Nigerian Journal of Banking and Financial Issues (NJBFI)

TIME SERIES ANALYSIS OF FIRE INSURANCE PREMIUM AND CLAIMS IN NIGERIA USING AUTO REGRESSIVE DISTRIBUTED LAG (ARDL) MODEL

Abstract

Premium income and claims payout are critical elements of underwriting performance and risk exposure of insurance firms in Nigeria, but their dynamic relationship remains underexplored. This study examined the short-run and long-run equilibrium relationship between Nigeria’s total fire insurance premium and claims over 17 years period (2007 to 2023) using an ex-post facto research design and secondary data sourced from the Nigerian Insurers Association (NIA) and audited financial statements of selected insurer. Utilizing Autoregressive Distributed Lag (ARDL) model, the study established that premium and claim exhibited a long-run relationship but discovered that claims did not respond to short-term adjustment in premium which is an indication that premium adjustments do not immediately affect claims. The deviations from equilibrium were corrected at a speed of 57.5% per period by the the Error Correction Term (ECT), a moderate performance reflecting institutional lag from claims response time. The study recommends investment in effective predictive pricing technology, improvement in claims management and better regulatory guidelines for enhanced underwriting discipline. More research should focus on comparative dynamics between different types of insurance policies and test the moderating effect of macroeconomic determinants.