Insurance Business And Its Impact On The Growth Of The Nigerian Economy
Insurance Business And Its Impact On The Growth Of The Nigerian Economy
Abstract
Business produces goods and services to satisfy the demand of customers. Much as these businesses declare profit year-in-year-out, they also face element of risk and uncertainties that may causes losses. This includes fire, theft, damage by artificial or natural agents and so forth. The business men in the olden days engage into economic activities with pessimism and fear of incurring losses. This inhibits large scale production which is capital intensive. However, with the advent of the insurance business, things improved for the between, as business men become encouraged to commit more of their resources in production activities, knowing fully well that the insurer will reimburse item in the event of damage or loss. Simply put, insurance is a contract of utmost good faith in which the insurer will pay compensation to a policy holder for loss or damage of insured items.
Meanwhile, the practice of insurance has become a lucrative business in itself, such that it contributes enormously to the national development in items of employment opportunity provision as well as Gross Domestic Product(GDP)
Thus, the interest of the research is aroused to carry out a study in this important, yet neglected sector of the economy with a view of sensitizing the students, business men and the entire public of the benefits derivable from the insurance business. The public policy makers shall be intimated as to the areas that require further regulations and or deregulations.
The researcher therefore employed and secondary sources of data collection in order to do justice to the topic. Chi-square technique of data analysis was used to fully digest the sourced information. This technique is quantitative and its choice was informed by its ability to give a pictorial view of the research findings numerically. Similarly, NICON insurance company was the focus as a case study.
The most important among the research findings include the lack of awareness on insurance issues by the teaming Nigerian populations, minimal coverage of the industry’s activities in such important sector as health and agriculture, lack of adequate government as well as private sector participation in insurance business, death of professionally qualified staff operating with the industry to boost the confidence of patronizers; vague and intricate operational mechanism and of course public suspicion about the sincerity of purpose with which the insurance business is dispended, the researcher, hence, proffered such remedial recommendations as infusion of deep sense of professionalism by practitioners in the industry with a view to fostering public confidence, inclusion of insurance training in schools curriculum right from secondary to post-secondary institutions as mandatory especially for science students, sponsored programmes on point and electronic media outfits on insurance matters, increased government participation and deregulation of stringent rules barring the engagement of private sector into insurance business and up-front settlement of genuine claims as they falldue.
Chapter One
1.0 Introduction
The Leading Assurance Company (NIG) LTD
Leading assurance did not progress with 1970. The lead way company was incorporated in 1970 to make out full assurance business in Nigeria. The company registration office is in Kaduna.
The Head Quarter of lead way assurance is located at Kaduna town in Kaduna State. They have branches, which are refers to as ‘collecting centres’. These collecting centres are situated in almost every state of the federation.
Some of them are found in the following towns, Abuja, Akure (Ondo State), Bauchi (Bauchi state), Ibadan (Oyo state), Port Harcourt (River state) Sokoto (Sokoto state), Zaria (Kaduna state), Warri, Yola (Adamawa state), Gboko (Benue state), Jos (Plateau state), Kano (Kano state), Ikeja (Lagos state), Makurdi (Benue state) and Maiduguri (Borno state).
In these companies the following forms of the insurance business are: fire policies, motor vehicle business policies, accident policies, workmen compensation and life assurance policies.
1.1 Background of Study
Before the 19th century, there was nothing existing like Insurance business, nevertheless there were some association or communities who were organized in the form of material, social insurance schemes which had the common feature of today’s modern insurance. Among such were the age grade associations, extended family system and the cultural unions. These unions and associations maintained funds collected periodically from members out of which financial assistance were extended to decease members of the family who has experience some calamity.
In Nigeria, even up till today, this system of social insurance still exists as part of cultural life or many communities. In addition, we have the emergence of social club of Nigeria the kook kats club of Nigeria among many others which provide some form of social insurance schemes to their members as well as use part of the accumulated premiums for national development and charity donations.
The modern insurance business was first introduced in Nigerian 1921 by the Royal exchange assurance company Ltd and it remained the only insurance company in Nigeria. Until 1949 when three other British owned insurance companies were also established. Before 1921 however, some form of insurance business operated in Nigeria, mainly in marine (for export produce) sector, and a few in the motor insurance sector. One can understand the reason for this because by 1920 records showed that there were about 300 cars and a total of 17 miles of tarred roads in Nigeria, so the chance of knocked down a motor vehicle were very slight.
By the time Nigeria got her Independence in 1960, the number of Insurance companies operating in Nigeria had risen to 25. They were all mainly foreign-owned. However, by 1984, there were 88 insurance companies operating in Nigeria most of which are now indigenous companies. In addition to that there were no registered insurance brokers.
Available statistical information that the insurance market in Nigeria has grown rapidly since 1960, not only in numerical strength but also in assets. By 1983, the insurance business in Nigeria attracted a gross premium income of N634 million.
