Question
Questioner of this thesis Journal of Financial Risk Management, 2020, 9, 190-210 https://www.scirp.org/journal/jfrm ISSN Online: 2167-9541 ISSN Print: 2167-9533 DOI: 10.4236/jfrm.2020.93011 Aug. 19, 2020 190
Questioner of this thesis Journal of Financial Risk Management, 2020, 9, 190-210
https://www.scirp.org/journal/jfrm
ISSN Online: 2167-9541
ISSN Print: 2167-9533
DOI: 10.4236/jfrm.2020.93011 Aug. 19, 2020 190 Journal of Financial Risk Management
Claims Management and Financial Performance
of Insurance Companies in Rwanda: A Case of
SONARWA General Insurance Company Ltd.
Alphonse Ntwali*, Alice Kituyi, Athanas Osiemo Kengere
School of Business and Economics, Mount Kenya University, Kigali, Rwanda
Abstract
Worldwide, insurance companies play a vital role in contributing to the efficient
resources allocation through risk management in most sectors of the
economy. Insurance has existed since civilizations initially presenting itself in
the form of mutual help. One of the fundamental services offered by the insurance
company is to provide its customers with claims settlement. The
general objective of this study was to assess the effects of claims management
on financial performance of insurance companies. The study used a case
study research design whereby descriptive approaches were applied to collect
quantitative and qualitative data using questionnaire and interview guide.
The researcher targeted 93 permanent employees, 10 registered agents, 13
contracted brokers, and 205 claimants in Kigali City. Findings on claims
management processes in SONARWA General Insurance which are claims
planning, claims control, claims monitoring and evaluation show that they
are frequently undertaken as it is indicated by the weighted means ranging
between 1.00 mean score 1.50. The financial ratios indicate that there is a
constant stagnation of financial performance as indicated by 3.6% of ROI in
2014 and the same percentage in 2018. Although there has been a sharp increase
in 2016 followed by a sharp decrease in 2017 on ROE and ROA, the
graph indicates that these have been approaching stagnation over other years.
However, the correlation is not statistically significant. It was observed that
claims planning and claims M & E has a significant positive correlation with
ROI indicated by a Pearson Correlation value of (0.481** and -value of
0.000; 0.329* and a -value of 0.015: 0.05). Finally, the study established
that there is a positive correlation between claims planning, claims control
and claims M & E on ROE. Moreover, the correlation between claims M & E
and ROE is statistically significant as indicated by Pearson correlation value
of 0.276* and -value of 0.043: 0.05). The researcher recommends that
proper claims planning needs to be put in place which promptly handles
How to cite this paper: Ntwali, A., Kituyi,
A., & Kengere, A. O. (2020). Claims Management
and Financial Performance of
Insurance Companies in Rwanda: A Case
of SONARWA General Insurance Company
Ltd. Journal of Financial Risk Management,
9, 190-210.
https://doi.org/10.4236/jfrm.2020.93011
Received: July 2, 2020
Accepted: August 16, 2020
Published: August 19, 2020
Copyright 2020 by author(s) and
Scientific Research Publishing Inc.
This work is licensed under the Creative
Commons Attribution International
License (CC BY 4.0).
http://creativecommons.org/licenses/by/4.0/
Open Access
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 191 Journal of Financial Risk Management
claims management in order to avoid having a lot of outstanding claims. The
study also recommends that the company needs to invest more on empowering
its clients especially by leveraging the advanced technology in order to
reach out to their clients on real time in order to avoid late notification and
improve customer experience.
Keywords
Claims, Management, Financial Performance, Insurance, Company
1. Introduction
1.1. Background of the Study
Worldwide, insurance companies play a vital role in contributing to the efficient
resources allocation through risk management in almost all sectors of the
economy. Insurance has existed since civilizations initially presenting itself in
the form of mutual help. One of the fundamental services offered by the insurance
company is to provide its customers with claim settlement. Claims settlement
process therefore acts as an important part of the insurance services. Insurance
companies therefore ought to find a way of management privileges settlement
in a prompt, proactive and optimistic method (Ashturkar, 2014).
African Insurance Organizations (AIO), which controls about $69 billion insurance
markets, released its first Africa Insurance Barometer aimed at improving
the transparency. The report pointed out that the main drivers behind the
poor results of insurance companies in Africa are attributed to poor claims
management practice. For instance, motor insurance has been rated the most
frequently least profitable line of business due to frequent competitiveness of
motor insurance. This has led to insurance companies registering low levels of
profitability and high claims inflation (Kusimo, 2016).
Wairimu (2010) conducted a study to identify the key challenges that public
insurance companies faced in Kenya's claims management and found that weak
sales records, high fraud, and reporting delays and high workload of employees
were key factors contributing to delaying payment.
In Rwanda, the insurance companies are paying claims yet they still receive
complaints from its clients. BNR (2018) argued that an increase in car accidents
in motor vehicles in Rwanda has been driving general profit margins for privacy
creation. This has been pointed out to poor subcontract risk assessment, price
protection and high report feces.
The improvement of their profits further, private insurers need to appropriately
set prices for their products, diversify their insurance products and put
in place controls to reduce fraud. Hence, BNR has proposed to support these interventions,
in 2016 by issuing a directive on conducting insurance business that
required, among other things, insurers to put in place underwriting and pricing
policies forbidding Insurers to sell insurance on credit.
