The resolution of the controversy surrounding which insurance risk management factors account for the growth of capital formation in developing countries is still a research burden. Some theories as well as empirical studies have attempted to identify insurance claims payment as a major driver of gross fixed capital formation through the channel of indemnification among others. This study is an attempt at investigating the relationship between insurance risk management through the window of claims payment and Gross Fixed Capital formation drawing empirical evidence from Nigeria. The study employed the ordinary least square, Johansen co-integration, Granger causality, impulse response and variance decomposition procedures on annual rate of change in Nigerian, using data from 1980 through 2011. The results indicate that claims paid on Accident, Fire, Motor vehicle and employers’ liability insurance policies affects growth in Gross Fixed Capital formation in the short run. It was found that unidirectional causality flow exists from Gross Fixed Capital Formation to claims paid on Fire and Marine insurance policies. This implies that growth in the acquisition of new productive capital stocks could trigger up insurance patronage especially in fire and marine insurance. The variance decomposition analysis of Gross Fixed Capital Formation to innovations emanating from claims paid on fire and motor vehicle insurance policies exhibit positive and consistent expansionary effects over the ten-years forecast period into the future; thus, as insurance claims payment increase, the tendency of indemnification pressures drive the economy to increase its capital formation in general terms.
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