Analysis of Factors Affecting Outstanding Claim Provision of Non-Life Insurance Firms in Ghana

Abstract

This study investigated the determinants of estimating outstanding claim provision of nonlife insurance firms in Ghana. The study is based on panel data of non-life insurer’s outstanding claim provision, underwriting premium, reinsurance premium, paid claims and size of firm as well as macroeconomic variables such as inflation, investment rate and real GDP growth rate for 22 non-life insurance firms covering the period 2007-2012. The study fitted a fixed effect regression model which helped overcome simultaneity bias and gave consistent estimates. The results show that claims paid, reinsurance issued premiums and the lag of outstanding claim provision is negatively related to reported outstanding claim provision. Size and the real GDP growth rate were also found to be positively related with reported outstanding claim provision in the Ghanaian non-life insurance industry. The study based on the findings recommends that regression modelling may be applied in estimating outstanding claim provision in Ghana. The lag values of the outstanding claim provision should be factored in future estimations of outstanding claim liabilities and monitoring efforts by regulatory bodies should factor in avenues of checking on the insurer’s data recording. This is because information on previous year’s outstanding claim provision is observed to have an impact on the current outstanding claim provision.