The Importance and Roles of Insurance Industry in Nigeria Economy\
OBJECTIVE OF THE STUDY
The objectives that made the researcher to go into this topic are as follows:
- To find out the major roles and importance of insurance industry in Nigeria economy.
- To find out a way to increase the roles and the standard of insurance industries in the world today.
- To find out if there are possible approaches, that can be used to eliminate the poor standard of insurance services in Nigeria.
- To bring to the knowledge of the public the importance of insurance industry in the economy.
- To make suggestion and recommendations that could be useful in solving the identified problems.
REVIEW OF RELATED LITERATURE
This chapter reviews the literature on the importance and roles of insurance industry in Nigeria economy. It discusses issues arising from the topic of discuss as viewed from different perspectives, with a view of giving a theoretical and empirical foundation to the study.
THEORETICAL REVIEW OF THE NIGERIAN INSURANCE INDUSTRY
The main rationale for regulating insurance is its intangible nature. In almost all jurisdictions, government is closely involved in the regulation of the business of insurance. To varying degrees in different states and nations, government uses legislative and judicial branches to regulate underwriting practices, contract structure and solvency this often distinguishes the business of insurance from other businesses as regard the extent to which separate enterprises must behave competitively rather than cooperatively (Chandler, 1999). Central to regulation of insurance is its classification as a public-interest business. According to Outreville (1998), there are two important reasons for classifying insurance as a public interest. These are; insurance companies sell complex promises and high potential for discrimination and abuse against customers. While the former explains the rationale based on the complexity of insurance and consumers’ inability to obtain and understand information about insurance commends the need for regulation, the latter involves insurance consumers being ill-equipped to assess a company’s future solvency, to compare the coverage of various policies, or to evaluate a company’s claims service. The Obadan Commission of 1961 was set up to review the situation of the Nigerian insurance industry. The outcome of Obadan Commission gave rise to the establishment of Insurance Companies Act of 1961. Arising from the Act, the number of insurance companies in Nigeria increased to 70 in 1976. Of the 70 insurance companies, fourteen were foreign owned, ten were wholly government owned while forty six were indigenously owned (Ujunwa and Modebe, 2011). The upsurge in the number of indigenous insurance companies, in the main, could not transform to efficiency, as foreign domination was still prevalent in terms of volume of business (Uche and Chikeleze, 2001).
By the provisions of the Insurance Companies Act of 1961, the office of the Registrar of Insurance was created to supervise insurance practice. Other provisions of the Act included minimum capital requirement and other conditions for registration, monitoring and control of insurance operations generally. This was followed by a series of legislations which sought to further the cause of insurance regulation in the country. The first major attempt at regulating insurance in the country was the promulgation of the Nigerian Insurance Decree 1976. In continuation of the regulation of insurance businesses in Nigeria, the National Insurance Commission (NAICOM) was established in 1997. The power of NAICOM is to legislate for the industry in the country and the Insurance Act 2003 (Insurance Act) clearly laid out a comprehensive outline for NAICOM. Section 86 of the Insurance Act provides that subject to the provisions of the Act, NAICOM shall be responsible for administration and enforcement of the provisions of the Insurance Act. Criteria and standards for registration, policy provision, rates, expenses limitations, valuation of assets and liabilities, investment funds, and the qualifications of sales representatives are set by NAICOM. To monitor insurance practitioners’ compliance with its rules, NAICOM adopts the international standard score principles of insurance supervision which have been entrenched in the Insurance Act 2003.
The researcher used the descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to a critical analysis of the importance and roles of the insurance industry on the Nigerian economy.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
The Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information a critical analysis of the importance and roles of the insurance industry on the Nigerian economy 200 staff of Allinaz Insurance Company were selected randomly by the researcher as the population of the study.
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
It is important to ascertain that the objective of this study was to have a critical analysis of the importance and roles of insurance industry in Nigeria economy.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of insurance acceptance in Nigeria.
This study aimed at having a critical analysis of the importance and roles of insurance industry in Nigeria. Six objectives were raised to guide this study. These objectives include: To find out the major roles and importance of insurance industry in Nigeria economy, to find out a way to increase the roles and the standard of insurance industries in the world today, to find out if there are possible approaches, that can be used to eliminate the poor standard of insurance services in Nigeria, to bring to the knowledge of the public the importance of insurance industry in the economy and to make suggestion and recommendations that could be useful in solving the identified problems.
Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
Insurance is one of the cornerstones of modern day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as intermediary and as provider of risk transfer and indemnification, may promote growth by allowing different risks to be managed more efficiently through promoting long term savings, encouraging the accumulation of capital, serving as a conduit pipe to channelling funds from policy holders to investment opportunities as well as mobilizing domestic savings into productive investment. Insurance is an indispensable aspect of a nation’s financial system and theoretical conceptions explain that financial systems influence savings and investment decisions through lowering the costs of researching potential investments, exerting corporate governance, trading, diversification and management of risk, mobilization and pooling of savings, conducting exchange of goods and services and mitigating the negative consequences that random shocks can have on the economy. The result emanating from the hypotheses tested indicates that insurance market activity had positive impact on economic growth in Nigeria, implying that the insurance sector of Nigeria has assisted in influencing savings and investment decisions and hence long-run growth rates through lowering the costs of researching potential investments, exerting corporate governance, trading, diversification, and management of risk, mobilization and pooling of savings, conducting exchanges of goods and services, and mitigating the negative consequences that random shocks can have on capital investment thereby enhancing the growth of the Nigerian economy.
This study recommends amongst others that: 1. Life insurance is a way of dealing with risk and a saving medium for consumers. It also plays important psychological and social roles. The major function of life insurance is to protect against financial loss from loss of human life. Life insurance is therefore developed on the concept of human life value as well as a means of savings for the policyholder. Thus, we recommend stronger government policies. Government agencies like National Insurance Commission (NAICOM) and National Pension Commission (PENCOM) should strictly enforce the implementation of compulsory group life insurance cover under the Pension Reform Act, 2004. Also life insurance companies should introduce life products particularly within the low income earners as the target which will enhance penetration and deepen the market. It will also be necessary to develop products that will optimize both investment returns to policy holders and financial protection to their dependents. This will assist in enhancing savings habit of Nigerians thereby increasing the quantum of funds available for investment into the real sectors of the Nigerian economy. 2. The availability of insurance services is essential for the stability of the economy and can make the business participants accept aggravated risks. By accepting claims, insurance companies also have to pool premiums and form reserve funds. Thus, this study recommends an increased diversification of insurance products especially in the non-life business. The insurers should come up with new non-life products and a modification of existing insurance products, thus availing customers the opportunity of choosing from a variety of products. There is also need for the insurance companies to take advantage of the non-life insurance products made compulsory by law to substantially increase their premium income and deepen insurance penetration. 3. Insurances are similar to banks and capital markets as they serve the needs of business units and private households in financial intermediation. The availability of insurance services is essential for the stability of the economy and can make the business participants accept aggravated risks. Hence, this study recommends a facilitation of linkages between various financial institutions in the country that will lead to greater penetration in the Nigerian insurance industry. This will include the healthy application of banc assurance which is mutually beneficial for insurance companies and banks, mortgage protection, leasing, risk management services, among others.
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