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1.2. Statement of the Problem
Globally, clients expect the insurance company to quickly settle claims and to
their satisfaction. Due to the high level of customer satisfaction required, a
company with a competitive advantage always works towards reducing the time
it takes to settle insurance claims which is one way to reduce the number of customer
complaints and improve customer service. There are cases in which an
insurance company loses money due to poor assessment of claims and poor reserve
management strategies (Vanguard, 2017).
The claims ratio in insurance sector has been fluctuating between 62% and
78% during 2014-2018 but was decreased to 62% in 2018. Also, operating expenses
hit the bottom line of the insurance companies and the expense ratios
have been fluctuating between 41% and 50% with 41% registered in 2018 the
least percentage. These two financial factors are reflected in the overall financial
performance of the insurance company. Regarded through financial performance
indicators, the Rwandan insurance industry has not performed well
compared to the minimum acceptable ROE (16%) and ROA (4%). The statistics
published by BNR (2018) show that ROE fluctuated between 24% and 10% and
the ROA ranged between 7% to 3% during the period under review. Though
there has been continuous improvement of the above two indicators over the
years, 2018 has registered an ROE of 10% and ROA of 3%; which are still under
the above minimum required by the regulator (BNR, 2018).
Besides the above overall situation in the industry, there are particular cases
noticed on SONARWA General Insurance Company as a pioneer of insurance
in Rwanda. The company has been facing cases of unpaid claims advanced by
clients and multiple law suits. Missing policy documents in the system and some
service providers turning away Sonarwa General due to unsettled claims (Gahigi,
2017). Therefore, there is a need to investigate on the impact of claims management
towards financial performance of SONARWA General Insurance.
1.3. Research Objectives
1.3.1. General Objective
The general purpose of this research is to assess the effects of claims management
on financial performance of insurance companies.
1.3.2. Specific Objectives
1) To examine claims management processes in SONARWA General Insurance.
2) To assess the level of financial performance indicators in SONARWA General
Insurance.
3) To establish the relationship between claims management and financial
performance in SONARWA General Insurance.
1.4. Research Questions
1) What are the claims management processes used in SONARWA General
Insurance?
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2) How is the level of financial performance indicators in SONARWA General
Insurance?
3) What is the relationship between claims management processes and financial
performance in SONARWA General Insurance?
1.5. Significance of the Study
The results from this research are vital to insurance companies to develop and
establish different insurance schemes likely to contribute to the management of
risks. The findings of this study reveal that different insurance products and use
of appropriate techniques and methods of claims management can help to increase
the monetary performance of insurance business.
This research will improve the skills and knowledge of the researcher related
to insurance matters in Rwanda and internationally. This research will also help
the insured to know and to understand opportunities and advantages which are
reserved to them through various insurance schemes which are developed and
established by insurance companies and more particularly SONARWA General
Insurance Company so as to strengthen the interaction between insurance companies
and their insured. This research will serve a scientific interest to enrich
the documentation resources of Mount Kenya University's library.
2. Literature Review
2.1. Overview of Insurance Sector in Rwanda
Before 1975 there were no complete insurance companies present in Rwanda.
Nevertheless, some external brokerage companies were operating in Rwanda on
behalf of their insurance firms based in Europe. The recognized one among
these was Charles Le Jeune. These companies had ability and were authorized to
carry out underwriting and claims administration tasks.
The Government of Rwanda enacted two laws related to insurance in 1975; one
law regulating operations of insurance (June 20th 1975), the second one being the
establishment of Third Party Motor liability insurance as a mandatory insurance
to all traffic (August 7th 1975). Now, insurance sector is under supervision of the
National Bank of Rwanda as regulator of financial sector. Many regulations and
directives are in place for the stability of the sector and for customer protection.
2.2. Claims Settlement Procedure
Krishnan (2010) points out what the underlying claims management procedure
involved. The first stage starts with the verification of occurrence of loss. The
second stage is the verification of proof of loss to make sure that the loss occurred
accidentally and it was insured. The third process is the negotiation stage
to find out. The funding viewpoints, the volume and allocation of claims are assessed.
Whereas, the operational deals with the operating features of a Claims
settlement Procedure, like processing capacity, claims quantity and outstanding
claims register, are assessed. The helpfulness of this analysis for efficient and efA.
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fective organization and management of the claims handling function is obvious.
Claims handling procedures is a tool that allows analysis and predictions of the
handling procedures.
2.3. Financial Performance Indicators
Financial ratios have been agreed and used as measures of financial performance
of a company (Al-Shami, 2008; Malik, 2011). These ratios include Return on
Assets (ROA), Return on Equity (ROE) and Return on Invested Capital (ROIC).
ROA is a key indicator since it measures profitability on the total assets, which
shows how well a company uses its asset to make earnings (Malik, 2011). Profitability
in the insurance sector of Nigeria has been seriously affected by rising
claim expenses (Vanguard, 2017).
According to Thachappily (2009) discussed about the profitability ratios as
measures the margins and the returns such as; gross or net profit, ROA, ROE,
ROCE. He also acertains that the return on resources used is divided into three
types namely: ROA, ROCE.
Financial ratios should be computed regularly to indicate where the company
has weakness or strength. Therefore ratio analysis is a tool to extend company's
performance in place of profitabilities and liquidities.
