Claims Settlement Efficiency, Cost Management and Profitability Nexus in the Selected Listed Insurers: Evidence from Nigeria

Efficiency in claims settlement is a critical operational skill in the insurance industry, impacting customer satisfaction, claims handling, trust and confidence, and the financial well-being of insurance providers. The Nigerian insurance industry is still plagued by issues of slow claims processing, low insurance penetration and low public trust despite its relevance. This study focuses on the impact of claims settlement efficiency on cost management and financial performance of some selected Nigerian insurance companies. In particular, it focuses on the relationship between claims settlement efficiency and indicators of underwriting cost (loss ratio and expense ratio) and profitability (return on assets, return on equity, and net profit margin). The study adopts the ex-post facto design with the Nigerian Exchange Group (NGX) listed 10 insurance companies from 2014 to 2023. The data collected from audited annual financial reports were analysed using panel regression techniques, while the estimation models were determined using Hausman specification tests and robust standard errors were used to solve econometric problems. The result indicates that claims settlement efficiency is significantly negatively related to loss ratio (β = −0.319, p < 0.001), which means that the efficiency of claims settlement would positively influence the cost efficiency in underwriting. The higher expense ratio (β = 0.227, p = 0.013) indicates that higher administrative inputs are required to process claims timely and effectively. Furthermore, none of the claims settlement efficiency measures had a significant impact on ROA, ROE or net profit margin, indicating that operational improvements do not automatically translate to profit improvements. The study contributes to insurance management literature by revealing that efficiency in claims settlement is more of an operational capability than a direct profit-maximising effort and that it contributes to the enhancement of cost efficiency. The results offer practical implications for insurance managers and regulators regarding the trade-off between the quality of services and cost-control measures to enhance the efficiency of the claims process, as well as the inclusion of claims efficiency benchmarks in insurance supervision frameworks.

Claims Settlement Efficiency, Cost Management, Profitability, Panel Data

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