CHAPTER ONE

1.0 INTRODUCTION

1.1       Background of the Study

Insurance industry has been recognized globally as a driver of economic

growth and development. The industry provides financial security to policy

holders, through the pooling and investment of premiums out of which those who

suffer unexpected losses are indemnified (Unachukwu, Afolabi, Alabi, 2015).

Today, the insurance industry is characterized by globalization, standardization,

fast technological changes and large scale advantages. These changes have resulted

in questions being raised among insurance providers such as "who are we'? and

`what kind of business do we operate"? questions that are closely related to

management of identity and image (Balmer, 2008, Hatch and Schultz, 1997).

Thus, the constant changes experienced within the insurance industry have

led not only to intense competition among the insurance firms but also making

these companies to portray its image intensively (Gronroos, 1990). Also insurance

is a business built on trust and the major ingredient that gives flavour to the

strategic roles played by insurance in the economy is confidence at such the

corporate image remains a priceless asset that will not only strengthen the already

existing public confidence but attract more customers to the industry. It is

therefore, more important for insurance to understand their customers and the
image perceived by customers of the organization (Balmer, 2008, Fombrun and

Shanley cited in Onikoyi and Onikoyi, 2013).

Corporate image has become a prominent paradigm and has begun to be

linked to strategic management decisions of organizations including insurance

especially in the advanced economies. The concept is based on the recognition that

clients buy brand products not because of their inherent qualities but also because

of a bias, a disposition towards the providers. Bayton (cited in Osei and Katsner,

2014), points out that people tend to “humanize” companies, attribute personality

characteristics to them, see them much as they do to humans in terms of being

“mature,” “liberal,” “friendly,” and such other related attributes. Maintaining or

expanding market share, keeping customers and business relations loyal, pre-

empting competitive moves, and maintaining a profitable position will depend on

differentiation and a unique positioning in the minds of corporate audiences (Van

Heerden and Puth, 1995).

Sunter (1993) indicates that the only way consumers will be able to

differentiate between institutions in future is through image and brands. The

importance of having a well-defined identity is therefore of major relevance for

service providers such as insurance institutions. Thus, Gronroos (1984) argues that

image is of utmost importance to service firms and is to a great extent determined

by customers’ assessment of the services they receive.

 Corporate image, the collective opinion of an organization held by its

stakeholders has been identified as a construct of growing importance (Kitchen and

Laurence, 2003. MacMillan et al 2002). Among other factors, reputation has been

identified as playing a significant role in improving firm value (Gregory, 1991),

enhancing consumer perceptions of product quality (Grewal et al. 1998), raising

employee morale, productivity and improving recruitment and retention (Turban

and Cable, 2003), and permitting access to cheaper capital (Beatty and Ritter,

1986). Firms whose assets are difficult to imitate may achieve sustained superior

financial performance (Grant, 1991).

Despite the understanding of corporate image on organizational financial

performance, insurance firms in Nigeria often than not in building corporate

strategy usually ignores the perception that internal and external audiences hold

about the firm, but Balmer and Stotvig (1997), argue that firms must be fully aware

of the image they are sending to both their external and internal audiences. This

implies that the principles enshrined in their vision and mission must logically

reflect their corporate image (Abratt and Mofokeng, 2001). Whether in fact that

corporate image is positively or negatively related to organizational financial

performance is an empirical issue that this study seeks to uncover by critically

examining the effect of corporate image on financial performance of the insurance

companies in Nigeria with a special reference to Mansard Insurance Plc.

1.2 STATEMENT OF THE PROBLEM

Customer, analysts, employees, institutions or general public decide when a

company deserves their regard, respect and trust depending on its actions and

behaviour towards the market and the society, and this behaviour is expected to

shape the performance of the corporate entity be it an insurance company or any

other form of business.

Various firms aim to achieve higher customer retention rates, associated

increased sales and product selling prices and reduced operating costs which are all

benefits of a good corporate image. This can be achieved through truthful

advertising, innovations, corporate social responsibility, ethics, goodwill and

having a history of fulfilling obligations to various stakeholder groups thereby

increasing the competitive advantage of an insurance company.

In the advanced insurance business clime the management of intangible

assets like corporate mansard, identity and reputation are integrated into the

managerial tactical tools to strengthen not just competitive advantage but to

command impromptu demand. But in the developing countries, particularly in

Nigeria the significance of mansard seem not to be acknowledged by the insurance

practitioners; a reason why many feel that the poor financial performance of the

insurance industry may not be unconnected to mansard insurances.

