Insurance Commission Research Articles

Corporate Governance in Nigeria: Evolution, Regulatory Frameworks and Challenges

Aims: Undoubtedly, good corporate governance is critical for economic growth and development. In Nigeria, corporate governance has undergone a considerable revolution, driven by regulatory reforms, global standards as well as the need to strengthen corporate institutions. This review explored the evolution of corporate governance practices in Nigeria and the operating environment of the Nigerian Stock Exchange highlighting the milestones, regulatory frameworks and key challenges inhibiting the corporate sector. The review emphasized the roles of the regulatory agencies including the Securities and Exchange Commission (SEC), Financial Reporting Council of Nigeria (FRCN), Central Bank of Nigeria (CBN), National Insurance Commission (NAICOM), Pension Commission (PENCOM) as well as the Nigerian Communications Commission (NCC) in enforcing governance codes and principles. Study Design: It is a theoretical review that explores developments in the corporate governance landscape in Nigeria. Place and Duration of Study: The place of study is Nigeria and the duration is 1960 to 2024. Methodology: The study examined policy documents exploring different codes and mechanisms of corporate governance from inception to date. Results: While notable progress has been made through the introduction of corporate governance codes, mechanisms and regulatory oversight, challenges such as corruption, insider abuse and enforcement of governance policies remain prevalent. Conclusion: The review underscored the need for continuous improvement in corporate governance given its role in promoting transparency, accountability, increasing stakeholder awareness as well as stronger enforcement to ensure good governance practices and sustainable economic growth.

Comparative Analysis of ARIMA, SARIMA and Prophet Model in Forecasting

Machine learning has become a powerful tool in forecasting, offering greater accuracy than traditional human predictions in today’s data-driven world. The capability of machine learning to predict future trends has significant implications for key sectors such as finance, healthcare, and supply chain management. In this study, ARIMA/SARIMA (AutoRegressive Integrated Moving Average/Seasonal AutoRegressive Integrated Moving Average), alongside Prophet, a scalable forecasting tool developed by Facebook based on a generalized additive model, are considered. These models are applied to predict the demand for antidiabetic drugs. The records were collected by the Australian Health Insurance Commission. This dataset was sourced from Medicare Australia. The study evaluates the performance of these models based on their Mean Absolute Error (MAE), a key metric for assessing forecast accuracy. Root Mean Squared Error (RMSE) and Mean Absolute Percentage Error (MAPE) are also considered. The outcome of the comparative analysis shows that the Prophet model outperformed both ARIMA and SARIMA models, achieving an MAE of 0.74, which is significantly lower than the MAE values of 2.18 and 3.02 obtained by SARIMA and ARIMA, respectively. Prophet's superior performance shows its effectiveness in handling complex, non-linear trends and seasonal patterns often observed in real-world time series data. This research contributes to the growing knowledge of machine learning-based forecasting and shows the importance of advanced models like Prophet in optimizing business operations and driving innovation. The findings from this research offer valuable guidance for data experts, analysts, and researchers in selecting the best forecasting methods for reliable predictions.

A new adaptive approach for bridging the gap in insurance premium estimation

This paper proposes a new adaptive approach called adaptive mean (ADM) that combines the strengths of trimming and winsorization to minimize the mean square error (MSE). ADM will contribute significantly to insurers by enabling them to mitigate risk exposure caused by inaccurate premium estimation and establish more precise premiums for their clients. Furthermore, the proposed mean offers several pros compared to the conventional mean. It facilitates the natural and intuitive calculation of risk loading, identifies and measures the impact of large claims, and analyzes premium susceptibility to skewed risk by capturing the tails of the relevant loss models. In addition, this paper reviews two established, robust credibility methods (trimming and winsorization). It compares them with our proposed method, resulting in a more reliable and robustly accurate method for credibility premium estimation. We presented and analyzed two real data sets from engineering insurance companies and the Wisconsin Office of the Insurance Commissioner to highlight the advances of ADM in minimizing the MSE and building more robust credibility models that are less vulnerable to outlier events and model uncertainty.

