The Impact Of Insurance Services In The Nigerian Economy
The purpose of this research work was to identify the impact of insurance services in the Nigerian economy. This is because most of Nigerians looks at insurance industry as a weak and poor industry with little or no impact in the Nigerian economy. However, the researcher carefully x-ray the implication of effective contribution of insurance services to the Nigerian economy and also review the relationship between insurance industry and other economic activities in Nigeria.
The researcher also examined the role of the Nigerian insurance industry in the economic development of Nigeria. Based on the findings, the researcher observed that the majority of the Nigerians lack better understanding of insurance, the result of the testing indicates that insurance industry has made a tremendous impact in the growth and development of Nigerian economy and will do more.
1.1 Background of the Study
Insurance which has existed from thousands of years, has emerged in today’s world as a very large field With many dimensions and specification. Today’s world is dominated by great changes. Anywhere in the world, industrialization is becoming a truly world wide phenomenon-within the frame work which accompanied by the organization of independence within global interdependence, everything is trusted into new and large dimension including risk and uncertainty.
Insurance been one of the most important ways of organizing security is at the crossroads of both phenomena.
This assertion does highlight the unique position of the insurance industry in contemporary business world. It also put into focus the overwhelming scores that accrue to this commercial organization in the changing times of our society. The developing of the insurance industry has now come to be regarded as a key feature in the economics on-goings of the business world and so it is first natural that Nigeria when it finally attained independence in 1960 identified insurance as one of the economic activities. She is however witnessing some tremendous progress in the field.
Before the existing of modern insurance, man lived in a subsistence though the environment was still exposed to hazards of risks. (natural disasters and fire accidents) the gradual development of man’s totality of life (economics, social, political and of course technological) has been equally followed by exposure to society become complex, the need to eliminate these risks or ameliorate the effects they might have on man and society makes a way of achieving social security.
In the Nigerian economy, modern insurance, which is a follow-up to the traditional arrangements by the extended family and other traditional societies, and organizations (to help any members who suffered any loss by way of accident or death) is at the early stage of development. As a result of this, we are experiencing the usual problems of late comers. Those problems coupled with an array of socio-economic leaves us with wider scope for development in this filed. This not withstanding, the Nigerian economy is witnessing a tremendous impact has attracted the researcher’s interest and as such, hence carefully look at this industry in the economy; the technicalities of insurance and the volume of business operation.
The genesis of insurance companies in Nigeria back into time from the immediate family system, the community association, the age grade union and cultural associations. Member of this association renders some kind of insurance coverage to their members in terms of adversity, money is contributed to assist member to build a new house if loss by national disaster, burial for dead member and financial assistance to the family left behind. This is an insurance policy in a local setting in Nigeria.
This practice developed to an organized association with rules and regulation guiding the welfare of members in terrible situation if distressed. This system does not allow for premium, however, the financial obligation was in the form of membership fees and contributions. Nigeria started to feel the emergence of modern insurance business in the middle of the 20th century only as a branch insurance companies with head quarters in Europe and America.
This merger outfit developed rapidly into a large business conglomerate with financial assets comparable only to the banking sector.
The first insurance company to have a full branch office in Nigeria was royal exchange the only company fully established in the country since then, more than sixty more companies have been incorporated in Nigeria. There are about three hundred (300) registered insurance companies in Nigeria today. Among them is Nicon Insurance Corporation. PLC, which obviously is the case study of this research.
1.2 Statement of Research Problem
The insurance industry is primarily a risk undertaking business the function of the insurance industry is essentially the same in the whole world. Which has not been effectively and efficiently achieve. Although the author has choose the topic of the impact of insurance industry on the economic development. The problem and questions that militate against the normal function of the insurance industry needs to be highlighted. In an attempt to identifying the problems that have hindered the achievement of these functions, the need to provide solution to the problem cannot be over emphasize.
One of the problems is economic instability which has eaten deep into the fabric of the nations and has been hindering the smooth operation of the insurance industry. Two, the political environment has adverse effect on the economic environment as various administration have come up with their various operational and investment policy in Nigeria and these has first of Insurance companies to reduce their staff strength and these has attending effect.
In the making of the current economic crises, the government in an effort tried mitigate its effect on firms by embarking on the structural adjustment program (SAP) which can be assessed by its little contribution and in this totality fueled up inflation thus weakening the operation of firms in the insurance industry. Since customers are prospective customers can no longer afford to pay their premium nor are they willing to take new one.
More devastating is the acute shortage of skilled manpower particularly at the top and middle management cadres the industry and admission of new insurers into the industry, since the national supervisor board (NSB) guideline state that at least one professionally qualified person must lead each department in the company before such a firm can be licensed.
