The insurance companies offer risk management in the form of insurance contracts or agreements. Insurance company sell insurance policies to the public, either by selling directly to an individual or through another source such as an employee's benefit plan by the company. The main concept of insurance is that one party, the insurer, will guarantee payment for an uncertain future event. Another party, the insured or the policyholder, pays a small premium to the insurer (company) for that protection over uncertain future event. Insurance is a contract between two parties whereby one party accept to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance. The insurance company is usually consisting of multiple insurance agents. An insurance company can be specializing in one type of insurance, such as auto insurance, health insurance, or life insurance, or offer multiple types of insurance. Not all insurance companies offer the same products or serve the same type of customer. The most common types of personal insurance policies are auto, health, homes, and life.

Significance of the Study 

The primary goal of having an insurance policy is to provide full financial protection. There is a rapid growth in dealing with policies relating to life, health and auto insurance in all insurance companies. Therefore, the claims settlement ratio is a major factor to consider before purchasing any insurance plan. It shows the buyer that the company is reliable and trustworthy. For this reason, it is a very useful measure of a company's credibility. In general, a higher ratio means that more claims have been settled and will be a good indicator for the buyer of the plan, and a lower ratio will be an unfavorable outcome for them. The study analyzes the impact of claim settlement on sales of insurance policies which is a topic of significance in the present condition of uncertainty and crisis.

Statement of the Problem

This project aims to analyze and interpret the financial information by using financial ratios and statistical tools of the top five insurance companies from Muscat securities market for four years from 2016 to 2019. This project analyzes the financial performance in terms of different financial ratios such as: Profitability and Liquidity of all five insurance companies to find out the significant impact of claim settlement on sales of insurance policies.

Objectives of the Study

• To analyze the relationship between total premium received and claim settlements

• To analyze the impact of claim settlement on the sale of insurance policies

• To have a comparative analysis of Claim Settlement Ratios (CSR) of selected insurance companies

Literature Review

Claims administration and settlement have a crucial role to play in enhancing the image and increasing the goodwill of insurance companies. Insured always trust companies that do the best claim administration and settlement. Online claims tracking and rapid communications through standardized formats for requesting for information enables insurers to differentiate their brand from their competitors and to provide a better service to their customers. [1]. Damodar [2] examined the awareness and satisfaction of customers towards life insurance claim settlement in Nepal among 391 respondents. Majority of the respondents has neutral response on the satisfaction towards claim settlement. The claim settlement process speed would definitely help to increase life insurance business. The government should focus on awareness of life insurance and make it mandatory for every citizen. The response to claims has rather been slow in Ghana and this is of great concern, since a thriving economy depends to a large extent on the guarantees and assurances received from insurance companies. Harry, [3] investigated the trends in the Enterprise Insurance Company Ltd claims settlement system and its effect on the sales and marketing of its insurance products. The objectives were to establish the relationship between the slow claims settlement and customer repurchase of insurance and to examine the customer’s perception of existing trends of claims settlement system in the company. Prompt and satisfactory claims payment had positive effects on the sales and marketing of insurance products and vice versa. Oyedokun and Gabriel [4] examined the effects of claims management on the profitability of listed insurance companies in Nigeria. The result reveals that ROA (profitability) has an indirect relationship with LR (loss ratio) and NC (net claims), but a direct relationship with ER (expense ratio). Net claims have a significantly positive impact on loss ratio. Kinaro Joyce Wanjiru, [5], focused on the factors affecting insurance pricing in the insurance sector in Kenya. The specific objectives were to determine the effect of claim settlement, sales promotion, government policies and level of competition on the profitability of insurance sector. The population was 146 employees from which a sample of 73 respondents was used. The findings revealed that 68% agreed that claim settlement affects insurance pricing, 58% asserted that sales promotion affected insurance pricing, 62% were of the opinion that government regulation policies affected insurance pricing and 76% of the respondents indicated that level of competition affected insurance pricing in the insurance sector in Kenya. Caren & Mirie [6] investigated the effect of underwriting and claims management practices on the performance of general insurance firms in East Africa from 82 general insurers in Kenya, Uganda and Tanzania. There is a significant positive relationship between underwriting and claims management practices employed by the firms and non-financial performance, but the relationship with financial performance was insignificant. The implication is that a profit-oriented insurance firm should embrace a claims function that is closely related with the underwriting and pricing of the firm’s portfolio for meaningful results. Mwangi [7] investigated the factors that influence the financial performance of insurance companies in Kenya. They analyzed key factors that determine financial performance and the extent to which they influence financial performance of insurance companies from 46 insurance companies in Kenya. The findings of the study showed that fluctuations in interest rates affect the financial performance of insurance companies both ways. This is because it affects the rate of borrowing as well as the rate of return on investments. Profitability is an indicator of financial performance enables insurance companies to invest in viable ventures while avoiding the too risky ones.

