Impact of Inflation on Insurance Claims in Nigeria: An Ardl Bounds F-Test Approach
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 6
Abstract
Inflation affects life and non-life insurance in a different way. For non-life insurers, unanticipated inflation leads to higher claims costs, thereby eroding profitability. This paper therefore, investigated inflation on insurance claims in Nigeria over the period 1981 - 2016 with data sourced from Central Bank of Nigeria (CBN) Statistical Bulletin. An unrestricted error correction model (UECM) version auto-regressive distributed lag (ARDL). The estimated result shows that there is a long run relationship between insurance claims and inflation in Nigeria and a rise in inflation will lead to a rise in cost of insurance claims in the short run but a decrease in the long run. Thus, high rate of inflation has a negative effect on returns of insurance claims in the short run but has an increasing non-significant effect in the long-run in Nigeria. Also, exchange rate has a proportionate and statistically significant influence on insurance claims. Thus, this study concludes that there is a long run relationship between insurance claims and inflation in Nigeria and a rise in inflation will lead to a rise in cost of insurance claims in the short run but a decrease in the long run. This study recommends that there is therefore need for insurers to evaluate the probability distribution of future adverse inflation events and their correlation with other macroeconomic variables and there is need to establish a higher level of coverage based on the original face value of an insurance policy and a maximum inflation adjustment.
Authors and Affiliations
Asinya Francis Anoka (Ph. D), UCHE Warlice Joel
Keywords
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- EP ID EP414978
- DOI 10.9790/5933-0906014353.
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