Not excluded his the management and staff relation which has not been cordial as result of some inconsistency in the system among which are delay in payment of staff salaries wages bonus and other allowance and more provision of poor relation and this leads effect such as stir (work to rule) embarked upon by workers.
The investment climate in the country also create problems of managers in the industry due to lack of develop capital market, low yield from investment restrictive laws and regulations constraining the managers choice of investment.
Excessive administration expenses on the same types of investment problem of advert effects of global inflation, non-profitability of insurances business of high claims paid as a result socio-political crises (Example 1998 SAPRIOT).
1.3 Objective of the Study
The objective of the study was to examine the Impact of the insurance services on the economic development of Nigeria. This was carried out by applying various function of insurance as they effect the economy. The study also determine how insurance has been able to play an important role on the development of the economy. The following formed the objective of this study in the following area.
The research is to find out if industry will influence and increase mobilization of saving particularly through life assurance policies, for productive use and as a source of long term.
To determine if it will improve the development of capital market by providing a channel for the sourcing of funds by both public and private sectors of the economy.
The study will determine the accumulation of foreign exchange for the Nigeria economy and direct equity and loan investment in the industrial enterprises.
It will determine whether the upsurge of insurance companies will lead to the mobilization of fund for the government and the investment pattern of the economy and also type social development of the entire nation.
1.4 Scope of Study
Insurance industry in Nigeria is a very important business with so many names and branches all over the country. In research like this, it was difficult to cover up all the branches of insurance companies for that simple reasons, the national insurance corporation of Nigeria NICON plc was used as a representative sample in the insurance industry. In the case, out of the 25 branches of the corporation, the Benin and the head office Abuja would be covered due to time constraints and lack of funds to visit these important states.
The activities include life and non-life assurances of the corporation life assurance are life pension, non-life insurance include. Accident, motor, fire, marine, workmen’s compensation, Aviation and miscellaneous.
1.5 Significance of Study
The very concept of insurance has often been misunderstood and misrepresented in the society, not because of myopic disposition of the general popular but for the fact that insurance awareness has not been fully implemented into the system of which this research work intended to promote insurance awareness, with the view of identifying areas of immense benefit from the corporation to the insurance community as well as to insurance practitioners and the overall contribution to the development of the Nigeria economy.
In the highlight of the above the researcher tends to investigate into the effect of insurance on the development of the Nigeria economy- it is hope that the finding and recommendation. From this study shall be careful to the following.
The government as the determinate of the economic policies in Nigerian.
The accountants, auditors and professional manager who are expected to use insurance in form of national decision making.
The society who are wholly and practically involved in the use of insurance activities.Other investors who may want to invest in the insurance industry.
1.6 Research Hypothesis
In this study the following hypothesis will be tested.
- Ho: There is no positive relationship between the saving of low-income (Rural) and high income (Urban) earners.
- Ho: The insurance industry has no effect on the saying of household.
Hi: The insurance industry has effect on the saving of household.
1.7 Limitation of Study
Carrying out this research successfully was not achieved on a platter of gold researcher encountered a harvest of constraints.
Firstly, the research was limited to Edo state and Abuja because of time and financial constraints. The time at the researcher’s disposal was not enough to research respondents outside Edo state and Abuja of course, time is very important in research study and a lot if it is needed to exhaust all the requirement of a particular study. That of finance was equally a very big problem as nothing can be done effectively and efficiently without adequate provision of it in fact a lot of money is required to procure some materials that are necessary of a research study. The result of these problem is that the research is restricted to Edo state and Abuja.
Another limitation is in the interview and questionnaire. It was very difficult to get respondents to answer questions or fill their questionnaires truthfully, because comparative analysis of performance of any center is a very sensitive area of an enterprise. In fact the goodwill of the establishment as well as its public image hang on it. Of course, it would be easier for respondents to tell lies about the performance of their establishment as well as its public image. If this were done, it would be very defective to the reliability of the research.
Also the respondents were not quite corporative. Some claimed that nothing materialistic was going to come out from helping to fill the questionnaires. Some feared the possibility of sack, dismissed and termination if they say the truth about the performance of their establishment.
Operational Definition of Terms
National Insurance Corporation of Nigeria
The portion of risk that is transferred by insurance to the re- insurer
The maximum amount payable by insurance to a beneficiary of a loss.
The calculated cost of a risk changed to the insured by the insurer for providing insurance protection against a specific risk for a specific period of time.
The actual or potential liabilities which is allocated and kept in a special account by insurance companies to cover unearned premium, outstanding claims and future losses.
This is the act of doing the work of an under writer in accessing a risk and deciding the premium and other relevant matter.
