EFFECT OF BEHAVIOURAL BIASES ON THE PERFORMANCE OF INSURANCE SECTOR IN NIGERIA

Abstract

This study examined the effect of behavioural biases on the performance of the insurance sector in Ekiti State, Nigeria. The study employed a quantitative research design and was guided by four research questions and three hypotheses. Two structured questionnaires were used as research instruments, with data collected from 185 respondents comprising underwriters, risk analysts, policyholders, and insurance brokers/agents and 50 respondents comprising senior managers of insurance firms in Ekiti State. The study utilised regression analysis to test the hypotheses and determine the relationship between behavioural biases and the performance of the insurance sector. Findings revealed that behavioural biases such as overconfidence, loss aversion, and herd behaviour significantly influence the performance of insurance companies. The regression analysis showed that overconfidence bias had a positive and significant impact on insurance performance (β = 0.39, p < 0.05). Similarly, loss aversion negatively affected insurance performance (β = -0.42, p < 0.05), while herd behaviour was found to have a significant positive influence (β = 0.37, p < 0.05). These results indicate that behavioural biases shape decision making processes in the insurance sector, affecting risk assessment, policy pricing, and overall market performance. The study recommends that insurance companies adopt behavioural risk management strategies, enhance financial literacy among stakeholders, and integrate behavioural insights into policy design and marketing strategies to improve performance. The findings align with existing literature, highlighting the impact of cognitive and emotional biases on financial decision-making. However, the study is limited to Ekiti State, and further research could expand to other regions or adopt a longitudinal approach to assess long-term trends.