Research Methodology

The financial data for insurance companies' will be collected for a period of four years from 2016 to 2019. The period of study is from October 2020 to December 2020. The insurance companies operating in Oman is the population of the study. The top 5 insurance companies are taken as sample size. They are; National Life and General Insurance Company, Dhofar Insurance Company, AL Madina Takaful Company, Oman United Insurance Company, and AL Ahlia Insurance Company. Secondary data are collected from Muscat Security Market website, official websites of these firms, published reports and Journals. The financial statements included in the annual reports are used to calculate the financial ratios. The Impact of claim settlement on sales is evaluated with claim settlement ratio and claim settlement process against total insurance premium earned and number of policies sold. Hence, the variables analyzed for the study are total premium received (Independent variable), claim settlement ratio (Independent variable) and number of policies sold/sales (Dependent variable). Descriptive statistics, Correlation and Regression analysis are used to study the impact of claim settlement on the sales of insurance policies using SPSS 21.

Figure 1: Insurance Premium, Claims, and Sales Process Flow

Analysis of Data 

Al Madina Takaful Insurance: Correlation of Total Premium Received and Claim Settlements: Table.1 shows that there is there is moderate positive correlation between total premiums received and claim settlements of Al Madina Takaful Insurance Company. The correlation value is 0.515. The significance value is greater than .05 (p>.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between total premiums received and claim settlements of Al Madina Takaful Insurance Company.

Impact of Claim Settlement on Sale of Insurance Policies

Table 2 shows that there is there is moderately strong positive correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.515. The significance value is greater than .05 (p<.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between claim settlements and sales of insurance policies of Al Madina Takaful Insurance Company. Table 2 shows that there is there is moderately strong positive correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.515. The significance value is greater than .05 (p<.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between claim settlements and sales of insurance policies of Al Madina Takaful Insurance Company.

The model summary Table 3 provides the R, R² and adjusted R² used to determine how well a regression model fits the data. The R value represents the correlation coefficient and the value is 0.515 which is positive. The R Square represents the R² value (also called the coefficient of determination), which is the proportion of variance in the dependent variable that can be explained by the independent variable. Thus, from the results it is clear that the claim settlement factor contributes to 26.5% of sales of insurance policies of Al Madina Takaful Insurance Company. Remaining 73.5% is contributed by other factors or independent variables that were not considered in this study. The adjusted R² (-0.103) gives an idea of how well the model generalizes that the value is close to R² (0.265). There is a difference of 0.380 that shows that there can be 38% variance when the sample is taken from the population.

The coefficients in table 4 helps to find out the contribution of claim settlements on sales of insurance policies. Beta standardized coefficients were used to compare. The results indicate that claim settlements (β = 4.209, p = 0.485) is not a significant predictor of sales of insurance policies. 

Therefore, the Regression equation is developed as follows:

Y= a + b X 

Where 

‘Y’ is the dependent variable sales of insurance policies, a and b are constants

Model equation 

Y (Sales of insurance policies) = -4410297.302 + 4.209 claim settlements (X)

Where 

X is the sales of insurance policies

This means that for every one-unit change in the claim settlements, there is 4.209 change in the sales of insurance policies of Al Madina Takaful Insurance Company.