 These researches were also theoretical studies whose findings were

subjectively based on researchers’ personal opinions. It is noted that the past

studies did not give adequate attention to the impact of corporate governance

on financial performance of insurance companies in Nigeria, as well as

highlighting effective corporate communication strategy that can stimulate better

organization performance. Hence, the undertaking of this research work will fill in

the gap by critically exploring the effect of corporate on financial performance on

financial performance of insurance companies in Nigeria with a special reference

to Mansard Insurance Plc.

1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to analyse the effect of corporate governance

on financial performance of insurance companies in Nigeria.

Specifically, the objectives of this study are:

i. To ascertain the impact of board size on return on assets of Insurance

companies in Nigeria.

ii. To estimate the effect of board independence on return on assets of

insurance companies in Nigeria.

iii. To assess the influence of executive directors’ remuneration on return on

assets of insurance companies in Nigeria.

iv. To evaluate the impact of non-executive directors’ remuneration on the

return on assets of insurance companies in Nigeria.

v. To determine the effect of directors’ ownership on return on assets of

insurance companies in Nigeria.

vi. To assess the influence of institutional ownership on return on assets of

insurance companies in Nigeria.

vii. To ascertain the impact of foreign ownership on return on assets of

insurance companies in Nigeria.

1.4 RESEARCH QUESTIONS

The undertaking of this research project will beam a searchlight on the following

research questions;

1. Is there a significant relationship between corporate image and financial

performance of insurance companies in Nigeria?

2. What is the influence of corporate public opinion on consumer demand for

insurance?

3. To what extent does effective advertisement impact on image management

in insurance?
1.5 SIGNIFICANCE OF THE STUDY

The significance of this study is bedded on the stated objective. The research work

is aimed at encouraging the insurance industry on engaging in professional practice

and also ensure that the national insurance commission identify their roles as stated

in the decree 997 which established the commission.

The research work is also of important to the students as it will serve as a point of

reference to those of them who want/desire that to carry out research on similar

topic also the government and its agencies will be a benefactor of this research

work as the outcome of it will expose the opportunities that are yet untapped by the

insurance industry in the economy.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

The research work covered the Effect of Corporate Governance Mechanisms on

Financial Performance of Insurance Companies in Nigeria. The research examines

the functions of the insurance commission.

In the course of carrying out this research work, the researcher encounter some

challenges ranging from paucity of funds, to denial of access to confidential

information and data.

Also, time inadequacy was also one of the constraints encountered by the

researcher in the course of carrying out the research work.

1.7 RESEARCH HYPOTHESES

Corporate governance has no significant impact on financial performance of

insurance companies in Nigeria, is the main hypothesis tested.

Specifically, the following hypotheses are tested:

H0 1: Board size has no significant impact on the return on assets of insurance

companies in Nigeria.

 Board independence has no significant effect on the return on assets of

insurance companies in Nigeria.

 Executive directors’ remuneration has no significant influence on the return

on assets of insurance companies in Nigeria.

 Non-executive directors’ remuneration has no significant impact on the

return on assets of insurance companies in Nigeria.

 Directors’ ownership does not significantly affect the return on assets of

insurance companies in Nigeria.

 Institutional ownership does not significantly affect the return on assets of

insurance companies in Nigeria.

Foreign ownership does not significantly affect the return on assets of

insurance companies in Nigeria.

1.8 DEFINITION OF TERMS

Agency: A situation that arises when a party (called the principal) appoints another

(called the agent) to act for him (the principal) in doing a thing or things which the

principal should do, but which he may not, by reason of circumstance be disposed

to do them.

Easement: A right of way over another’s property.

Indemnity: An agreement by one party to make good the losses suffering by

another, usefully by payment of money, repair, replacement or reinstatement in an

insurance contract.

Inertia Selling: A form of selling in which unrequested goods are sent to a

potential customers on a sale-or-return basis.

Insurance: A legal contract in which an insurer promises to pay a specified

amount to another party, the insured, if a particular even happens and the insured

financial loss as a result.

Premium: The consideration payable for a contract of insurance.

Promotion: An activity designed to boost the sales of a product or service. It

includes, advertising, personal selling, sale promotion and publicity.

Rebates: A discount offered on the price of a good service, often one that is paid

back to the payer.

Solvency: The financial states of a person or company that is able to pay all debts

as they fall due.

Unvalued Policy: An insurance policy for property that has a sum insured shown

for each item although the insurers do not acknowledge that this figure is actual

value.