2.4. Claims Settlement and Financial Performance
in Insurance Companies
According to Ngui (2010) financial performance of a company is one of the ways
which can be used to assess and check how well the company is utilizing its resources
to generate income. Good examples to be used when measuring financial performance
include operating income, earnings before tax, as well as net asset value.
2.5. Empirical Literature
According to reports from the Faculty of Claims of the Chartered Insurance Institute,
it refers to the fact that in Europe, in recent years, there have been many
changes in the way claims are handled, seen and managed. These changes are
incremental and cumulative, rather than sudden and dramatic and this has
created an environment of constantly changing and evolving claims. It is agreed
that claims are much closer to the heart of the industry than ever before. It is believed
that many cases are the biggest trigger for the profits and losses of an organization.
Francis and Butler (2010), in their study recommended that insurance company
should strive to keep up a healthy relationship with its clients to improve
its overall performance by reducing risks. One of the basic areas to observe and
to promote such a healthy relationship is to make sure that insurance companies
can prudently observe the main five key areas of claims management. This include
proper control over claim management process, ensuring that they properly
understand the need of their clients in order to ensure that they advise them
on the right policy cover of model for their business, develop mutually relationA.
Ntwali et al.
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ship with other service providers in similar field of operation and also ensure
that they get an information required for their advantage. For this study the researcher
addresses the arrangement made to ensure that SONARWA General
Insurance maintains good control of the claims process.
A study done by Scott (2015) emphasized that while the financial performance
of company using ratios, some of the key indicators to prefer in return of Assets
was that anything low 5% is not safe. Where return on equity and return on investment,
anything within 10% and 14% are considered desirable. The term investment
may refer to total assets or net assets. The funds employed in net assets
in are known as capital employed. Net assets equal net fixed assets plus current
assets minus current liabilities excluding bank loan.
2.6. Critical Review and Research Gap Identification
According to various written regarding to claims management and finance performance,
researcher found that there are a few literatures discussing on claims
management undertaken on insurance companies. Practically, they display percentage
of the perception of clients complaining and some factors contributing
to claims management and finance performance.
Some studies have highlighted that proper plans and control of claims process
are necessary to ensure that complaints are registered, monitored and handled
for needs that can ensure their future utility. However, little has been talked
about the financial implications of these processes; planning, control, Monitoring
and evaluation of claims. Moreover, no related research has been yet done to
the developing Rwandan insurance sector constituting then a gap of knowledge
in this market. The research is willing to add knowledge contributing to the development
of the sector.
2.7. Conceptual Framework
Figure 1 illustrates the conceptual framework of the research through the
Source: Researcher (2020).
Figure 1. Conceptual framework.
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independent variable of claims management and the dependent variable being
the financial performance of insurance companies. Claims management processes
like planning, control, monitoring and evaluation are conceived to be the
predictors of profitability of the company through its main financial performance
indicators ROI, ROA, ROE. Social factors, decision making are considered
as intervening variable to claims management processes where the attitudes
of employees and the clients are paramount for the efficiency of this
main business of insurance hence affecting the financial performance of this
sector.
3. Research Methodology
This design is the roadmap which the researcher used in order to obtain the data
to answer the objectives of the research. This captures reliable, unbiased and extremely
generalizable results (Dannels, 2018). This study used a case study research
design with descriptive and correlation design methods to present quantitative
and qualitative data to be analyzed and interpreted according to the
findings using SPSS Qualitative information collected through interview through
gathering strong feeling of respondents on each item. This design was considered
suitable because it is based in general description of the situation without
manipulating the state of the subject. Quantitative data focus more on the number
of respondents with majority having similar opinion about the same phenomenon
concerning claim management and financial performance of the insurance
company (Bakker, 2018). Financial aspects like investment income, comprehensive
income, total assets and Total Equity for each financial year have
been gathered in a table to compute the profitability ratios (ROI, ROA, ROE). A
brief comparative analysis has been done between the rates found with the ones
of the two African older insurance groups Jubilee group and Sanlam Group. The
same comparison was also done to Rwanda insurance sector as stated in BNR
report 2018.
3.1. Target Population
The researcher targeted all staff members of SONARWA General insurance
company in Kigali city of Rwanda and average annual clients reporting for
claims compensation. The study was conducted in all the main office branches
of the company within Kigali city. The researcher targeted 93 permanent employees,
10 registered agents, 13 contracted brokers (SONARWA General Annual
Report, 2018), and 205 claimants in Kigali (Sonarwa GI claims department
2018 report) of SONARWA General Insurance Company.
3.2. Sampling Design
The study calculated the sample size by using the formula of Slovin. The researcher
used a confidence level of 90% and a margin of error of 10% while calculating
the sample size as indicated below:
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where:
( )2 1
n N
N e
=
+
whereby: N represents the total target population of 321 people (employees, licensed
brokers and agents and 2018 claimants from Kigali of SONARWA General
Insurance).
n represents the sample size to be calculated.
e represents the margin of error (10%). Despite the 5% margin of error customarily
used in empirical research, preliminary evaluation done during the pilot
study indicated that the required information for the study could be obtained
from a much smaller sample particularly of employees who possessed and exhibited
high skills and competence on insurance matters. Additional sample from
non-employees was deemed peripheral and back-up.
