PERCEPTION OF PARTIES TO THIRD PARTY MOTORCYCLE INSURANCE POLICY IN LAGOS METROPOLIS, NIGERIA

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1 PERCEPTIN F PARTIES T THIRD PARTY MTRCYCLE INSURANCE PLICY IN LAGS METRPLIS, NIGERIA Folake lowokudejo Kunle Aduloju Department of Actuarial Science and Insurance University of Lagos, jo, Lagos, Nigeria kudejomrs@yahoo.com ABSTRACT The purpose of this paper is to find out people's perception of motorcycle insurance while comparing the perceptions of insurance companies' staff with that of their customers (the motorcyclists) and also find out the major causes of motorcycle accidents in Nigeria. A total of 140 respondents were sampled using the questionnaire. The Kolmogorov Smirnov test was used to test the hypothesis. Findings show a general negative perception of insurance services by the motorcyclist and a large disparity in the responses of the motorcyclists and the insurance companies' staff. The major causes of motorcycle accidents are also found to be over speeding, carelessness and poor driving skills. Keywords: motorcycle, accidents, insurance, claims, perception INTRDUCTIN Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insured for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk (Redja, 2008). From this definition of insurance, motorcycle insurance can be defined as the transfer of risks occasioned by motorcycle accidents to insurers, who agree to indemnify the motorcyclists, their passenger or other third parties for such losses or/ and to provide other pecuniary benefits on the occurrence of motorcycle accidents, or to render services connected with the risk. The insured thus, does not receive any tangible product in exchange for the premium paid; rather he is given an intangible product in the form of promise if the event described in the policy occurs (kehi, 2005). Commercial motorcycle (kada) is fast becoming a popular means of transport in many parts of the Nigeria. According to the records of the organization responsible for developing a sustainable policy on motorcycle documentation and related matters, Motor Vehicle Administration Agency (MVAA) 42,315 motorcycles were registered in 2008, out of which 13,904 were private motorcycle while 28,411 were commercial motorcycle (lagunju 2008). Also from the last Lagos census figures, commercial motorcycle (kada) had a higher percentage state average mode of transportation than the public bus ( Mobility in the developing countries is marked by stark unavailability of reliable public transport giving rise to informal public carriers such as the minibus and the motorcycle (Cervero, 2001). The 'kada' phenomenon was born out of the 107

2 desperation of people to be gainfully employed, low cost of purchase, fuel efficiency and its growth is encouraged by its speed, inaccessibility of some areas by motor vehicles due to the poor state of the roads, incessant heavy vehicular traffic and decreasing ability of people to exercise patience hence the need for a faster means of transportation. Commercial motorcycle accidents claim not less than 1,800 lives yearly in Lagos (lagunju, 2008). The survey of commercial motorcycle customers also revealed that 92% of commercial motorcycle customers express concerns over safety of commercial motorcycle as a means of transportation and claim that they patronize them because they are left with few mobility options (luwadiya, Kolawole, Adegbehingbe, lasinde, Agodirin and Uwazuoke,2008). Many researches have been conducted on motorcycle as a means of transportation in the developing countries and even in Nigeria but there is paucity of research on motorcycle insurance. Motorcycle as a means of transportation has both positive and negative implications. Positive in the sense that it provides employment for otherwise jobless people and it is a faster means of transportation than motor cars. It has equally caused death as well as temporary and permanent disability to many people. In view of this impact on the economy, the government saw a need to regulate the activities of motorcyclists by introducing some safety measures such as the enforcement of insurance (a minimum of third party) and the enforcement of the use of protective gadgets to protect the lives of the motorcyclists, passengers and other road users though some still violate this rule. The rate of motorcycle accident is becoming alarming and worrisome, as statistics from Lagos State University Teaching Hospital (LASUTH) shows that 20 motorcycle accidents are reported daily with a death rate of about10%. According to lagunju (2008) due to the recklessness of motorcyclists, 73,766 accidents were recorded between1989 and 2007 in Lagos. These left 40,706 persons (29,371 males and 11,486 females) maimed and 14,486 persons (10,698 males and 3,688 females) dead. This represents 13.8% more than the number of motor vehicles involved in accidents. Various reasons have been adduced for commercial motorcycles accidents, some of them are; poor driving skills, poor maintenance of motorcycle, non compliance with laid down rules and regulations, ignoring highway codes non compliance with safety rules, flagrant disobedience of traffic rules, alcohol and drug influence, illiteracy, poor sight, wrong clothing, over loading, poor attitude to riding and lack of concentration (luwadiya et al., 2008). According to data produced by Lagos University Teaching Hospital (LUTH) in 2007, a total of 587 death resulting from kada accidents were recorded (lagunju, 2008), statistics at the National rthopedic Hospital at Igbobi, Lagos shows that 558 kada accident victims were brought in, in2007, less than 400 in 2008 and as at February 17, 2009, they had 68 kada patients (Yinusa, 2009 in allafrica.com/stories/ html/vanguard). These and more records have made the government to put in its budget; the direction of all relevant agencies, including the Police, Lagos State Transport management International Journal of Economic Development Research and Investment, Vol. 1 Nos.2&3;