Oman United Insurance 

Correlation of Total Premium Received and Claim Settlements: Table 5 shows that there is there is strong positive correlation between total premiums received and claim settlements. The correlation value is .937. The significance value is greater than .05 (p>.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected.

Impact of Claim Settlement on Sale of Insurance Policies

Table 6 shows that there is there is strong positive, close to perfect correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.994 which is close to 1. The significance value is less than .05 (p<.05). Thus, the null hypothesis is rejected and the alternate hypothesis is accepted. Therefore, it is concluded that there is significant relationship between claim settlements and sales of insurance policies of Oman United Insurance Company.

The model summary Table 7 provides the R, R² and adjusted R² which can be used to determine how well a regression model fits the data. The R value represents the correlation coefficient and the value is 0.994 which is positive. The R Square represents the R² value (also called the coefficient of determination), which is the proportion of variance in the dependent variable that can be explained by the independent variable. Thus, from the results it is clear that the claim settlement factor contributes to 98.9% of sales of insurance policies of Oman United Insurance Company.

Table 1: Correlations 

Table 2: Correlations

Table 3: Model Summary

Predictors: (Constant), Claim settlements

Table 4: Coefficients^a

Dependent Variable: Policies sold

Table 5: Correlations

Table 6: Correlations

Table 7: Model Summary

Predictors: (Constant), Claim settlements

Table 8: Coefficients^a

Dependent Variable: Policies sold

Table 9: Correlations

**. Correlation is significant at the 0.01 level (2-tailed).

Remaining 1.10% is contributed by other factors or independent variables that were not put to consideration in this study. The adjusted R² (0.983) gives an idea of how well the model generalizes that the value is close to R² (0.989). There is a difference of 0.006. Remaining 1.10% is contributed by other factors or independent variables that were not put to consideration in this study. The adjusted R² (0.983) gives an idea of how well the model generalizes that the value is close to R² (0.989). There is a difference of 0.006.

The coefficients in Table 8 helps to find out the contribution of claim settlements on sales of insurance policies. To make the comparison, the Beta standardized coefficients were used. The results indicate that claim settlements (β = 2.754; p = 0.006) is a significant predictor of sales of insurance policies. 

Therefore, the Regression equation is developed as follows:

Y= a + b X, where ‘Y’ is the dependent variable sales of insurance policies, a and b are constants.

The model equation based on the analysis is given below:

Y (Sales of insurance policies) = 269702.147 + 2.754 claim settlements (X)

Where X is the sales of insurance policies

Sales of insurance policies = 269702.147 + 2.754 claim settlements (X)

Dhofar Insurance Company

Correlation of Total Premium Received and Claim Settlements: Table 9 shows that there is there is a perfect positive correlation between total premiums received and claim settlements of Dhofar Insurance Company. The correlation value is 0.999 which is close to 1. The significance value is less than .05 (p>.05). Thus, the null hypothesis is rejected and the alternate hypothesis is accepted. Therefore, it is concluded that there is a significant relationship between total premiums received and claim settlements of Dhofar Insurance Company.

Impact of Claim Settlement on Sale of Insurance Policies

Table 10 shows that there is there is very strong positive correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.743. The significance value is greater than .05 (p<.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between claim settlements and sales of insurance policies of Dhofar Insurance Company.

The model summary table 11 provides the R, R² and adjusted R² used to determine how well a regression model fits the data. The R value represents the correlation coefficient and the value is 0.743 which is strongly positive. The R Square represents the R² value (also called the coefficient of determination), which is the proportion of variance in the dependent variable that can be explained by the independent variable. Thus, from the results it is clear that the claim settlement factor contributes to 55.2% of sales of insurance policies of Dhofar Insurance Company. Remaining 44.8% is contributed by other factors or independent variables that were not considered in this study. The adjusted R² (0.328) gives an idea of how well the model generalizes that the value is close to R² (0.552). There is a difference of 0.22. This shows there is a variation of 22.4% when the sample is taken from the population.