3.3. Sample Size
Table 1 shows sampling frame of participants classified into main categories,
employees, agents and Broker, clients.
3.4. Sampling Techniques
The study used mixed method techniques which combined both probability and
non-probability techniques. Probability sampling techniques included stratified
method which was used to group the employees into departments. This kind of
stratified method was used to identify relevant employees in each department to
be sampled. In probability sampling, the researcher applied random sampling
method to collect the data from the respondents in each identified stratum/
department. Additionally, agents and brokers were identified using probability.
The researcher obtained a list of all the 10 and 13 licensed agents of
SONARWA G.I. and brokers respectively from BNR website which has a database
of all licensed agents and brokers in insurance sector in Rwanda and contact
them randomly to respond to the questionnaire. The clients were mapped in
order to identify the ones residing in Kigali city. After identifying them, the researcher
randomly contacted using telephone and requested them to participate to
the survey. Non-probability sampling was used to collect the data from the top
Table 1. Sampling frame.
Target population Sample determination Sample size
Employees, Agents and Broker 116 ( )2
116
1 116 0.1
n = 54
+
=
Clients 205 ( )2
205
1 205 0.1
n = 67
+
=
Total 321 121
Source: Sonarwa G. I. Report (2020).
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level leaders of the company because they are considered to have the vital information
needed for this study. Among the permanent staff, the researcher met
three key managers of marketing, claims and finance departments for a short interview.
They are day to day involved in claims management and financial activities
as core operation. The researcher used purposive sampling to collect the
information from the senior managers of each department.
3.5. Data Collection Methods
The researcher commenced the data collection method after successfully defending
the proposal at Mount Kenya University. Upon the acceptance of the
proposal at the institution, the researcher was issued with the letter of introduction
which stipulates the purpose of undertaking this exercise. The researcher
then formulated a letter seeking for an appointment from the senior management
team of Sonarwa General Insurance company to book an appointment for
collecting the data in their institution. A copy of introductory letter was attached
to this appointment letter. After getting the acceptance, the researcher personally
delivered the questionnaires to the respondents and waited for the respondents
to fill the questionnaires. Semi structured interview was done to those who
sought to have a quick session with the researcher. The researcher also collected
on flash disk the soft copies of the financials of the company for the years
2014-2018.
3.6. Data Collection Instrument
The researcher used the questionnaires and structured interviews which were
used to collect the data from employees, brokers, agents, key department managers
and clients of Sonarwa General Insurance company. The questionnaire
were formulated in a manner that it was easy to be understood and takes less
time to be responded to. The questionnaire was prepared in English and included
Likert scale design, dichotomous, closed ended (yes/no) as well as open
ended questions. Afterwards the data collected and analyzed was sorted out in
order to check the responses and verify whether all the questions are well addressed.
Also, secondary data was collected and used to assess the financial
performance of the company whereby the researcher computed financial ratios
obtained from Sonarwa General Insurance financial records from 2014 to
2018.
3.7. Reliability and Validity
The content and validity of the questionnaire were ensured since the content
covered the range of the general items being evaluated in the research. In this
research case, all the main items in the questionnaire determined the actual dimensions
internal claims management and finance performance in Sonarwa
General insurance company. The construct validity was guaranteed by ensuring
that the questionnaire conformed to the general theoretical predictions guiding
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the study. Validity was also achieved through vetting by supervisors and peers.
A reliability test was carried out to test the consistency of instruments being
used in the project. A pilot study was conducted to establish procedures, materials,
and parameters to be used in the main study. The internal reliability of the
questionnaire was measured and calculated using the reliability analysis in SPSS
Statistics. Table 2 documented the Cronbach's alpha value which was 0.701 and
within the acceptable levels of internal consistency.
Table 2 indicates reliability statistics, where researcher has used SPSS Version
22.0 for measuring the reliablility. While researcher analyzed menu and selected
the scale table of reliability analysis. In graph window which appearing the after,
both the coded questionnaires in information set were selected and transferred
to the variable side for testing by using Cronbach's Alpha test. A coefficient (alpha)
of 0.701 was considered acceptable reliability of questionnaires.
3.8. Data Analysis Procedures
The information was collected, stored and coded in SPSS version 22.0. Data
analysis was done using descriptive statistics. In this case, frequency tables and
percentages were used. For descriptive statistics simple summaries were generated
using SPSS from the observations made. Such summaries were quantitative,
i.e. precipitating statistics and visuals, easy to understand graphs.
The variables were set in a 5-point Likert scale to allow the respondents to rate
their choices in accordance to their degree of surety. The ratings were as indicated
in the table below.
Table 3 indicates weighted means and introducing, where these ranges were
used by the researcher to make inferences on statistics as to whether the respondents
agreed with the statement presented in the questionnaire. Pearson Correlations
were also used to ascertain the relationship between claims management
and financial performance of the insurance company.
3.9. Ethical Considerations
The researcher ensured that the work is ethically carried out within the best
Table 2. Reliability statistics.
Cronbach's Alphaa N of Items
0.701 44
Source: Primary Data (2020).
Table 3. Weighted means and introduce tables.
Frequently applied Very Strong 1.00 mean score 1.50
Occasionally applied Strong 1.51 mean score 2.50
Hardly applied Average 2.51 mean score 3.50
Never applied Weak 3.51 mean score 4.50
I don't know Very Weak 4.51 mean score 5.00
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practices of conducting a research. This is to mean that the researcher must assure
the respondents that the study was carried out with anonymity of the respondents.