3 Agency (LASTMA), the special traffic majors, Kick Against Indiscipline (KAI), monitoring team on special offences, the ministry of transportation and the ministry of justice to ensure due enforcement of actions to control the rate of kada accidents in Lagos state. But despite all this efforts at loss control, one can seldom remove completely the uncertainty about the likelihood and magnitude of loss (Aduloju, 2009) hence, there is need to employ some loss absorption mechanism like insurance. According to Isimoya (2007)the third party motorcycle insurance is required by law in Nigeria. The principal legislation in commercial motorcycle insurance in Nigeria is the Motor Vehicle (third party) rdinance Act, 1945, which makes it compulsory for cover to be arranged to cover third parties for personal injuries death and property damage. Insurance itself may not exactly prevent accidents but it helps in covering loss and compensating the insured. Insurance companies in Nigeria had consistently made concerted effort to encourage a higher percentage of motorcyclists to obtain motorcycle insurance cover in order to reduce the loss occasioned by motorcycle accidents, especially commercial motorcycles, but this effort is being scuttled by high proliferation of association of motorcycle riders and refusal by some insurance companies to pay claims (Inienger, 1998). Motorcycle insurance, just like other classes of insurance in Nigeria is bedecked with a lot of problems. According to gunrinde (1985), Lijadu (1986), Ayorinde (2000), Adeleke (2000), lowokudejo (2009), these problems include: Low income: Low income earning capacity of the public with very low per-capital income makes it impossible for many people to purchase insurance, simply because they cannot afford it as they must first satisfy their basic needs e.g. food, clothing and housing etc. Low level of economic development: Nigeria is a developing country with poor infrastructure and deficient management in most sectors, especially, the educational sector. This problem limits the availability of manpower market for insurance. Negative Perception: Insurance industry has a poor image among customers. A lot of people do not understand the concept of insurance and its claim settlement procedures giving rise to a generally negative attitude and feeling towards insurance business. Rate Cutting: As a result of over population of the insurance industry by various classes of insurance there is reduction in the total rate of premium payable per cover. Too many Bodies: The problem of proliferation of self regulatory bodies in the industry and lack of proper delineation of duties has negative effect on insurance business. Policy Taking: There is the problem of fake agents and underwriters in the industry who give out and underwrite fake insurance policy cover to ignorant or unsuspecting customers. Heavy Underwriting Losses: Some companies (insurance) incur heavy underwriting risk as a result of their underwriting guidelines, some risks are not fully understood, and others fail to reason in accordance with their treaty obligations. 109

