbate delays and disputes (Bassey et al., 2024; Fadun,
2023).
Such inefficiencies lead to increased financial losses, eroded profitability, persistently high
loss ratios, weakened solvency margins, and diminished policyholder confidence. They also
hinder market penetration in an environment already characterized by low insurance uptake
and limit the sector’s broader contribution to economic risk transfer and stability. This
situation highlights the pressing need for a focused, empirical investigation into the influence
of risk management practices, specifically risk retention, risk transfer, gross claims ratio, and
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net claims ratio, on claims management efficiency among selected non-life insurance
companies in Nigeria.
1.3 Objectives of the Study
This study aims to investigate how risk management practices in Nigerian non-life insurance
companies influence claims management performance, using gross claims ratio and net
claims ratio as key indicators. The specific objectives of the research are as follows:
1. To assess the extent to which risk retention influences gross claims ratio among
selected non-life insurance companies in Nigeria.
2. To assess the extent to which risk transfer influences net claims ratio among selected
non-life insurance companies in Nigeria.
3. To assess the extent to which risk retention and risk transfer jointly influence gross
claims ratio among selected non-life insurance companies in Nigeria.
4. To assess the extent to which risk retention and risk transfer jointly influence net
claims ratio among selected non-life insurance companies in Nigeria.
1.4 Research Questions
The study is guided by the following research questions:
1. To what extent does risk retention influence gross claims ratio among selected non-
life insurance companies in Nigeria?
2. To what extent does risk transfer influence net claims ratio among selected non-life
insurance companies in Nigeria?
3. To what extent do risk retention and risk transfer jointly influence gross claims ratio
among selected non-life insurance companies in Nigeria?
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4. To what extent do risk retention and risk transfer jointly influence net claims ratio
among selected non-life insurance companies in Nigeria?
1.5 Research Hypotheses
The following hypotheses are stated in the null form:
Ho₁: Risk retention has no significant influence on gross claims ratio among selected non-life
insurance companies in Nigeria.
Ho₂: Risk transfer has no significant influence on net claims ratio among selected non-life
insurance companies in Nigeria.
Ho₃: Risk retention and risk transfer have no joint significant influence on gross claims ratio
among selected non-life insurance companies in Nigeria.
Ho₄: Risk retention and risk transfer have no joint significant influence on net claims ratio
among selected non-life insurance companies in Nigeria.
1.6 Scope of the Study
This study examines risk retention and risk transfer and their individual and collective effects
on gross claims ratio and net claims ratio among selected non life insurance companies in
Nigeria. It focuses on how risk retention and risk transfer individually affect gross claims
ratio and net claims ratio and also collectively
1.7 Significance of the Study
This study provides evidence on how risk retention and risk transfer shape gross claims ratio
and net claims ratio, as well as claims handling efficiency and financial performance, among
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selected non life insurance companies in Nigeria. It addresses the gap between global
reinsurance and risk management studies (Oladunni and Okonkwo, 2022) and local
operational realities by focusing on how these independent variables influence the dependent
variables.
Non life insurance companies benefit by gaining actionable insights into how risk retention
levels and risk transfer mechanisms (such as reinsurance utilization) individually and
collectively affect gross claims ratio and net claims ratio, enabling better control of loss
burdens, improved claims efficiency, and enhanced underwriting profits. In the context of
Nigeria’s regulatory emphasis on solvency and claims standards, selected firms can optimize
retention thresholds and transfer strategies to align with NAICOM guidelines, thereby
improving claims processing outcomes and policyholder confidence. This contributes to
national insurance sector growth by demonstrating how effective risk retention and risk
transfer practices lead to favorable gross and net claims ratios and stronger overall
performance in the non life segment.
The findings will also provide NAICOM and other regulators with evidence based
recommendations for policy frameworks and training programmes that guide insurers in
leveraging risk retention and risk transfer to achieve better gross claims ratio and net claims
ratio outcomes, thereby supporting the long term stability and development of the Nigerian
non life insurance industry.
1.8 Limitations of the Study
1. Sample Size and Selection Bias: The study is restricted to a selected number of non-
life insurance companies (due to accessibility and willingness to participate), which
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may introduce selection bias and limit the generalizability of findings on risk retention
and risk transfer effects across the entire Nigerian non-life insurance sector.
2. Financial constraints: Lack of funds for extensive data collection materials (printing,
transportation) and physical visits to multiple insurance company offices or NAICOM
archives for additional financial statements or reinsurance data.
3. Geographical restriction: Study limited primarily to selected non life insurance
companies in key operational areas (such as Lagos), excluding other Nigerian regions
despite potential variations in regional risk exposure and claims patterns.
4. Cross sectional design: One time data collection captures risk retention, risk transfer,
and claims ratio outcomes at a single point, and cannot track long term evolution of
these variables’ effects on claims efficiency and performance as market or regulatory
conditions change.
1.9 Operational Definition of Terms
Risk Management: The systematic process of identifying, assessing, controlling, and
monitoring risks to minimize potential losses and optimize outcomes for an insurance
company.
Non-Life Insurance Companies: Insurance firms that provide coverage for property,
casualty, motor, marine, fire, liability, and other general risks, excluding life and health
insurance products.
Risk Retention: The portion of risk an insurer decides to keep and bear itself rather than
transfer, typically measured by the net retention ratio (net premium written divided by
gross premium written).
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Risk Transfer: The shifting of part or all of an insurer’s risk exposure to another party,
mainly through reinsurance contracts that reduce the insurer’s potential claims liability.
Gross Claims Ratio: The ratio of total claims incurred before any reinsurance recoveries
to gross premium earned, showing the initial claims burden on the insurer.
Net Claims Ratio: The ratio of net claims incurred (after deducting reinsurance
recoveries) to net premium earned, indicating the retained claims impact on the insurer’s
profitability.
Claims Management: The systematic process of receiving, investigating, evaluating, and
settling insurance claims from notification to final payment or denial.
Reinsurance: An arrangement where an insurer transfers part of its risk to another
insurer (reinsurer) in exchange for a share of the premium, used as a primary risk transfer
mechanism.
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