The impact of political partisanship, certificate of need, Medicaid expansion, and area deprivation index on total shoulder arthroplasty prices in the United States

Recent mandates from the Center for Medicare and Medicaid Services (CMS) require United States hospitals to disclose healthcare service pricing. Yet, there's a gap in understanding how state-level factors affect hospital service pricing, like total shoulder arthroplasty (TSA). Comprehending these influences can help policymakers and healthcare providers manage costs and improve care access for vulnerable populations. The purpose of this study was to examine the effect of state characteristics such as partisan lean, Certificate of Need (CON) status, and Medicaid expansion, on TSA price. TSA price data was extracted from the Turquoise Health Database using CPT code 23472. State partisan lean was determined by evaluating each state during the 2020 election year for its legislature (both senate and house), governor, presidential vote, and Insurance Commissioner affiliation, categorizing states as either "Republican-leaning" or "Democratic-leaning." CON status, Medicaid expansion, area deprivation index (ADI), and population density information was obtained from publicly available sources. Multivariable regression models were used to assess the relationship between these factors and TSA price. The study included 2,068 hospitals nationwide. The median (IQR) price of TSA across these hospitals was $12,607 ($9,185). In the multivariable analysis, hospitals in Republican-leaning states were associated with a significantly greater price of +$210 (p = 0.0151), while Medicaid expansion was also associated with greater price +$1,878 (p < 0.0001). CON status was associated with a significant reduction in TSA prices of -$2,880 (p < 0.0001). In North Carolina an ADI >85 was associated with a reduction in price (p = 0.0045), while urbanization designation did not significantly impact TSA price (p = 0.8457). This cross-sectional observational study found that Republican-leaning states and Medicaid expansion were associated with increased TSA prices, while an ADI >85 and CON laws were associated with reduced TSA prices.

Fraud and Performance of Listed Deposit Money Banks in Nigeria: Exploring the Combined Effects of Fraud Triangle and Fraud Diamond Theories

The rate of increase in fraud cases and the attendant decline in performance of the Deposit Money Banks listed in Nigeria demand urgent examination into the phenomena. In order to appreciate the probable nexus between fraud and performance of Deposit Money Bank in Nigeria, this scholarly work demonstrated the influence of fraud on the performance Deposit Money Bank in Nigeria. In doing this, the study used correlational and expo facto research design, utilizing secondary data pooled out from the Nigerian Deposit Insurance Commission (NDIC) and published financial reporting of the DMBs. The study targeted all the 29 DMBs (comprising of, 5 Merchant Banks and 2 Non-Interest Banks and 22 Commercial Banks) as at 2019 as published by NDIC for ten years period of (2010-2019). Multiple regression methods was deployed to calculate approximately the model of the work. Results from the study demonstrated that fraud triangle and diamond theories (measured by expected loss from loss from fraud, number of fraud cases and staff participation in deception scheme) have negative and significant effect on performance (measured by ROA) of DMBs in Nigeria. Flowing from the result, this scholarly work has suggested that DMBs have a duty to put in place effective and efficient internal control procedures and establishment of workable fraud unit or department that is saddled with the responsibility of detecting and scrutinizing operational activities that may possibly be prone to fraud. In this way, bank assets would be safe-guarded and, consequently enhanced performance.

Why does the cost of employer-sponsored coverage keep rising?

Over the past 25 years, the gap between the increase in health insurance costs and workers' wages has significantly expanded. This trend has led to significant concerns about healthcare affordability, with surveys revealing conflicting opinions regarding whether hospitals or health insurance companies bear the blame for escalating costs. To better understand these dynamics, we examined consumer price indices for health insurance, hospital services, and professional services from 2006 to 2023 using Bureau of Labor Statistics data. Our analysis shows that the hospital price index rose steadily between 2006 and 2023, faster than insurance premiums or professional services. To examine whether differences in underlying costs are driving higher hospital price increases, we evaluated the profit margins of hospitals and health insurance companies using the National Academy for State Health Policy''s Hospital Cost Tool and National Association of Insurance Commissioners Industry Reports. Our findings reveal that hospitals (for-profit and nonprofit) have consistently maintained higher profit margins than insurance companies. As health insurance costs continue to weigh heavily on working Americans, our analysis suggests that high hospital prices drive insurance premiums.