4 The government has also viewed (with interest) the lackadaisical attitude of commercial motorcyclist towards insurance policy; motorcyclist obtain fake insurance policy from questionable sources without any hope of compensation in case of accident. This study aimed at finding out people's perception of motorcycle insurance. This study will also compare the perceptions of insurance companies' staff with the perception of their customers (the motorcyclists) and find out the major causes of motorcycle accidents. In order to achieve this, the study seeks to provide answers to questions such as: (1) Do policy holders succeed in pursuing claims in motorcycle insurance? (2)What extent is the insuring public satisfied with the level of motorcycle insurance? (3)What percentage of commercial motorcyclists possesses commercial motorcycle insurance cover? (4)What are the causes of commercial motorcycle accidents in Lagos? METHDLGY The research is conducted using both exploratory and descriptive research design. The population of this study is the commercial motorcyclist and the insurance companies in Lagos state. A sample of two hundred people, were selected, from the population by using stratified random sampling technique. This sample consists of 100 commercial motorcyclists and 100 workers in the insurance industry. These are Christians, Muslims and people of other religious background, but all resident within the Lagos metropolis. ne hundred questionnaire were distributed to each of the group but only eighty duly completed questionnaire were received from the motorcyclists and sixty from the insurance companies. The questionnaire is divided into 2 parts (A and B). Part A gives a demographic background of the respondent while part B asks questions on perception of motorcycle insurance. The responses to the questions were analysed using simple percentages in order to provide answers to the research questions. Kolmogorov-Smirnov one sample test was used to test the hypothesis. The test focuses on the largest value of the deviations among observed and theoretical proportions. The Kolmogorov-Smirnov test is given as: DN=max F ( x) F( x) x where: F = the number of observations F o (x) = the specified (or theoretical) cumulative frequency distribution under H o for any value of X F o (x) = the observed cumulative frequency distribution of a random sample of N observation for any value of X. The critical value of D for sample size of N>35 is given as: The decision rule is that H o will be rejected if the calculated D (D cal ) is greater than the tabulated D (D tab ) under the deviation level of 5 percent. International Journal of Economic Development Research and Investment, Vol. 1 Nos.2&3;

5 RESULTS AND DISCUSSIN All the kada riders interviewed were male, 58% of insurance companies staff were male while 42% were female. 62% of the kada riders are single and 38% are married while for insurance companies, 66.67% are single and 33.33% are married. The age distribution of the kada riders respondent, is as follows below 20years: 6.25%, 21-30years: 37.50%, 31-40years: 25% and for the insurance companies staff, 21-30years: 18%, 31-40years: 43.33% and above 40yrs: 26.66%. 12.5% of the motorcycle is used privately while 87.5% are used for commercial purpose. 55.5% of the kada riders have a minimum of secondary education while the remaining 44.5% have either primary education or have no education. For insurance companies' respondents however; all the respondents have a minimum of secondary school education % of the kada riders own the kada they ride and 63.27% have been using their motorcycle for over one year. Table 1: Responses by motorcyclists (Do policyholders succeed in pursuing claims in motorcycle insurance?) Alternatives Response Percentage % Aggregate % Strongly Agree Agree Undecided Disagree Strongly Disagree Total Table 2: Responses by insurance companies Alternative Response Percentage % Aggregate % Strongly agree Agree Undecided Disagree Strongly disagree Total From the responses of the kada riders and the insurance companies staff, there is a disparity in theis opinions. While insurance companies claim that they pay claims(table 2). Their customers claim that they do not get paid (table 1). Table 3: Responses by motorcyclists (To what extent are commercial motorcyclists satisfied with Motor cycle insurance services?) Alternative Response Percentage % Aggregate % Very high extent High extent Undecided Low extent Very low extent Total

