The Role Of Insurance Companies In The Development Of Nigerian Economy

Project and Seminar Material for Insurance

The Role Of Insurance Companies In The Development Of Nigerian Economy


Abstract


Insurance by nature, is not a modern day concept. It has a development history of so many – centuries. The art of insurance has grown as a result of individual, corporate bodies and government need for the fortunes of lives and business. Therefore, the types and classes of account were those which were expected to show to the venturers, i.e. the owner of business, government and individuals.

It is based on this that the researcher, therefore, focused this study on the role of insurance companies in the development of Nigeria economy. Hence, the general objective of the study is aimed at ascertaining the roles which insurance companies plays in the development of Nigerian economy.

Thus, in chapter one, retrospective review of historical development of insurance was carried out, this is following by the background of the study, objectives of the study, research-question and scope of study.

Chapter two takes care of the literature review and was carried out in seven-subheadings, evolution of modern insurance in Nigeria, the fists that may be insured, classes of insurance, the Nigerian Insurance market.

Finally, chapter three really deals with the summary of findings, which is based on the observations of chapter two. Then conclusion was made on the entire research carried out.


Chapter One


1.0 Introduction

Insurance is the modern means of protecting himself against losses. It is the device, by which man is able to protect himself against risk. In other words, insurance is the system where an insurance company upon the receipt of a certain amount of money from a person, agrees to pay compensation or render certain services, to the person, if, and whenever that person suffers the kind of loss that was specified in the insurance agreement. What this means is that insurance is the means by which people can save money to take care of unforeseen dangers and accidents.

When a person agrees to take insurance, policy to protect himself against certain accidents, he will pay a sum of money (which is called premium) to the insurance company. Once the insurance company (who is called the insurer) accepts that premium from the person who intends to take insurance cover (such a person is called the insured) the insurer has thus agreed to pay an amount of money (called claims or compensation) to the insured whenever the insured loss occurs. This agreement is usually contained in a document called a policy.

Premiums, that is the cost of purchasing an insurance, are not fixed arbitrarily. They are usually calculated by insurance experts, mathematicians called actuaries. High risks usually attract high premiums. For instance, if a 20-year old man is taking a life insurance policy, his premium will be much less than that of an 80-year old man who insists on taking a life insurance policy.

Since insurance contract as may other commercial, activity. It is these principles that make for its validity, insurance contract is subject to the general principles of Nigerian Law not only does it affect insurance, but it operates in every other commercial aspect of life. They are as follows: offer and acceptance, consideration, capacity to contract, legality, consensus ad idem (parties should be of one mind) and intention to create legal obligation/ relations.


1.2 Background of the Study:

Insurance did not emerge completely and perfectly, which in every detail, but, it developed slowly over the centuries in order to satisfy the needs of those concerned with the protection of individuals, business, other organisation and governments.

Insurance which is believed to have originated from the ancient practices of the inhabitants of the valleys of Rivers Tigris and Euphrates in present day Iraq in about 400 BC rose to the earliest trace of interest in modern insurance in England, dates to 1666AD. Up to the Lloyd’s of London which occupies the central position in today’s global insurance market, started as a small coffee house which was patronized by merchants, bankers and insurance underwriters. Originally, Llyods was the world’s dominant insurer of marine risks.

Although modern insurance started in Nigeria in the early part of the 20th century, historians and sociologists argue that what is today known as insurance was totally alien to indigenous Nigerian culture.

Presently, insurance has grown to meet the increasing demands being made on the practicing insurers. Following the historical development of insurance, it should be observed that covers those risk affecting, individuals, business organization and government as an insight into the protection of risk and form of savings to the insured.

However, insurance has extended far beyond the actual protection of risk, but is concerned with the development of Nigeria economy at this particular time.


1.3 Objectives of the Study:

The broad objective of this study is to know the roles of insurance companies in the development of Nigerian economy. Bit it individuals or corporate bodies, or government, the objectives of this study will help the nation at large in knowing the roles all insurance companies play in the country.

So also is the government who needs a good balance, of payment in the country, in this process, the insurance companies plays a great roles in their own part. By this process, the insurance companies are able to do as long as they are able to utilize and carries the risks well and also utilizes their financial resources properly. For them to do this, is specifically for the objectives of the study which includes:

  1. The role of insurance companies in Nigeria
  2. The services of insurance companies to Nigeria
  3. The advantages of insurance companies
  4. To make recommendation based on findings,
  5. To create awareness of the importance of insurance to the public.

1.4 Research Hypothesis

H1: Total insurance investment (INV) has no significant influence on gross domestic product (proxy for economic development).

H2: Total insurance premium (PRE) has no significant effect on gross domestic product (proxy for economic development).

H3: Total insurance claims (CLA) have no significant effect on gross domestic product (proxy for economic development)


1.5 Scope and Limitation of the Study

Scope of the Study

This research work will focus on the role of insurance companies on the economy of Nigeria. The area of this research work is Insurance companies in Lagos state.

Limitations

The researcher in carrying out this study encountered numerous problems which includes:

  • Fund
  • Time
  • Lack of Research materials

The researcher did not have enough money to visit the company as money times as many times as required data adequately.

The time allotted for the work was not enough. This is because I had to share the time with other academic works of the semesters. This made her unable to cover a lot of interesting areas but therefore limited her research work only to Lagos.


Chapter Five


Conclusion and Recommendations

The conclusion and recommendations based on the study findings are presented in this section of the study.


5.1 Conclusion

This study investigated the relationship between insurance sector development and economic development in Nigeria using data from 2001 to 2017. The study adopted gross domestic product (GDP) as proxy for economic development and the response variable, while total insurance investment (INV), total insurance premium (PRE), and total insurance claims (CLA) were used as proxies for insurance sector development and the predictive variables. Secondary time series data for the variables were sourced from annual reports of Central Bank of Nigeria (CBN) Statistical Bulletins and the Nigerian Insurance Digest covering the period 2001 to 2017. The study employed descriptive statistics and multiple regression technique based on the E-views 9.0 software as methods of data analysis.

The empirical results showed that total insurance investment, total insurance premium and total insurance claims had positive effect on gross domestic product, proxy for economic development (total insurance investment and total insurance premium were significant at 5% level, while total insurance claims were insignificant at 19%). This study therefore established that insurance sector development contributes meaningfully to economic development in Nigeria. In summary this study was able to establish that insurance sector development has made significant contribution to economic development in Nigeria. It is left for government to make insurance protection mandatory for individuals and businesses to ensure safety of investment and sustain the level of growth in the economy. Government may also consider setting up requirements for insurers to comply with in order to guarantee the efficient and transparent management of funds and diversification of investment portfolio in the industry.


5.2 Recommendations

Based on the findings, this study recommends that insurance policies be made mandatory for individuals and business organizations to encourage and protect investors as well as ensure sustained economic development. Also, regulatory authorities should put in place policies to ensure transparent and efficient management of funds by insurers; while the latter should diversify their portfolio of investment to boost returns and ability in claims payment.


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