The coefficients in Table 12 helps to find out the contribution of claim settlements on sales of insurance policies. Beta standardized coefficients were used to compare. The results indicate that claim settlements (β = 1.048; p = 0.257) is not a significant predictor of sales of insurance policies. 

Therefore, the Regression equation is developed as follows:

Y= a + b X 

Where ‘Y’ is the dependent variable sales of insurance policies, a and b are constants.

Y (Sales of insurance policies) = 25337791.889 + 1.048 claim settlements (X)

Where X is the sales of insurance policies

This means that for every one-unit change in the claim settlements, there is 1.048 change in the sales of insurance policies of Dhofar Insurance Company.

Al Ahli Insurance 

Correlation of Total Premium Received and Claim Settlements: Table 13 shows that there is there is moderate negative correlation between total premiums received and claim settlements for Al Ahli Insurance Company. The correlation value is -0.426. The significance value is greater than .05 (p>.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between total premiums received and claim settlements for Al Ahli Insurance Company.

Impact of Claim Settlement on Sale of Insurance Policies

Table 14 shows that there is there is strong negative correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is -0.878 which is close to -1. The significance value is greater than .05 (p<.05). Thus, the null hypothesis is accepted and the alternate hypothesis is rejected. Therefore, it is concluded that there is no significant relationship between claim settlements and sales of insurance policies of Al Ahli Insurance Company.

Table 10: Correlations

Table 11: Model Summary

Predictors: (Constant), Claim settlements

Table 12: Coefficients^a

Dependent Variable: Policies sold

Table 13: Correlations

Table 14: Correlations

Table 15: Model Summary

Predictors: (Constant), Claim settlements

Table 16: Coefficients^a

Dependent Variable: Policies sold

Table 17: Correlations

**. Correlation is significant at the 0.01 level (2-tailed).

Table 18: Correlations

The model summary table 15 provides the R, R² and  adjusted  R²  used  to  determine  how  well a regression model fits the data. The R value represents the correlation coefficient and the value is 0.878 which is positive. The R Square represents the R² value (also called the coefficient of determination), which is the proportion of variance in the dependent variable that can be explained by the independent variable. Thus, from the results it is clear that the claim settlement factor contributes to 77% of sales of insurance policies of Al Ahli Insurance Company. Remaining 23% is contributed by other factors or independent variables that were not considered in this study. The adjusted R² (0.655) gives an idea of how well the model generalizes that the value is close to R² (0.770). There is a difference of 0.115 that shows that there can be 11% variance when the sample is taken from the population.

The coefficients in Table 16 helps to find out the contribution of claim settlements on sales of insurance policies. Beta standardized coefficients were used to compare. The results indicate that claim settlements (β = -0.728, p = 0.122) is not a significant predictor of sales of insurance policies. 

Therefore, the Regression equation is developed as follows:

Y= a + b X 

where ‘Y’ is the dependent variable sales of insurance policies, a and b are constants.

Model Equation 

Y (Sales of insurance policies) = 17739127.492 + -0.728 claim settlements (X)

Where X is the sales of insurance policies

This means that for every one-unit change in the claim settlements, there is -0.728 change in the sales of insurance policies for Al Ahli Insurance Company.

National Life and General Insurance 

Correlation of Total Premium Received and Claim Settlements: Table 17 shows that there is there is a very strong positive correlation between total premiums received and claim settlements of National Life and General Insurance Company. The correlation value is 0.993 which is close to 1. The significance value is less than .05 (p>.05). Thus, the null hypothesis is rejected and the alternate hypothesis is accepted. Therefore, it is concluded that there is a significant relationship between total premiums received and claim settlements of National Life and General Insurance Company.

Table 18 shows that there is there is very strong positive correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.993. The significance value is less than .05 (p<.05). Thus, the null hypothesis is rejected and the alternate hypothesis is accepted. Therefore, it is concluded that there is a significant relationship between claim settlements and sales of insurance policies of National Life and General Insurance Company.