6 Table 4: Responses by insurance companies Alternative Response Percentage % Aggregate % Very high extent High extent Undecided Low extent Very low extent Total Table 3 and 4 shows that the customer perception of insurance services is quite different from the service providers' perception. Table 5: Responses by motorcyclists (Do you have insurance cover on your motorcycle?) Alternative Response Percentage % Yes No Total Table 6: Responses by insurance companies (How many commercial motorcyclists' posses commercial motorcycle insurance?) Alternative Response Percentage % Aggregate % More than 80% % % % less than 20% Total While 83.75% of the motorcyclist interviewed claim to have insurance on their motorcycles (table 5), the insurance companies claim that less than 39% of the motorcycles on our roads are insured (table 6). There is a great difference between the responses from the motorcycle riders and the insurance companies. Table 7: Aggregate response by motorcyclists & insurance companies (What are the causes of commercial motorcycle accidents in Lagos?) Alternative Response Percentage % Drunk driving Carelessness ver speeding Poor driving skill Poor sight Total Aggregating the responses of both the motorcyclists and insurance companies' staff, the respondents believe that over speeding, carelessness and poor driving skills (in this order) are the major causes of motorcycle accidents in Nigeria. This agrees with the findings of luwadiya et.al (2009) that risky behaviour among motorcycle riders accounts for most motorcycle crashes. International Journal of Economic Development Research and Investment, Vol. 1 Nos.2&3;

7 Table 8: Responses of the Motorcyclists (Most commercial motorcyclist in Lagos State view insurance positively) Rank of view of respondents Strongly agree Agree Undecided Disagree Strongly disagree F = Number of respondents choosing the alternative F o (X)= Theoretical cumulative distribution of choices under H o F o (X)= Cumulative distribution of observed choices under H o F ( x) F ( x) From the Kolmogorov-Smirnov Frequency Table for the Hypothesis, the calculated D value is the point of greatest divergence between the cumulative observed and cumulative theoretical distributions, which is The tabulated D from the Kolmogorov- Smirnov Test Table at α =0.05 for sample size N>35, is given as:. This shows that D cal is greater than D tab ; thus, in accordance ( ) ( ) F x α F 1.36 D = = x N with the decision rule, the null hypothesis (Ho) is rejected. Table 9: Responses of insurance companies' staff Rank of view Strongly agree Agree Undecided Disagree Strongly disagree F = Number of respondents choosing the alternative F(X)= Theoretical cummulative distribution of choices under Ho Fo(X)= Cummulative distribution = of observed choices under Ho l For table 9, the calculated D value which is the point of greatest divergence between the cumulative observed and cumulative theoretical distributions, which is The tabulated D from the Kolmogorov- Smirnov Test Table at α =0.05, is. This shows that D tab is greater than D cal ; thus, in accordance with the decision rule, the null hypothesis (Ho) is accepted. From the hypothesis tested the motorcyclists have a negative attitude toward motorcycle while insurance companies staff believe that the attitude of motorcyclists towards insurance is positive, and from RQ1, insurance companies claim that they pay claims while the kada riders say they do not collect claims. From RQ2, kada riders are not satisfied with the services offered by insurance companies while the insurance companies rate themselves quite high on customer satisfaction. From RQ3, the motorcyclists claim to have insurance on their motorcycle while the insurance companies claim that most motorcyclists do not have insurance cover. There is an obvious difference between the responses of the insurance companies' staff and the motorcyclists. 113

8 From the research findings, the insurance companies sampled are the same companies patronised by the motor cyclists sampled. These motorcyclists patronise fake and unregistered insurance companies. They patronise these companies because they offer cheaper rates and do not impose any conditions which must be complied with before claims are paid but unfortunately when there is a claim, these claims do not ever get paid impacting negatively on customers' satisfaction. Also there seems to be a lot of communication gap between the insurance companies and the motorcyclists. As what the customer is saying is not what the service provider is hearing. The responses indicate that over speeding, carelessness, poor driving, poor sight, and drunk driving are all possible causes of motorcycle accidents in Nigeria, but the most popular causes are over speeding, carelessness and poor driving skills over speeding, carelessness and poor driving skills. CNCLUSIN AND RECMMENDATINS This study shows that most motorcyclists involved in accidents are not able to collect their claims as at when due. This leads to lack of trust and poor image for the insurance companies. For this and other reasons, motorcyclists are quite dissatisfied with the services rendered by insurance companies but despite this, several commercial motorcyclists still continue to take insurance covers on their motorcycles. This however, is because insurance (at least), the third party insurance is compulsory in Nigeria and failure to comply with this requirement pitches the motorcyclists against the law. Although, there are several causes of motorcycle accidents in Nigeria, the major causes were found to be over speeding, carelessness and poor driving skills (in this order). From the responses to the questions in the questionnaire, there is no agreement between the responses of the insurance companies' staff and the responses of the motorcyclists. It is therefore obvious that the insurance companies and the motorcyclists are not talking from the same standpoint and the most likely reason for this disparity could be the fact that some motorcyclists patronise fake and unregistered insurance companies which do not fall in the sampling frame of the researchers Epetimehin (1986) pointed out that a company can be run very efficiently and soundly in every respect, it's policies may be delivered promptly and reviewed efficiently, but an unreliable and ineffective claims department could ruin the reputation of the company. Insurance companies should therefore endeavour to pay genuine claims promptly in order to build trust and confidence in the insuring public and improve the public image of insurance (lowokudejo, 2009). They should also create new insurance products that adequately meet current, personal and corporate needs in the changing economic environment. There is a communication gap between the commercial motorcyclists and the insurance companies. Insurance companies should play a more active role in the International Journal of Economic Development Research and Investment, Vol. 1 Nos.2&3;