Anyone who is ready to accept the insurance risk.
A monetary worth or value on its surrender by the assured
Findings Recommendation and Conclusion
5.1 Discussion of Findings
On the analysis this research work conducted through the process of scientific method of research. With the information collected, the researcher was able to gain an insight into the strength and weakness of the insurance of the insurance industry in Nigeria. Life assurance did not have impact in the Nigeria economy until 1960 according to Ojoetal (1982) as referred to in chapter two (2) of this research. In his own contribution, Nwankwo (1984) remarked that out of nine deal only in life insurance, eighteen, while thirty-six deal only in non-life insurance business started much later than non-life insurance business in Nigeria party because the insurance companies classified Nigeria life as sub-standard. This involving more risk since it sold mostly to persons in business in particular had to be a function of the growth in employment and deduction, all of which grew much faster after 1960.
Government policies and programme valiantly affected the insurance industry in Nigeria. During the SAP (structural Adjustment programme) era. This created an urgent need to reduce certain categories of insured assets to avoid loss as a result of the fall in the Naira.
Inflation was cited as a problem to the growth and development of insurance industry in Nigeria. He remarked that inflation is passing and is likely to continue to pose at least for some years to come, greater dangers, to the future of insurance in the country following the trend of inflation on the country, which has made some policy holder unable pay their premium which had exacted by 50% within few years thereby causing the insurances companies to under insure as a means of reducing the premium payable. Also, there was high reparation of paying insurance premium to over-sea re-insurance companies by Nigeria registered insurer.
This was stopped by the hold steps taken by government in promulgating the Nigeria re-insurance act of 1976 that came into effect in 1st 1977. This made it possible for a registered insurer in Nigeria to insure twenty percent (20%) with the Nigeria to re-insurance cooperation of the sum insured in every policy written.
Furthermore, insurance industry provides financial assistance to investors and an end to trade. According to Anderson (1981) in chapter two (2) he said that the function insurance apart from being an aid to trade, it has contributed a great deal to the development of large-scale production.
Moreover, insurance has encouraged saving of which is major developmental factor of any modern economy and Nigeria in general funds it very difficult to save.
The insurance industry is a service industry on which the activities of other industries depend for security and protection insurance. Therefore, is a device which is set up to handle risks and risks involve uncertainly insurance involve pooling together of resources by money in order to alleviate to the losses of a few. The insurance industry in Nigeria came with the British during the colonial Era the fact that most insurance companies in Nigeria have British origin is a testimony to this. Before the advent of the colonialist, Nigeria were engaged in various trading activities but without any form of formal insurance scheme. What was obtainable then was a mutual and social form of insurance, which might be found in the expected family structures age grade association and some other unions. The present dayinsurance came with the British traders in the west Africa coast. They set up agency offices in Nigeria.
These offices developed into branch offices and subsequently and of 1966 there were one hundred and forty six (146) insurance firms in Nigeria. The insurance firms in Nigeria were collecting a huge amount as premium into the pool. The insurance industry has been performing various functions. The aim of this study is on how well they have been able to accomplishing this task, the insurance industry provides different types of product in the insurance market.
These products among others includes:
- Fire and Burglary
- Marine and Assurance
- Life Assurance
- Fidelity Guarantees
- Re-insurance Business
Although the primary function of insurance is to provide indemnity of the above classes of insurance. It provides other indirect function which include the underlisted.
- Creating investment opportunities
- Financing other sectors of the economy
- Risk management and advice
This research study stated with the aim of achieving the following
- To undertake a careful study of the Nigeria insurance industry using NICON as a case study
- Critically analyzing the effect of the insurance industry on the Nigeria economy. Assessing insurance influence in the area of this.
- The investment of manufacturing and agro-allied sectors.
- The accumulation of foreign exchange for the Nigeria economy
This research study has on the impact on insurance industry on the economic development of Nigeria. In this course of study, it was discovered that the function of insurance industry are numerous with spiral effect on the other sector of the economy. This insurance industry is seen to be positively affecting the development of Nigeria economy due to its cohesion in bridging the gap of financial miss- management faced by business individuals who before the emergence of modern insurance in the country were stranded in term of financial management as a result of many losses encountered.
This insurance creates an intangible psychological relief and builds confidence which helps business individual to plan to the future.
From the foregoing insurance plays a general role in the generation and conservation of funds. In line with this view, it can be said that no modern insurance and economy can function effectively without adequate re-insurance activities.
Moreover, as the practice of insurance develops and indeed the awareness grows, it is Important to reiterate Irukwu( 1991) observation that insurance as an economic institutions has come to stay and as long as the money and free market economy remains with us insurance will continue to be visual feature of modern economic system.
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