The model summary table 19 provides the R, R² and adjusted R² used to determine how well a regression model fits the data. The R value represents the correlation coefficient and the value is 0.993 which is perfectly positive. The R Square represents the R² value (also called the coefficient of determination), which is the proportion of variance in the dependent variable that can be explained by the independent variable. Thus, from the results it is clear that the claim settlement factor contributes to 98.6% of sales of insurance policies of National Life and General Insurance Company. Remaining 1.4% is contributed by other factors or independent variables that were not considered in this study. The adjusted R² (0.979) gives an idea of how well the model generalizes that the value is close to R² (0.986). There is a slight difference of 0.007, that shows the variation when the sample is taken from the population.

The coefficients in table 20 helps to find out the contribution of claim settlements on sales of insurance policies. Beta standardized coefficients were used to compare. The results indicate that claim settlements (β = 1.393; p = 0.007) is a significant predictor of sales of insurance policies. 

Therefore, the Regression equation is developed as follows:

Y= a + b X 

Where ‘Y’ is the dependent variable sales of insurance policies, a and b are constants.

Y (Sales of insurance policies) = -3842571.240 + 1.393 claim settlements (X)

Where X is the sales of insurance policies

This means that for every one-unit change in the claim settlements, there is 1.393 change in the sales of insurance policies of National Life and General Insurance Company.

Calculating the Claim Settlement Ratios for the Companies

Table 21 shows the comparative analysis of claim settlements of the five insurance companies. The table shows that the claim settlement ratio of all the leading five insurance companies are very good. Among the selected top five companies, the average claim settlement ratio of National life and general insurance is the highest. The ratio is more than 100% as the outstanding claims of the previous year is settled in each of the year taken for the study.

Findings of the Study

Al Madina Takaful Insurance Company: There is moderate positive correlation (0.515) between total premiums received and claim settlements of Al Madina Takaful Insurance Company. There is there is moderately strong positive correlation between the sale of insurance policies (policies sold) and claim settlements. The correlation value is 0.515. The claim settlement factor contributes to 26.5% of sales of insurance policies of Al Madina Takaful Insurance Company. For every one-unit change in the claim settlements, there is 4.209 change in the sales of insurance policies of Al Madina Takaful Insurance Company.

Table 19: Model Summary

Predictors: (Constant), Claim settlements

Table 20: Coefficients^a

Dependent Variable: Policies sold

Table 21: Claim Settlement Ratios of Companies

Claim Settlement ratio = (Total value of claims paid/ Total value of claims filed) x 100

Oman United Insurance Company

The correlation value between total premiums received and claim settlements is .937. The correlation value between insurance policies (policies sold) and claim settlements is 0.994. The claim settlement factor contributes to 98.9% of sales of insurance policies of Oman United Insurance Company. This means that for every one-unit change in the claim settlements, there is 2.754 change in the sales of insurance policies of Oman United Insurance Company.

Dhofar Insurance Company

There is a perfect positive correlation between total premiums received and claim settlements (correlation value is 0.999) of Dhofar Insurance Company. There is very strong positive correlation between the sale of insurance policies (policies sold) and claim settlements with r value of 0.743.  The claim settlement factor contributes to 55.2% of sales of insurance policies of Dhofar Insurance Company. For every one-unit change in the claim settlements, there is a 1.048 change in the sales of insurance policies of Dhofar Insurance Company. 

Al Ahli Insurance Company

There is moderate negative correlation between total premiums received and claim settlements for Al Ahli Insurance Company. The correlation value is -0.426. There is strong negative correlation between the sale of insurance policies (policies sold) and claim settlements (-0.878). The claim settlement factor contributes to 77% of sales of insurance policies of Al Ahli Insurance Company. For every one-unit change in the claim settlements, there is -0.728 change in the sales of insurance policies for Al Ahli Insurance Company.