9 crusade to enlighten the public on commercial motorcycle insurance. This campaign can take the form of organized lecture, workshop or seminar for the commercial motorcyclists and the general public. There should also be a regular forum where chief executives of insurance firms can exchange views and discuss problems affecting the insurance market as a measure of building a better relationship between themselves and with the policy holders. Government should insist on genuine motorcycle insurance for okada riders and work hand in hand with the regulatory bodies and law enforcement agencies to expose and bring to book fake and unregistered insurance companies. They should also work with the insurance companies to launch different programmes (schemes); like road accident live saving scheme, which was launched in 1996 to reduce the burden of huge medical bills paid by families of victims involved in motorcycle accidents. REFERENCES Adeleke P. (2000). Practical Strategies for Effective Marketing of Insurance Products in Nigeria. The Nigerian Journal of Risk and Insurance, 2, (1), Aduloju K. (2009). Principle of Property Insurance. Lagos: Pumark Nigeria Limited. Ayorinde R.. (2000). Information Disclosure: The Economic Implication. The Nigerian Journal of Risk and Insurance, 2 (1), Cevero R. (2001). Learning from the Developing World. Acess: Spring Edition Cooper D. R. & Schindler P. S. (2000). Business Research Methods (Seventh Edition). New York: McGraw- Hill. Epetimehin, F. N. (l986). Claims Administration and Image of the Insurance Industry in Nigeria. Seminar Paper Presented at the Chattered Insurance Institute of Nigeria. Inienger, J. M. (l998). Insurance Industry Should Educate the Public and be Honest with Them. Insurance News, 5 (3), 36 Isimoya,. A. (2007). Fundamentals of Insurance. Lagos: Concept Publications Lijadu, Y. (1985). The Responsiveness of Insurance Industry in Nigeria to Societal Needs. A Paper Presented at the Federal Public Service Lecture Series in Lagos gunrinde, R.. (1985). The Claim Settlement Provisions of the Nigerian Insurance Act,1976. Journal of World Trade Law (March/April), 19 (2), kehi,.. (2005). Insurance Marketing and Strategies. Lagos: Audrey Ventures lagunju, K. (2008). Nigerian Tribune. http/ Accessed on20/05/09 lowokudejo F. F. (2009): Does Religion Affect The Procurement of Insurance Policies? Evidence from Nigeria. The Journal of Risk and Insurance, 6(1), luwadiya K. S., Kolawole I. K., Adegbehingbe.., lasinde A. A., Agodirin. and Uwazuoke S. C. (2008). Motorcycle Crash Characteristics in Nigeria: Implication for Control. Journal of Accidents Analysis & Prevention, 41(Issue 2), Rejda G. E. (2008). Principles of Risk Management and Insurance (10th Edition). Boston: Pearson International Edition. Yinusa (2009). Nigerian Vanguard of 03/02/09. http/ vanguard. Accessed on 13/11/09 115