This process was voluntary and in case a respondent is not willing to
participate, the researcher did not force them to do so.
4. Analysis
4.1. General Information of the Respondents
Demographic information provides insight understanding about the characteristics
of the respondents who were sampled during the study. This was considered
to be necessary because it assists the researcher to understand the targeted group
in details.
Table 4 indicates that majority of the employees represented by 57.4% were
female and 42.6% were male. Women make up a slightly large percentage of the
entire workforce, but even this figure includes many who work behind a desk,
often in product design, management or secretarial roles. However, this implies
that although there might be a slight disparity on the representation of the
gender, insurance job does not attract any specific type of gender. Qualification
for getting a job depends on merits but not the type of gender. On the side of the
clients, 70% were male while 30% were female.
Table 5 presents the findings about the length of time which respondents have
worked or been clients in Sonarwa General Insurance. It was revealed that 42.6%
of the respondents who formed the majority have worked in the company for
about 3 to 6 years, 29.3% said that they have served for about 7 to 10 years,
Table 4. Gender of the respondents.
Variables Employees, brokers and agents Clients
Gender Frequency Percent Frequency Percent
Male 23 42.6 28 70.0
Female 31 57.4 12 30.0
Total 54 100.0 40 100.0
Source: Primary Data (2020).
Table 5. Number of years in Sonarwa General Insurance.
Work length
Employees, brokers and agents Clients
Frequency Percent Frequency Percent
1 - 3 years 8 14.8 7 17.5
3 - 6 years 23 42.6 7 17.5
7 - 10 years 16 29.6 14 35.0
More than 10 years 7 13.0 12 30.0
Total 54 100.0 40 100.0
Source: Primary Data (2020).
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14.8% of the rest stated that they worked for about 1 - 3 years. On the side of the
clients 35.0% said that they have been clients of the company for about 7 to 10
years, 30% stated that they have been clients for a period more than 10 years
17.5% stated that they have been clients for about 1 - 3 years and 3 - 6 years respectivesly.
This implies that majority of the employees in Sonarwa have wealth of experience
having served in the company for quite a number of years. It also implies
that employee turnover in the company is low and therefore majority of those
employed maintain their jobs for a long period of time. This is a good sign of
stability of the company especially when it comes to implementation of long
term goals where most of the employees understand the vision of the company
and takes constant steps of implementing it. Similarly, most of the clients of Sonarwa
GI have been loyal to the company for more than seven years. This translates
the fact that insurance is more than building customer relationship. As
much as more staff are loyal also more customers that they served tend to be
loyal to the company.
The study sought to assess the education qualifications of the respondents in
in Sonarwa General Insurance by asking them to state their highest level of education
as indicated in Table 6. It was observed that 66.7% of the employees sampled
who were the majority had bachelor degree in various discipline areas and
33.3% had master degree. This implies that in average, majority of the respondents
working in Sonarwa are well educated and therefore have the necessary
technical skills that are required to execute insurance tasks especially claims
management which is the subject case of this study.
4.2. Presentation of Findings
4.2.1. Claims Management Processes in SONARWA General Insurance
The first objective was to assess the claims management processes of the company
trough predictors like claims planning, claims control, claims monitoring
and evaluation.
Claims Planning in SONARWA General Insurance
The researcher sought to assess claims planning processes in SONARWA
General Insurance in order to establish its relationship with financial performance.
First, respondents were asked to indicate whether they undertake current
processes of claims planning processes. Some of these procedures suggested are
common processes used in claims management and therefore respondents were
Table 6. Respondents high level of education.
Education level Frequency Percent
University degree 36 66.7
Master degree 18 33.3
Total 54 100.0
Source: Primary Data (2020).
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asked to rate if they are frequently applied; occasionally applied, hardly applied,
never applied of perhaps some do not know.
The study reveals that majority of the respondents agreed that claims notification
process is frequently applied in the process of claims management as indicated
with a mean 1.00 1.3704 1.50 and a heterogeneous standard deviation
of 0.87516 as indicated by Table 7. There must be a formal notification of any
event that is likely to give a rise to a claim under the policy, promptly or immediately.
This could be done in writing, verbally or via phone, and must conform
to the requirement in this regard as stated in the policy.
The second step is Verification of records which according to majority of the
respondents indicated by a mean rating of 1.00 1.2407 1.50 and a heterogeneous
standard deviation of 0.69866 stated that it is frequently conducted. The
third process is claims reserving which is also frequently applied as indicated by
the majority of the respondents shown by a mean ration of 1.00 1.2222 1.50
and a heterogeneous standard deviation of 0.81650. The fourth process which is
also frequently applied is the negotiation of payment a mean ration of 1.00
1.2963 1.50 and a heterogeneous standard deviation of 0.94429 meaning that
majority of the respondents agreed that indeed they usually undertake this
process.
Claims settlement
The study sought to assess the process of claims settlement in insurance company
and therefore assess various aspects involved in payment of claims. Respondents
were to rate the applicability of suggested variables whereby they had
to respond either by strongly agreeing, agree, undecided, disagree or strongly
disagree. The variables were set in a Likert scale to allow the respondents to rate
their choices in accordance to their degree of surety.