National Life and General Insurance Company

There is a very strong positive correlation (r = 0.993) between total premiums received and claim settlements of National Life and General Insurance Company. The correlation between the sale of insurance policies (policies sold) and claim settlements is 0.993 which is very strongly positive. The claim settlement factor contributes to 98.6% of sales of insurance policies of National Life and General Insurance Company. For every one-unit change in the claim settlements, there is 1.393 change in the sales of insurance policies of National Life and General Insurance Company. 

The study reveals that there is positive correlation between total premiums received and claim settlements of insurance companies. The claim settlement factor contributes to 98.9% of sales of insurance policies of Oman United Insurance Company which is the highest one among those five companies. Then comes National Life and General Insurance and the rate of contribution are 98.6%. After that comes Al Ahli Insurance the rate 77% and Dhofar Insurance by rate of 55.2% and lowest was 26.5% for Al Madina Takaful Insurance.

The comparative analysis of Claim settlement Ratio of the top five leading insurance companies show that the claim settlement ratio of all the leading five insurance companies are very good. Among the selected top five companies, the average claim settlement ratio of National life and general insurance is the highest. The ratio is more than 100% for the company as the outstanding claims of the previous year is settled in the following year. 

Recommendations 

• All insurance corporations should work to enhance the positive role of insurance in the social aspects by expanding the base of the insured by improving the quality of the insurance product and reducing prices, as well as enhancing the popular culture of insurance in partnership among all concerned and those in charge of the insurance sector in Oman

• Insurance companies should work to settle the claims fast as possible so as to satisfy the customer and to get good reputation. The insurance company employees’ may be trained on customer service which helps to ease and simplify the claim settlement process and to settle claims promptly. This ensures providing quality service to the customers, and in turn would result in better sales of life insurance policies in future

• The insurance companies should take customer feedback on satisfaction on service provided to improve sales and add value for their service in the minds of customers

• The insurance companies in Oman should focus on strong management and administrative framework, implement simple and prompt claim settlement process to retain their image and confidence on insured

This research was conducted to evaluate and prove the Impact of Claim Settlement on Sales of Insurance Policies. For this purpose financial information for five listed insurance companies’ was taken from Muscat Securities Market and analyzed for four years from 2016 to 2019. The study shows that there is a positive relationship between total premiums received and claim settlement and between claim settlement and sales of insurance companies except for Al Ahli insurance. It can be concluded that total premiums received has positive correlation to claim settlement and better Claim settlement has strong positive impact on sales of insurance companies. This is because prompt and better claim settlement leads to better sales figure and customer relation. It can be concluded that these companies hold leading position in the insurance market due to its better claim settlement ratio.

1. Collins, F. Effective techniques for managing and handling insurance claims. 1997, pp. 1–6.

2. Basaula, Damodar. “Customers Satisfaction towards Life Insurance Claim Settlement in Nepal.” Janapriya Journal of Interdisciplinary Studies, vol. 6, Mar. 2017, pp. 29–44.

3. Ofori-Attah, Harry Ernest Boakye. The effects of slow claims settlement on the sales and marketing of insurance products: A case study of Enterprise Insurance Co. Ltd (EIC) - Takoradi Branch. 2012.

4. Oyedokun, Godwin, and Gabriel Goodwill. “Effects of Claims Management on Profitability of Listed Insurance Companies in Nigeria.” 2018. https://www.atlas-mag.net /en/article/omani-insurance-industry-top-10-insurers-in-2019.

5. Wanjiru, Kinaro Joyce. Effect of insurance pricing in the insurance sector in Kenya: A case study of Jubilee Insurance Company. Sept. 2018.

6. Angima, Caren B. et al. Actuarial risk management practices, underwriting risk and performance of P & C insurance firms in East Africa. Thesis, University of Nairobi, 2017.

7. Mwangi, Mirie. “The Determinants of Financial Performance in General Insurance Companies in Kenya.” European Scientific Journal, vol. 11, no. 1, Jan. 2015, ISSN: 1857–7881, e-ISSN: 1857–7431.