Medical care services interplay between individual and Medicaid managed care markets in expansion versus non‐expansion states

AbstractWe study enrollment, medical service utilization, and incurred expenses of individual comprehensive and Medicaid managed care plans in states with or without Medicaid expansion adopted at the Affordable Care Act (ACA) early stage 2014–2016. To make healthcare services more accessible, 27 states expanded Medicaid eligibility to cover nearly‐poor non‐elderly adults who have had incomes between 100% and 138% of federal poverty level in 2014. In non‐expansion states, early enrollees in this income cohort had to choose individual market plans rather than Medicaid. Early enrollees' enrollment choices and their health status have had a great impact on the individual market premiums and Medicaid spending. We examined health insurers' annual regulatory filings with the National Association of Insurance Commissioners for 2013–2016 and found that: First, individual comprehensive insurance enrollment grew much faster in states not expanding Medicaid eligibility. Second, after incorporating early enrollees, per member per month (PMPM) medical service utilization and expenses of individual comprehensive insurance grew much faster in non‐expansion states. Third, among major types of medical utilization and expense measures, PMPM hospital inpatient days and PMPM prescription drug expenses increased substantially since 2014. Finally, Medicaid beneficiaries generated more PMPM medical utilization and expenses in expansion states.

The market for model laws: The diffusion of NAIC model laws

AbstractThe National Association of Insurance Commissioners (NAIC) issues model laws to promote uniformity in the US state‐based insurance regulatory system. In this paper, we study the diffusion of 197 NAIC model laws, examining the adoption patterns and influencing factors. Employing a network algorithm, we uncover the underlying network over which model laws spread. The NAIC plays a central role in this network, and its influence increases over time. Additionally, we explore factors affecting states' model law adoptions from three perspectives: the laws' attributes, the states' internal characteristics, and external influences. We find that a law's attributes play a key role. Model laws characterized by low complexity, distinct from existing state laws, mandated for accreditation compliance, and recently amended are more likely to be adopted. While we do not find significant impacts of various state‐internal characteristics, our results reveal that states follow geographic and ideological neighbors in adopting model laws.

Effect of Insurance Funds on Human Development Index in Nigeria

The main objective of this study was to evaluate the effect of insurance funds on human development index in Nigeria between 2012 and 2022. The design adopted for this study was ex-post-factor; data used for analysis were elicited from Central Bank Statistical Bulletin, World Bank Developmental Indicators Data base and National Insurance Commission Annual Reports. To achieve this objective, a model was formulated based on empirical and theoretical reviews. The model used human development index in Nigeria as the dependent variable, while life insurance funds, pension funds and deposit administration funds were the independent variables in the model. This study employed the Fully Modified Least Squares (FMOLS) Model to analyze data.The findings elicited from this study revealed that life insurance funds and pension funds recorded significant positive effect on human development index, while deposit administration funds had a significant negative effect on human development index in Nigeria. From the inferential result, the researcher concluded that insurance funds have significant effect on human development index in Nigeria. From the foregoing, the researcher recommended that the National Insurance Commission, in conjunction with the government should efficiently work together to ensure that the premium collected, and the income generated by the industry through pension funds and life insurance are diversified into economic and productive investment, in order to boost human development in Nigeria.

Claim Reserves Estimation Using Chain Ladder Method in Casualty Insurance for the Period 2010 - 2019

In a work environment, the presence of risk or unforeseeable events is inevitable, as employees certainly seek to get a sense of security in doing work. Therefore, insurance is responsibility to provide sense of security to employees by providing protection in the form of claim payments to employees who get accidents. To meet the claim payment, insurance companies need to prepare funds. With the chain ladder method, insurance companies can estimate how much funds must be prepared to make claim payments. This study used the secondary data from general insurance companies in the United States published by the National Association of Insurance Commissioners under the title "Statistical Compilation of Annual Statement Information for Property/Casualty Insurance Companies in 2019". Data in the form of cumulative run-off triangle with accident period 2010-2019. Through this calculation, claim reserves that must be prepared by insurance companies for 2020 amounted to USD 1,553,906.

