A Seminar on Insurance Companies and Economic Development in Nigeria
CHAPTER ONE
PREAMBLE
The role of insurance sector in mitigating sudden and devastating occurrences thereby stimulating economic development cannot be over emphasized. Both in developed and developing countries, insurance sector contributes to economic development both sectorally and geographically. Since insurance sector has links to sectors such as industrial, transportation, agriculture, mining, petroleum and trade both locally and internationally, its relevance to general human activities has continued to grow for all ages as all categories of risks increase.
Insurance business plays an important role in economic development by mitigating business risks occasioned by sudden and devastating occurrences in both developed and developing economies. The sector provides risk management and risk adjustment services to other sectors of the economy such as industrial, transportation, agricultural, mining, petroleum, banking, etc. It also contributes to economic development by acting as financial intermediary through capital formation and provides business funding for deficit sectors of the economy. According to Akinlo (2015) many studies in the past have pointed out the contribution of the insurance sector to economic development and development. These studies both empirical and theoretical have shown that insurance industry contributes to economic development by providing a comfortable investment climate in the economy.
CHAPTER TWO
LITERATURE REVIEW
Conceptual review
Overview of insurance sector in Nigeria
The British colonial government introduced insurance business into Nigeria in 1910. Before this time some forms of traditional social insurance had been in existence in every part of Nigeria. This was in the form of mutual and social scheme, which evolved through the extended family system, age grades and clan union of African cultures (Osoka, 1992).
Out of twenty-five insurance companies that existed in 1960, only seven were indigenous and their total market share was far below 10% (Osoka, 1992). The fallout from this was the drain on Nigeria foreign exchange earnings. As a result of this, a parliamentary committee was therefore set up in 1964, under the chairmanship of Honourable Obadan, to look into foreign domination of insurance. In the end, Obadan committee’s recommendation could not go beyond sensitization of Government over the danger inherent in the foreign domination of insurance industry (Usman, 2009).
There was a phenomenal increase in the number of insurance companies in Nigerian financial market following the introduction of Structural Adjustment Programme (SAP) in mid 1986. The need for intervention and control of the government led to the formation of National Insurance Corporation of Nigeria (NICON), in 1989 which was latter christened NICON Plc. The number of insurance companies increased from 70 in 1976 to 110 in 1990. However, to streamline insurance business activities and stem the upsurge of the “mushroom” insurance companies, insurance capital base was raised from N1 million to N2 million. Fall-out from this event was that only fifty-seven out of one hundred and fifty-two insurance companies qualified for registration. This was coupled with the tighter control over the industry that requested for provision for the licensing and control of insurance intermediary.
In an attempt to fortify insurance sector in Nigeria, the sub-sector has undergone two round of recapitalization over the past 8 years. The first of the two round of recapitalization occurred in 2003 in line with passing of the 2003 insurance act where insurance companies were required to increase their capital bases from N20 million to N150 million for life businesses, N70 million to N300 million for non-life businesses, and N150 million to N350 million for reinsurance businesses. There were 117 insurance companies before the recapitalization in December 2002, 14 of them did not make it and were liquidated. In September 2005, a new capitalization requirement was announced, increasing the capital base to N2 billion for life businesses, N3 billion for non-life businesses and N10 billion for reinsurance. Following the completion of the 2005/6 recapitalization exercise, which also involved quite a number of consolidations, the number of insurance companies dropped from 103 to 49. In 2008 the total asset of insurance companies was N573, 152.48 billion (National Insurance commission, 2010).
CHAPTER THREE
METHODOLOGY
This section covers the methodology adopted for the study, which is ex post facto research design since the study relies on already existing time series secondary data. This makes it impossible for the researcher to manipulate the data used in the study. The study source of data, variables, model specification and methods of data analysis are covered here.
Source of data
Time series secondary data for the study variables covering the period 2001 to 2017, were collected from various annual reports from the Central Bank of Nigeria (CBN) Statistical Bulletins and Nigerian Insurance Digest. These sources were considered the most reliable data sources for this type of study. The period covered by the study is 17 years, which was considered long enough for the researcher draw meaningful conclusions.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
The conclusion and recommendations based on the study findings are presented in this section of the study.
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.
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.
References
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- Akinlo, T. (2015) Causal relation between insurance and economic development in selected Sub-
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