Effects of Risk Management Practices on the Performance of Insurance Companies in Nigeria
Chapter One
Objectives of the Study
The primary purpose of this study is to examine the impact of risk management on the performance of insurance companies in Nigeria. Other specific objectives are:
- To examine the impact of risk management on the performance of insurance companies in Nigeria.
- To find out the relationship between risk selection and financial performance of insurance companies in Nigeria.
- To measure the impact of risk management on demand for insurance in Nigeria.
CHAPTER TWO
REVIEW OF RELATED AND RELEVANT LITERATURE
Introduction
The major reason of all established business is profit as they meet human demonstrable needs and want, and continue to dominate the market, but every economic activity is faced with both internal and external risks. At times, these risks involve noticeable losses that could deprive a profit-making company from surviving in the market if effective management is not established. Considering the increasing in risks in organizations, managing risk is a matter of necessity. Risk management is the total process of identifying, controlling and minimizing the influence of uncertain events. This days, businesses put great emphasis on hazard administration as this determines their survival and business performance. Insurance companies are in the risk business and as such cover various types of risks for individuals, businesses and companies. It is therefore, necessary that insurance companies manage their risk exposure and conduct proper analysis to avoid losses due to the compensation claims made by the insured. However, Kadi (2003) stated that “most insurance companies cover insurable risks without carrying out proper analysis of the expected claims from clients and without putting in place a mechanism of identifying appropriate risk reduction methods”.
Poor management of risk, by insurance companies, leads to accumulation of claims from the clients hence leading to increased losses and hence poor financial performance (Magezi, 2003). Risk management activities are affected by the risk behaviour of managers. A robust hazard administration framework can help organizations to reduce their exposure to risks, and enhance their financial performance (Iqbal and Mirakhor, 2007). Further; Mikes and Kaplan (2014) argued that “the selection of particular risk tools tends to be associated with the firm’s calculative culture and the measurable attitudes that senior decision makers display towards the use of risk management models. While some risk functions focus on extensive risk measurement and risk based performance management, others focus instead on qualitative discourse and the mobilization of expert opinions about emerging risk issues.”Lately, insurance companies have increased their focus on hazard administration. Meredith (2014) advised that there should be careful judgment, by management of insurance companies, of insurable risks in order to avoid excessive losses in settling claims. It follows that administration of hazard is an important factor in improving financial performance (Okotha, 2003). Sanusi (2010) pointed out that “in recent years excessive credits and financial asset growth went unchecked. Risk, in insurance terms, is the possibility of a loss or other adverse event that has the potential to interfere with an organization’s ability to fulfill its mandate, and for which an insurance claim may be submitted”.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine effects of risk management practices on the performance of insurance companies in Nigeria.
Sources of data collection
Data were collected from two main sources namely:
- Primary source and
- Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, or things. The researcher is interested in getting information which will aid to examine effects of risk management practices on the performance of insurance companies in Nigeria. Two hundred (200) respondents were randomly selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to reiterate that the objective of this study was to examine effects of risk management practices on the performance of insurance companies in Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in examining the effects of risk management practices on the performance of insurance companies in Nigeria.
Summary
This study was undertaken to examine the home factors that serves as determinants for the performance of secondary school students. The study opened with chapter one where the statement of the problem was clearly defined. The study objectives and research hypotheses were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and tested the hypotheses using the chi-square statistical tool. While the fifth chapter gives the study summary and conclusion.
CONCLUSIONS
In view of the findings, this study established that “financial risk management practices have impact on the performance of insurance firm”. Risk management has assumed a noteworthy part in insurance companies despite the fact that it has its‟ ruins and in this manner the study brought into light a portion of the fundamental effect of risk management on profitability of risk insurance companies. The study uncovered that “strategic risk management practices increases the profitability of insurance company”. Greater part of the respondents affirmed that insurance activities are extensively isolated into life and non-life insurance, and firms having some expertise in either classification face distinctive risks.
In particular, these two sorts of activities oblige firms to hold distinctive specialized procurements, by excellence of both reasonable practices and regulatory mandates. The study ascertained that “operational risk management practices have positive influence on the profitability of insurance firm”. Insurance companies will build their benefit in the event that they gather operational risk information appropriately (connect losses resulting from a unique event) and stay to the full range of their business exercises.
Recommendations
In line with the findings and conclusions of the study the researcher made the following recommendations for policy and practice:
- The study likewise suggests that the management of insurance companies should persistently assess their risk management practices to check whether they are still handy notwithstanding a ceaselessly changing working environment, for case the new regulatory pressures of dissolvability and Basel regulatory regimes. An open gathering for talking about organizations’ risk capabilities, for example, where it stands regarding methodology, people, procedures, innovation and information should be organized regularly. The management of insurance companies should set up savvy measures for convenient risk identification and viable risk relief in order to guarantee that their financial related execution is not affected contrarily.
- The administration ought to influence information technology in risk management by introducing information systems that can carry out risk assessment and estimation more precisely and for checking their risk management programs for adequacy. This should further be complimented via training of workers on risk management strategies of the firm, with obviously characterized parts and obligations regarding risk management.
- The usage and embedding of risk management practice should be a developmental procedure not a revolutionary one. Insurance companies could confront various issues all through the usage process since individuals over the organization require more opportunity to process the progressions connected with risk management practice execution. Implementing risk management practice revolutionarily could keep the effective inserting and comprehension of its procedures.
- The users of risk information, including the board, should likewise secure no less than an essential risk background. This could help them comprehend the significance of risk management and what is going on in an everyday premises. Just along these lines they will be in a position to give proper backing.
REFERENCES
- Allen, F. & Santomero, A.M. (1996). The Theory of Financial Intermediation, Working Paper#96-32, Wharton Financial Institutions Center, University
- Anderson, K. (2005). Intelligence-Based Threat Assessments for Information Networks and Infrastructures: A White Paper, Global Technology.
- Aon Global Risk Solutions and The Wharton School of Pennsylvania (2011): Aon Association of Kenya Insurers (AKI), 2011 Insurance Industry Annual Report,
- Babbel, D.F. & Santomero, A.M. (1996). Risk Management by Insurers: An Analysis of the Process, Working Paper#96-16, Wharton Financial Institutions Center,
- Banks, E. (2004). Alternative risk transfer: integrated risk management through insurance, re-insurance and the capital markets, John Wiley & Sons Ltd.
- Barlow, S. (2000), Case study.prudential: embedding risk management, Internal Auditing and Business Risk, 2(6) .32-3.