Impact of Strategy Implementation on Performance in Nigerian Stock and Insurance Markets: A Regulator and Supervisor Perspective

Purpose: The purpose of this research was to analyze how strategy implementation affects the performance of regulators and supervisors in the Nigerian stock and insurance markets. The specific goals were centered around exploring the relationship between strategic alignment, resource availability, organizational structure, and performance within the designated study area. Theoretical framework: The study centers on the RBV Model as the theoretical framework. Design/Methodology/Approach: Employing a descriptive research design, primary data was gathered from 145 carefully selected staff members of the Securities and Exchange Commission (SEC) and the National Insurance Commission (NAICOM). Findings: The results of the ordinary least squares (OLS) regression revealed that strategic alignment, resource availability, and organizational structure were positive, and significantly influence organizational performance at 5% level of significance. Practical implications: This implies that collaborative efforts can enhance the effectiveness of the regulatory approach and foster a conducive and well-functioning financial market environment. In conclusion, this research demonstrates that strategic alignment, resource availability, and organizational structure are pivotal factors influencing the performance of regulatory institutions in Nigerian stock and insurance markets. By addressing these factors, policymakers and regulators can enhance the overall stability and efficiency of the financial system, benefiting both investors and the broader economy. Original/Value: This study makes a significant contribution to knowledge by examining the relationship between strategy implementation and performance in the Nigerian stock and insurance markets from the perspective of regulators and supervisors. By shedding light on the identified factors and their impact on performance, the research provides valuable insights for both market participants and regulatory bodies, offering a basis for informed decision-making and potential policy interventions to enhance the overall performance and stability of these financial sectors in Nigeria.

Medical cannabis laws lower individual market health insurance premiums.

To evaluate the impact of medical cannabis laws (MCLs) on health insurance premiums. We study whether cannabis legalization significantly impacts aggregate health insurer premiums in the individual market. Increases in utilization could have spillover effects to patients in the form of higher health insurance premiums. We use 2010-2021 state-level U.S. private health insurer financial data from the National Association of Insurance Commissioners. We examined changes to individual market health insurance premiums after the implementation of medical cannabis laws. We employed a robust difference-in-differences estimator that accounted for variation in policy timing to exploit temporal and geographic variation in state-level medical cannabis legalization. Seven years after the implementation of Medical Cannabis laws, we observe lower health insurer premiums in the individual market. Starting seven years post-MCL implementation, we find a reduction of $-1662.7 (95% confidence interval [CI -2650.1, -605.7]) for states which implemented MCLs compared to the control group, a reduction of -$1541.8 (95% confidence interval [CI 2602.1, -481.4]) in year 8, and a reduction of $-1625.8, (95% confidence interval [CI -2694.2, -557.5]) in year 9. Due to the nature of insurance pooling and community rating, these savings are appreciated by cannabis users and non-users alike in states that have implemented MCLs. The implementation of MCLs lowers individual-market health insurance premiums. Health insurance spending, including premiums, comprises between 16% and 34% of household budgets in the United States. As healthcare costs continue to rise, our findings suggest that households that obtain their health insurance on the individual (i.e., not employer sponsored) market in states with MCLs appreciate significantly lower premiums.

How Much Is a Trump Endorsement Worth?

AbstractFormer president Trump made hundreds of candidate endorsements in the 2022 Republican primaries. The state of Georgia garnered outsized attention because it was ground zero for Trump’s false accusations of a stolen 2020 presidential election. Trump endorsed several candidates in Georgia’s May 2022 GOP primary contests, including candidates challenging Governor Brian Kemp and Secretary of State Brad Raffensperger, incumbents drawing Trump’s ire for upholding the 2020 outcome favoring Joe Biden. In a survey of likely Georgia GOP primary voters randomizing whether they are told which candidate Trump endorsed in five statewide races (governor, US Senate, lieutenant governor, secretary of state, and insurance commissioner), our analysis shows substantial variability in the influence of Trump’s endorsement. With scant prior information in low-profile contests (e.g., insurance commissioner), the Trump endorsement has a substantial impact, whereas it is rendered ineffectual in the most high-profile race for governor. Thus, the findings demonstrate the remarkable variability of a Trump endorsement, which is primarily contingent upon the salience of a specific race.