On the issue whether claims are paid on a first come first pay basis majority of
the respondents disagreed as indicated by a mean with a mean 3.51 3.5000
4.50 and a heterogeneous standard deviation of 1.07721 as shown by Table 8.
This implies that claims are not queued in the order of occurrence, or even order
of documentation. Recent claims are sometimes paid before older ones due to
certain factors like early full documentation of the claims or based on some
commercial relationship as stated by key informants during the interview. This
practice may create unfair treatment of clients. When this occurs, claims personnel
Table 7. Descriptive Statistics showing claims planning (N = 54).
Variables Mean Std. Deviation
Claims notification process 1.3704 0.87516
Verification of records 1.2407 0.69866
Claims reserving 1.2222 0.81650
Negotiation of payment 1.2963 0.94429
Payment of Claims 1.3704 0.87516
Source: Primary Data (2020).
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Table 8. Claims payment process in Sonarwa General Insurance (N = 54).
Variables Mean Std. Deviation
Claims are paid on a first come first pay basis 3.5000 1.07721
A pre-set budget of expenditure on claims is followed 1.3519 0.61911
Claims Department is in charge of the payment process 1.5000 0.77093
Payments are made as per set company benchmarks 1.5185 0.92636
Source: Primary Data (2020).
are not sure which claims to give priority. The ideal situation is where all claims
are paid expeditiously within set benchmarks, with very few variations.
This is similar to the study done by Angima and Mwangi (2017) which reveals
that majority of the respondents also strongly agreed that a pre-set budget of
expenditure on claims is followed as indicated by a mean rating ranging between
1.00 1.3519 1.50 and a heterogeneous standard deviation of 0.61911. Where
claims managers are allocated a fixed budget for payment of claims irrespective
of actual amount of claims ready for payment, it becomes a challenge when the
issue of liquity intevenes. Meanwhile claims department normally works out a
budget of claims implemented since the beginning of the year. This is because
clients who have suffered a loss expect to be paid promptly. Failure to pay claims
when they fall due is a major contributor to negative publicity against insurance
companies. One of the manager states that the projected budget of claims sometimes
is exceeded due to huge claims unexpected or catastrophy. This leads to
growth of outstanding claims as the preset budget of claims to be settled is initially
approved before the occurrence of claims.
The interviewed participants on how claims management systems/process was
conducted in SONARWA General Insurance Company and they said that the
main steps are as follows:
Reception and registration of a claim declaration, inventory of repairs to
make and all required supporting documents .
Loss assessment by Sonarwa Experts and review of the list of damages on the
property .
Computation and creation of reserves of amount of compensation.
Negotiation with the claimants on the amount of compensation and adjustment
of reserves .
While seeking to assess some of the factors considered in claims control which
may affect the financial performance of the insurance company, majority of the
respondents stated that one of the important controls necessary to be considered
in the company is the claims cost control as indicated by a mean of 1.1852 in
Table 9. Cost control is important because it sets precedence on the amount of
contribution which a client will be charged for a cover on renewal of his policy
and help to know the accurate compensation for genuine claims as highlighted
by the claims manager in the interview.
Claims Monitoring and evaluation
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 204 Journal of Financial Risk Management
The above Table 10 revealed that claims monitoring process is part of claims
management procedures used in Sonarwa General Insurance. The study established
that majority of the respondents stated that claims ratio is moderately
used as indicated by a mean of 1.6852. The Claims Ratio can be used as a tool for
monitoring and evaluation to measure the number of claims in a period and divides
that by the earned premium for the same period. It's important to note
that insurance is the business of managing risks and, to do that well, the insurer
needs a thorough understanding of the incurred claims ratio.
The claims management in SONARWA General Insurance
The researcher wanted to know aspects of claims management recognized as
efficient characteristics of claims process. Aspects like speed, customer satisfaction,
professionalism and cost of claims have been proposed to the respondents
to rank them for this purpose. The variables were set in a Likert scale to allow
the respondents to rate their choices either by strongly agreeing, agree, undecided,
disagree or strongly disagree.
Table 11 shows the aspects used to measure the efficiency of claims management
in a general insurance company. This question was administered to the
clients of SONARWA General Insurance in order to capture their views on these
matters. The speed in settling claims was rated average mentioned by the
Table 9. Claims control (N = 54).
Variables Mean Std. Deviation
Claims cost control 1.1852 0.39210
Claims litigation management 1.2593 0.44234
Claims processing procedures 1.1111 0.37197
Source: Primary data (2020).
Table 10. Claims Monitoring and evaluation.
Variables Mean Std. Deviation
Claim ratio 1.6852 0.82013
Claims settlement time 1.4074 0.56697
Outstanding claims 1.6852 0.82013
Number of claims settled outside the court 1.6296 0.68118
Source: Primary Data (2020).
Table 11. Claims management efficiency in Sonarwa General Insurance Company.
Variables Mean Std. Deviation
Speed 3.35 1.189
Customer satisfaction 3.30 1.244
Professionalism 2.73 1.261
Cost 2.22 0.832
Source: Primary Data (2020).
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 205 Journal of Financial Risk Management
respondents as per the mean rating between 2.51 3.35 3.50. Claimants really
appreciated and valued the company by looking at the turnaround time of
claims process up to the actual settlement. In SONARWA General, respondents
revealed that the company has really improved on this but there are still areas to
improve to reach the best practices.