The first insurance act was promulgated in Nigeria in 1961 by the federal government known as “the insurance companies Act 1961”. The act introduces for the first the necessity for the registration or licensing of the insurance companies. At the same time there came the marine insurance Act 1961, which still governs the operation in Nigeria.
There were subsequent registration, the most prominent being the Nigeria insurance Decree 1976, which was promulgated to regulate the insurance business the way previous legislation did not do.
The federal ministry of finance and the office of the director of insurance altogether control insurance companies in Nigeria and the insurance business. The insurance department of this ministry is responsible for controlling the activities of insurance companies so as to ensure compliance with the provision of Nigeria insurance Decree 1996 and other relevant regulation to the business of insurance in Nigeria.
Some of the major insurance companies operating in Nigeria are under the National Corporation of Nigeria, which was established by Decree No. 22 of 1969 to transact the business of insurance in Nigeria.
1.2 Statement of the Problems
Insurance business in Nigeria specifically offers a number of protections to many risks to which the economy is exposed. Insurance companies perform a good number of functions in the Economic development of the country. Prominent among them is:
- Safe-guarding the immeasurable risks to which capital is exposed and
- Reducing the burden of loses for the entrepreneur or investors.
In as much insurance business facilities safer economic development many mere people are yet to recognize the relevance of this sector of trade. Many, still either impliedly or expressly, mark dissatisfaction over the operation or services rendered by the insurance firms in the nation. The worst of it all, some members of the public do consider insurance companies as registered cheat because they give you time and if it expire them the contract terminate without the insurer benefiting to the money he or she insured and the company now gain the insurer.
1.3 Purpose of the Study
This research word would provide or make you have a complete understanding of the fundamental of insurance business, insurance principles and practice in the country. This approach would enable students of banking and financial studies to appreciate more on the line between insurance and economic development. The research text would not only provide additional knowledge for the user, but would also do more by highlighting the contractual relationship of the insurance companies and their clients.
This work would go further forming a basis for any person or group of persons who would like to carry out further research work in this direction of studies.
The manual will also prove useful for all students pursuing National Diploma in banking and finance.
1.4 Research Questions
The following research questions will guide the study:
- What is the importance of insurance in national building
- How does insurance is improving the standard of living in Nigeria
- What is insurance and assurance, and state the classes of insurance
- How does insurance business facilities economic growth
1.5 The Scope of the Study
There have been several forces which militate against the collection of data for this work. Though the researchers have to do the best of their knowledge and abilities to collect the data and also verified it to be true. However as earlier mentioned certain conditions hampered the data collecting exercise high on the list is finance.
The researcher was not adequately equipped with finance for the project to be carried out successfully. Financial strength that would have been a means for easy movement, for the purpose of scouting for data was absent.
Time, is also another factor that hindered the researcher from making further research work. The time given for the project was so tight, therefore, most research work were done half way.
End of course examination was also another obstacle. The researchers could not carry out the work anymore since their examination is almost approaching the situation compelled them to quickly round up the work the way it was not supposed.
However, the researchers to the best of their ability strove to make up a better shape of the work. The negative attitudes of the respondents towards supplying information was another scope, the most respondent did not feel secured enough to bear out their minds for the researchers.
Scope by sample it is only one insurance company in the country that was selected for study. The insurance company under assessment is the lead way assurance scope Nigeria. Therefore, all the findings are written the scope of the company. May be what would be obtainable in the company will not be found in other insurance companies in Nigeria.
1.6 Operation Definition of Terms
Insurance:
This is an arrangement with a company in which you pay them regular amounts of money and they agree to pay the cost of the damage e.g. fire disaster.
Assurance:
A statement that something will certainly be true or will certainly happen particularly when there has been doubt about it, e.g. death.
Policy:
A plan of action agreed or chosen by an organization or it also refers to as a legal document which gives details of the insurance contract by clause and it is binding on both parties involved.
Indemnity:
These means restoring someone to his or her formal position
Insurer:
A person or company that provide with the insurance contract.
Premium:
Is the amount of money that is paid to the insurance company
A slip:
An acceptable of the proposal binding the insurance company to issue a policy to the insured.
Cover note:
Giving a temporary protection for the insured the document usually lasts for thirty day.
The proposal:
It’s a reason seeking insurance cover.
Subrogation:
This refers to the right which the insurance company has to stand in the place of the insured against other parties who have caused the claim has been paid.
Utmost good faith:
Means that all the parties involved in the contract most acts faithfully and honestly both the insurer and the insured must disclose all relevant facts for the contract.
Insurance interest:
This phrase means that the insured must have an interest in the subject matter of the policy taken.
Proximate cause:
This means that, there must be close connection between the risks insured against the cause of the loss.
1.7 Organization of the Study
This study is organized into five chapters. Chapter one of the thesis discusses the overview of the study, problem definition, research question, research objectives, significance of the study. Chapter two presents all the relevant literature review on waste management and its related concepts. Chapter three addresses the identification of the most suitable research methodology for this research and chapter four presents a data analysis of findings gathered from the field. Finally, chapter five presents the summary of findings, conclusion, and made relevant recommendations.