RISK COMMITTEE DEMOGRAPHIC TRAITS: A STUDY OF THE IMPACT OF EXPERTISE ON RISK DISCLOSURE QUALITY OF LISTED INSURANCE FIRMS IN NIGERIA

The study explored the effect of risk committee expertise on the risk disclosure quality (RDQ) of listed insurance firms in Nigeria from 2011-2021. Data was obtained from the financial statement and annual reports of seventeen listed insurance firms sampled out of a population of twenty-one firms. The dependent variable employed in the study was RDQ defined by the quantity of risk disclosure sentences while risk committee expertise was employed as the independent variable of the study. The ratio of the number of Directors with expertise in Accounting, Finance, and Risk Management in the committee to the total number of Directors in the committee serves as a proxy for the independent variable. Descriptive statistics, correlation analysis, and GLS regression were used to analyse the data collected. To ascertain the suitability of the data for regression analysis and the robustness of the regression results, post estimation and pre-estimation tests were performed. The result of GLS regression conducted indicated that Risk Committee expertise has a significant positive impact on RDQ. Consequently, the current study recommends that in order to improve the quality of risk disclosure in listed insurance firms, the financial reporting council of Nigeria (FRCN) and other regulatory authorities, such as the national insurance commission (NAICOM), should mandate the establishment of risk committees composed of members experienced and knowledgeable in finance, accounting, risk management, and disclosure in their corporate governance codes. This result has practical implications as it underscores the fact that the knowledge and skill of the risk committee drives improved risk disclosure. In addition, the result further influences the efforts of regulatory authorities in their attempt to develop resilient corporate governance codes that guarantees qualitative risk disclosure.

Chief Executive Officer Characteristics and Firm Value of Listed Insurance Firms in Nigeria

This study examines the impact of chief executive officer characteristics on the firm value of listed insurance firms in Nigeria from 2013 to 2022 financial years. Although there are many CEO characteristics that could impact the firm value of listed insurance firms in Nigeria, the study uses only CEO tenure and CEO duality. The firm value is proxy by ROA. The sample of this study is the 23 listed insurance firms on the Nigeria Stock Exchange as at 31st December, 2022. The source of data for this study is secondary while the technique of data analysis is panel data regression. The results of the study show that CEO tenure has a positive correlation with the firm value of listed insurance firms in Nigeria and CEO duality has a negative impact on the firm value of listed insurance firms in Nigeria. Thus, the study recommends that the National Insurance Commission in Nigeria should set a reasonable number of years that CEOs will serve in listed insurance firms in Nigeria. This is because the more the times the CEOs spend on the jobs the more experiences they will have in doing their jobs which could result in better performance.

Modeling the Macroeconomic and Demographic Determinants of Life Insurance Demand in Ghana Using the Elastic Net Algorithm

The government of Ghana and the National Insurance Commission have shown concern over the low insurance patronage in Ghana. In order to take the necessary steps to increase insurance patronage, there is the need to, among other things, find the macroeconomic determinants of insurance demand in Ghana. The purpose of this study is to model the macroeconomic and demographic determinants of life insurance demand in Ghana. Data covering the period 1994 through 2020 are used for the study. Even though many studies have been done on determinants of insurance demand elsewhere (not in Ghana), almost all these studies use ordinary least square regression, stepwise regression, or similar regression methods. However, these methods are not robust enough to handle problems of multicollinearity, over-fitting, and inability to do out-of-sample prediction. This current study uses a regularization method known as elastic net regression algorithm which is more robust for handling the aforementioned problems, and more. The results of the study show that the dominating predictors (those with non-zero coefficients) of life insurance demand include old aged dependency ratio, life expectancy, urbanization, and financial development. The first three have positive relation with life insurance demand, while the last one has negative relation with life insurance demand. Insurance regulators and insurance companies are advised to design more innovative and attractive insurance policies for the aged and the old aged dependents as they have the highest tendency to affect insurance demand in Ghana.

Internal Audit Function and Financial Statement of Insurance Companies in Nigeria

The survival of any firm is predicated on the efficient functioning of the internal audit constituted by management for safeguarding of the company’s assets. It has been argued that several instances of doctored financial statements of quoted firms in Nigeria abound leading to scandals with dire consequences on investors’ confidence. The study examines the relationship existing between internal audit function and the financial performance of insurance companies in Nigeria. The study made a return on assets as a function of audit committee size, audit committee independence, audit committee financial expertise and firm size. The data culled from the financial statements of selected firms, National Insurance Commission Facts Books and the Nigerian Stock Exchange covers the period 2011-2020. Multiple regression techniques were used to explore the contemporaneous dynamics. The study finds evidence of a significant positive impact of audit committee size, audit committee independence and audit committee financial expertise on financial performance, contrary to the significant negative impact of firm size. Therefore, the paper recommended that the various elements of audit committee characteristics, which include audit committee size, independence, and financial expertise, should be strengthened to enhance financial performance in the insurance sector.

