Claims Settlement Efficiency And Insurance Market Development: Sectoral Evidence From Nigeria's Insurance Industry

This study examines the impact of claims settlement practices on insurance policy demand across Nigeria's primary insurance sectors from 2010 to 2023. Employing the Autoregressive Distributed Lag (ARDL) bounds testing methodology, the research addresses critical knowledge gaps concerning the relationship between claims settlement efficiency and market penetration in emerging economies. The study utilises secondary time series data from the National Insurance Commission (NAICOM), Nigerian Insurers Association (NIA), and Central Bank of Nigeria (CBN) to analyse sector-specific relationships across life, fire, and oil and gas insurance markets. Unit root testing revealed mixed integration properties, with premium income achieving stationarity at levels while claims settlement variables required first differencing, validating the ARDL approach for examining long-run equilibrium relationships. The bounds test confirmed cointegration amongst variables, establishing the existence of stable long-term relationships. The empirical findings reveal significant sector-specific variations in the relationships between claims settlement demand. Fire claims settlement exhibits a statistically significant negative impact on insurance demand (coefficient = -0.320, p = 0.002), contradicting conventional theoretical expectations. Life claims settlement demonstrates a positive but statistically insignificant relationship (coefficient = 0.388, p = 0.079), while oil and gas claims settlement shows negative and insignificant effects (coefficient = -0.242, p = 0.090). These results indicate that only the settlement of fire insurance claims significantly influences aggregate insurance demand, suggesting that heightened risk perceptions may discourage policy acquisition, despite theoretical predictions of a positive relationship. The study contributes to understanding insurance market dynamics in developing economies. It provides empirical evidence for the formulation of regulatory policies and the enhancement of industry practices in Nigeria's insurance sector.