By comparison, the study showed that the claims management processes in
SONARWA General Insurance are quite the same as the ones of other reputable
insurance companies. However, the company is still relying on manual process
starting from the reception of the declaration form until settlement and all paper
sheets gathered in a physical file. This can slow the process with a lot of
workflow whereas the world is now using technology to minimize/detect fraud,
minimize the turnaround times and improve communication with clients.
Comparing with the claims management processes at Jubilee Insurance Company,
they are automated claims processing, fraud-free claims settlement and
built-in customer self service (Jubilee Report, 2018).
4.2.2. Financial Ratios and Performance in
SONARWA General Insurance Company
The second objective was to assess the level of financial performance indicators
of the company. The researcher consulted the financial statements of the company
for the financial year 2014 to 2018 and computed the profitability ratios
ROI, ROA and ROE and inquired on reasons of fluctuation or stagantion.
According to the annual financial statements of Sonarwa General Insurance
Company 2014-2018, the financial ratios indicates that there has been a constant
stagnation of ROI as indicated by 3.6% of growth in 2014 and the same percentage
was observed in 2018 (see Figure 2). The changes over the four years were
not sound compared to other ratios. Although there have been slight changes,
the graph indicates that these have been a slight changes. Moreover, the same
graph shows that the ROA had slight changes in range of 10% leading to get it
quite stable. On the contrary, ROE has significant fluctuations over the entire
period of review with a very sharp increase in 2016 (250%) followed by a sharp
decrease in 2017 (26.9%) due to a revaluation of assets.
The respondents were asked to rate the extent which claims management can
Source: Secondary Data (2020).
Figure 2. SONARWA G.I. Financial performance measured by financial ratios (%).
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 206 Journal of Financial Risk Management
affect the ROI and it was observed that 68.5% stated that it affects the profitability
of the company to a very high extent even though for Table 12, the insurance
company has not been performing relatively well over the period 2014-2018.
This can be as a result of various factors which among them include the claims
management process.
To understand more about this, an interview was carried out with managers
of concerned department about the ways claims management in Sonarwa General
Insurance affects the ROI financial performance indicators. Two respondents
said that: "Claims management affects ROI because if claims costs or
compensations are not well done , they will be much cash flow, many payments
then the company does not get funds to invest . Therefore , Lower ROI as the
company has invested small amount . Again, due to issue of liquidity , the company
may need to divest/break the deposits/investments earlier made before they
generate projected ROI . There is a need to manage carefully the claims, well
compute the amount of compensation to be able to get enough amount of investment
and stable funds investible ".
A comparison of profitability rates has been done between SONARWA GI
with other reputable older African insurance groups Jubilee (83 years) and Sanlam
Group (100 years) using their Integrated annual report and Financial statements
2018. The ROI of Jubilee Holdings was 7.2% and 7.6% in 2017 and 2018
respectively (Jubilee Holdings Integrated Report & Financial Statements 2018
annual report). This rate is higher than the one of SONARWA GI and its trend
shows a slight increase towards stagnation like the one of SONARWA GI.
Similarly, Sanlam Group has registered almost the same ROI of 7.7% and 7.5%
for the same period showing a slight decrease towards stagnation like the one of
SONARWA GI (Sanlam Annual report and Financial Statements, 2018).
Table 13 indicates on Return on assets where a majority of the respondents
Table 12. Return on investment.
Response Frequency Percent
Very high 37 68.5
Moderately high 13 24.1
I don't know 3 5.6
Low 1 1.9
Total 54 100.0
Source: Primary Data (2020).
Table 13. Return on assets.
Response Frequency Percent
Very high 37 68.5
Moderately high 17 31.5
Total 54 100.0
Source: Primary Data (2020).
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 207 Journal of Financial Risk Management
consisting of 68.5% stated that claims management very highly affects the return
on assets. Figure 2 shows that in 2014, the return in assets stood at 0.7% then it
is followed by a sharp decline to 13.9% in 2015. In 2016, the company undertook
the revaluation of the assets and the value of the property by then went up
with a sharp rate of 19.9% In 2017, the company conducted a re-evaluation of
the assets and its value had significantly declined following subsequent two years
and ended up to 1.8% in 2018.
The researcher has gone further to understand better the figures above, then
an short interview with the key informants mainly managers of the concerned
departments finance, general accounting and claims management about the
ways claims management in Sonarwa General Insurance affects the ROA financial
performance indicators, With referencing to response offered by respondent
commented that: "As much as the ROA involve the return got vis a vis the total
assets of the company , claims management engage much cashflow in the company
and affect the total assets of the company . For sonarwa General , the total
assets comprised also with property and revaluation gains which affected this ratio.
Claims management would be seen in way it may reduce the total assets like
funds invested or urge the company to sell off some fixed assets for example to
get liquidity and pay out liabilities including claims . Therefore , Sonarwa has
tried as much as possible to manage well claims so as to protect its acquired assets
".
Comparison done to Jubilee Holdings, this company has registered 4.3% and
3.2% respectively in 2017 and 2018 and it was 5.3% in 2014. This shows a slight
decreasing trend over the years since 2014 quite same trend like SONARWA GI
for the same period.