Insurance Premium and The Growth of Nigeria Economy (2007-2021)

The insurance industry's growing share of the global financial sector in both developed and developing countries has moved focus to the insurance-growth relationship. As a result, the study looked at the effect of insurance on Nigerian economic growth from 2007 to 2021. The study's goals were to look at the impact of life, and total insurance premiums on the growth of the Nigerian economy after the insurance regulations and reforms were implemented in 2006. Ex-post facto analytical research design was adopted in this work. The National Bureau of Statistics and the Central Bank Statistical Bulletin provided secondary data. The logarithm was used to alter the data. Ordinary Least Square regression technique was used to analyze the data. According to the findings, non-life gross premium has a considerable positive influence on real GDP, life gross premium has no significant effect on real GDP, and there is a significant positive association between total insurance gross premium and economic growth in Nigeria. Based on the findings, the general conclusion is that insurance and economic growth in Nigeria have a considerable positive association. The study recommends that the National Insurance Commission should adopt policies that promote the growth and development of the insurance industry as a whole. Individuals and families should be educated on the importance of life insurance in order for it to have a substantial impact on Nigeria's economic growth.

A bottom-up, reduced form credit risk model approach for the determination of collateralised loan obligation capital

This paper uses a bottom-up, reduced form credit risk model with hazard rate estimated default probabilities to compute various collateralised loan obligation (CLO) tranches' loss probabilities and capital factors. It is shown that with respect to the loss probabilities, credit rated CLO tranches are less risky than comparably rated corporate bonds. In addition, a similar argument can be made that corporate debt loss rates will be on average larger than equally rated CLO tranche loss rates. And, it is shown that the National Association of Insurance Commissioners (NAIC) capital factors are typically larger than value-at-risk based capital factors. The policy implication is that NAIC capital factors distort investment incentives by requiring too much capital for CLOs relative to equally rated corporate debt.

Coverage Gaps and Inconsistencies: The Landscape of Insurance Coverage for Orthognathic Surgery in the United States

Background: Despite established indications for orthognathic surgery, insurance coverage is not guaranteed and obtaining coverage is often onerous. There is a paucity of literature regarding insurance coverage within the United States for orthognathic surgery. Methods: The top 50 health insurers in the US, and the top 3 per state, were selected using the National Association of Insurance Commissioners (NAIC) 2020 Market Share Report. Coverage policies were obtained online, or by phone when unavailable. Indications and criteria were compared to the American Association of Oral and Maxillofacial Surgeons (AAOMF) “Criteria for Orthognathic Surgery” recommendations. Results: Of the 65 insurance providers reviewed, 33 offered coverage with clear criteria, 24 offered coverage without listed criteria, and 8 explicitly excluded all orthognathic surgery. The 33 insurers with clear criteria were further reviewed. For malocclusion, 20 insurers used at least 75% of AAOMF measurements, while 4 used stricter criteria. Eleven insurers covered surgery for any congenital disorder; of the remaining, only 13 explicitly covered cleft-associated abnormalities. For the 25 with specified speech anomaly criteria, 21 offered coverage, and 4 excluded coverage. Sleep apnea coverage criteria were inconsistent, and temporomandibular joint disorder (TJMD) coverage was evenly split. No insurer covered orthognathic surgery for esthetic or psychological reasons. Among 66 identified unique criteria, only 6 significantly differed by US Census Region, with coverage for sleep apnea more prevalent in the South District. Conclusions: Access to insurer policies remains difficult. Insurers have inconsistent covered indications, strictness of coverage criteria, and exclusions, which frequently do not match standards of care. The authors present a list of the most commonly used criteria as a resource for insurance submissions, and encourage surgeons to advocate at the insurer and legislative levels for consistent coverage indications and criteria across insurance providers.