The Impact of Policy Commencement Date and Claim Settlement Date on Terms of Investment in Motor Insurance Business in Sri Lanka

Abstract

Insurance business involves undertaking of risks and currently shows a positive growth in respect to previous years. Motor insurance is a part of insurance business and contributes to significant part of Net Earned Premium (NEP). Apart from NEP, investment income can be identified as the second main income of the insurance business. The objectives of this research paper were to identify the most suitable time periods for investment decisions to maximize shareholder wealth in motor insurance, to develop a framework to guide to decide time period of investment using commencement date vs claim settlement date and to identify the claim reporting trend throughout the policy period. Data were gathered from 5,630 motor insurance policies commenced during the month of January 2010 and by analyzing respective claims up to January 2011. Both qualitative and quantitative data for both claims and underwritings were collected using the insurance portfolios of insurance agents covering entire country. A telephone survey was conducted with an Internal Audit Manager working at a reputed insurance company in order to collect qualitative data. The study results revealed that averagely 6% of gross written premium need to be repaid in each month as claim expense and based on that loss pattern, a model is developed for investment of funds raised from motor insurance business.

Keywords: Commenced Date, Investment, Motor Insurance, Settlement Date, No Claim Discount, Net Earned Premium

View PDF