Similarly, Sanlam Group has registered a ROA of 0.2% and 6.8% for the
same period showing a decrease and a negative ROA in 2018 like SONARWA GI
for the same year (Sanlam Group, 2018).
In general, the three companies have been experiencing a decrease of ROA
over the two financial year 2017-2018 with a negative ROA in 2018 for SONARWA
GI and Sanlam Group. We need to note that ROA of Rwanda insurance industry is
ranging between 7% to 3% during the period under review but was still under
the minimum required (4%) by the regulator.
Table 14 indicates impact on Return on equity over the last five years. Majority
of the respondents stated that claims management has affected the ROE of
Table 14. Return on equity.
Response Frequency Percent
Very high 32 59.3
Moderately high 13 24.1
I don't know 9 16.7
Total 54 100.0
Source: Primary Data (2020).
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 208 Journal of Financial Risk Management
the company very highly as indicated by 59.3% of the sampled respondents.
Figure 2 also indicates a sharp increase from 2015 from -50% to 250% rise followed
by a sharp decline in 2017 to about 26.7%. The sharp increase might have
been due to revaluation of the property as above explained. The equity reduced
in 2016 but get risen again in 2017 after a reclassification of the previous fair
value of the property available for sale to the business by the shareholders of the
company.
In the interview with the managers about the ways claims management in Sonarwa
General Insurance affects the ROE, with referencing to response offered
by respondent said that :
In any business , the shareholders needs the business to grow and get return on
the capital invested. Management of claims in sonarwa has been done such way
the company gets sound underwriting results instead of touching on capital invested
. Claims cost are deducted from total earned premium/revenue to arrive at
underwriting results . However , this result has been not satisfactory in many financial
years not only for sonarwa but also in the whole industry .
Comparing this ROE rates to the ones of Jubilee Group, the latter registered
5.6% and 4.2% whereas for Sanlam Group, it is 1.3% and 124% respectively in
2017-2018. This shows also a slight decrease as well . For the Rwandan insurance
sector , ROE fluctuated between 24% and 10% for the same period.
4.2.3. Correlation between Claims Management Processes
and Financial Performance Indicators
For the third objective of the study, the researcher also sought to find out the
link between claims management and financial performance of an insurance
company by linking the two variables using Pearson correlation. Table 15 below
presents the results of the study.
The study indicates that claims planning and claims M & E has a positive correlation
with ROA which is indicated by a Pearson Correlation value of (0.141
and a -value of 0.309; 0.145 and a -value of 0.296) respectively as presented in
Table 15. This implies that although there is a positive correlation between claims
planning and claims M & E on ROA, the correlations itself are not statistically
Table 15. Correlation between claims management processes and financial performance
indicators.
Variables Pearson Correlation ROA ROI ROE
Claims planning
Pearson Correlation 0.141 0.481** 0.043
Sig. (2-tailed) 0.309 0.000 0.757
Claims control
Pearson Correlation 0.118 0.005 0.079
Sig. (2-tailed) 0.396 0.970 0.570
Claims monitoring and
evaluation
Pearson Correlation 0.145 0.329* 0.276*
Sig. (2-tailed) 0.296 0.015 0.043
*Correlation is significant at the 0.05 level (2-tailed). Source: Primary Data (2020).
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 209 Journal of Financial Risk Management
significant. Therefore an insurance company cannot specifically rely on planning
and M & E alone to improve financial performance of the company. Other factors
have to come into play for the realization of a sensible financial performance.
It was also observed that claims control has a negative correlation with ROA
which is indicated by a Pearson correlation value of (0.118 and a -value of
0.396). However, the correlation is not statistically significant. It was observed
that claims planning and claims M & E has a significant positive correlation with
ROI indicated by a Pearson Correlation value of (0.481** and -value of 0.000;
0.329* and a -value of 0.015: 0.05). The negative correlation value of ROA
implies that for every unit decrease in claims control, there is a corresponding
increase in profitability, as measured by ROA, while keeping other variables
constant. However, the correlation is not statistically significant.
5. Conclusion
In conclusion, the study reveals that in general in as much as Sonarwa General
Insurance Company has tried to improve the process of claims management in
the recent past, they are still having some challenges like late notification which
is occasionally witnessed during claims management process. Most policies state
that the insured should notify their insurer of a claim promptly. However, there
are some incidences where some clients present their notification at a later date
when the loss occurs. It is the insured's responsibility to prove that they have
suffered a loss, and the loss was caused by a peril which is covered by the policy.
Therefore, the researcher suggests the insurance company to invest more in
claims process-based technology to improve customer service. Automated processes
with a client portal would speed up the claims settlement, accurate information,
records keeping, and improve communication between the parties.
Proper claims planning, controls and monitoring need to be put in place
which promptly handle claims management in order to avoid having a lot of
outstanding claims.
This will enable them to control some of the incidences which may cause the
company go at a loss in the long run.
The company also has to improve on their monitoring and evaluation of risks
by investing more in technology which will improve the process of investigating
and reporting the risk in real time and therefore reduces the challenge of poor
investigation.
These processes well done will improve the claims management and affect the
financial performance of the company as claims are main aspect hitting the
profit and loss account of the company.
Conflicts of Interest
The authors declare no conflicts of interest regarding the publication of this paper.
A. Ntwali et al.
DOI: 10.4236/jfrm.2020.93011 210 Journal of Financial Risk Management
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