Chapter Five:
Summary, Conclusions and Recommendations
5.0 Introduction:
In this chapter, a Summary is made of all the matters discussed in the previous chapters. Conclusions and recommendations are also made.
5.1 Summary:
This project work is aimed at highlighting the various functions and importance of Insurance Businesses to the Nigerian economy. This project work has five chapters, the first chapter consist of the Nature and origin of Insurance in Nigeria which deals with the statement of the problem, assumption of the study objective, significance, hypothesis, scope, limitation and plans of the study.
The second chapter is the literature review, it contained the data collected from documented materials or published information such as annual reports, magazines, journals etc. The chapter also contained discussions on impact of Insurance Businesses on the growth of Nigerian economy and the role of the Nigerian Insurance market.
In the third chapter, which is the research methodology, attempt was made to explain the design of the research project and the method used in collecting data that were relevant to the study.
The fourth chapter deals with analysis and interpretation of the data collected. And finally, in the concluding chapter, we present a summary of the study, conclusions, recommendations, and suggestions for further studies.
5.2 Conclusion
This study has attempted to highlight the impact of insurance and its major contributions to the economy. It has revealed the significance of the insurance industry, in national economic growth. The industry is still quite young, however, the regulatory body, NAICOM are laying down regulations in an attempt to revitalize the industry. The insurance industry acts as an absorber of the risks and uncertainties normally associated with economic activities, it is our conclusion that enactment and implementation of laws that would enhance the growth of the industry that would increase its contribution to the gross domestic product. We cannot have a buoyant economy if it is not insurance backed. Hence, we must support our insurance industry to enable it play an effective role as the nation’s risk bearing industry, capable of propelling the national economy to greater heights and further growth. Also, the entire insurance mechanism and the national economy can only function effectively in a peaceful and orderly environment under the rule of law.
The future of this industry looks promising if the professionals will remain united, having the same vision and pursuing the same goals.
The industry has been under serious criticisms on account of its reluctance in the settlement of claims and alleged unclear terms of insurance, which were often interpreted against the interest of the clients. These misconceptions have given the industry bad name, to the extent that members of the public consider it a waste of resources to insurance any property. According to Late Mrs. Stella Obasanjo, as quoted in a meeting tagged FIICEN (forum of Insurance Institutions chief executives and National Insurance Commission) said “There remains this belief that the insurance company will manufacture some excuse not to settle your claim in the event of accident”. According to her, an efficient and reliable insurance Industry should constitute a major element in the overall economic growth plan, adding that it remains one of the ways in which investors could be persuaded on the security of their investment.
5.3 Recommendations
The fact that the performance of the insurance industry depends to a large extent on the social, economic, and political environment in which it operates, the insurance industry of any nation is to a large extent, a reflection of the level of performance of the nation’s economy.
In this light therefore, to have a viable insurance-backed economy that is to improve on the efficiency of insurance industry, we recommend followings:
- A revolutionary promotion of knowledge and education: the number of professionals in this field is too limited. In an effort to improve the status of the industry, there must be a revolutionary promotion of knowledge amongst the brokers. Insurers, reinsurances, activities and loss adjusters. The industry must now begin to recruit young graduates for training as future leaders in all sectors of the industry.
- Marketing culture: For the industry to develop there is the need to be more creative and innovative especially in marketing initiatives. Due to lack of marketing orientation, the level of awareness of insurance business has remained low in Africa.
- Agricultural and Health Insurance: The present Government of the country has to give more emphasis on agriculture and health insurance, because they are the areas that demand urgent coverage by insurance industry. This is because at this stage of our growth it is obvious that our survival as a nation depends on our ability to feed ourselves. Therefore, the funds accumulated by the Nigerian Agricultural Insurance Company should also be used to assist the small-scale farmers, so that they will use the fund to purchase fertilizer and other tools and farming equipment. Further more, the problem of health care and medication has become so costly, that there is a yearning need for health insurance scheme in Nigeria. Nigeria is highly populated, the benefit of large number will make the health insurance viable.
- Government policies and programmes should be geared towards the promotion of insurance awareness by making it mandatory by certain class of insurance in the interest of the public. For example, the employer’s liability to their employees for death or injuries at work, fire insurance for all installation in office buildings, factories etc, would have the advantage of promoting awareness and availability of funds thereby increasing the investment power.
- Insurance company could also further invest in the construction of housing estates in urban and rural areas that could be rented out to members of the public at a reasonable amount. Also the educational sector needs the insurance businesses to provide special funds for under privileged children, orphans and also for technical training in order to learn a trade.
Finally, certain control should be incorporated into the operation of the insurance businesses in order to check against misuse of funds, which is supposed to be used in indemnifying people concerned, such control are to make sure that the operations are carried out and the staff are efficient. The areas of control include:
- Structural control
- Procedural control
- Custodian control
- Efficiency control
All these are along institutional line and often referred to as check and balances. Hopefully, if these few suggestion is adopted effectively, the insurance industry will have a remarkable impact on the economic planning of the nation.
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