Critical Analysis of the Impact of the Insurance Industry Towards Economic Development of Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To find out the various risk exposure in manufacturing firms in Nigeria
- To find out various ways of handling such risk exposures in manufacturing firms.
- To find out the problems facing the insurance companies in identifying such risk exposures in manufacturing firms.
- To know the role of risk survey in manufacturing firms
- To make recommendations on how to improve manufacturing firms through adequate risk survey tools by the insurance industry.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORIES OF ECONOMIC GROWTH
Both growth economics and development economics emerged as distinct fields of inquiry in the early post World War II period. Growth economics emerged out of a concern with the preservation of full employment in modern capitalist economies. Development economics focused on growth initiation and acceleration in less developed traditional societies. Growth economics was committed to macro-economic in orientation and the province of the practitioners of ‘high theory. Development economics was more micro-economic in orientation and drew on knowledge from related research in anthropology, sociology and political science and on the insight of practitioners (Krugman, 1996). There has been an uneasy relationship between these sub-disciplines. Growth economists have tended to view the development economics literature as lacking in rigor and burdened with irrelevant organizational and behavioral detail. Development economists have often felt that the only message growth economists were sending them was to get interest rates (and other prices) right. After a hiatus of over two decades there has emerged, since the mid-1980s, renewed interest in the theory of economic growth. With the emergence of a new and richer growth economics literature the possibilities of a more fruitful dialogue between growth economics and development economics now may be possible. The purpose of this study is to address the question, what should development economists learn from the new growth economics? (Ruttan, 1998) There have been three waves of interest in growth theory in the last half century. The first was stimulated by the work of Harrod (1939, 1948) and Domar (1946, 1947). The second wave began in the mid-1950s with the development by Solow (1956) and Swan (1956) of a neoclassical model of economic growth. The third wave was initiated in the mid-1980s by Romer (1983; 1986) and Lucas (1988). The question posed by Harrod and Domar, using somewhat different terminology, was under what circumstances are an economy capable of achieving steady state growth? This question had forced itself onto the economic agenda by the Great Depression of the 1930s and the expectation that the end of World War II would be followed by renewed instability. In the Harrod-Domar view instability in economic growth was the result of failure to equate a ‘warranted’ and a ‘natural’ rate of growth. The warranted rate of growth is dependent on the savings rate and on a given capital requirement per unit of output. The natural rate is the maximum long run sustainable rate of growth. It is determined by the rate of growth of the labor force and the rate of growth of output per worker. This central proposition of the Harrod-Domar model arises from the assumption that investment is both capacity creating and income generating (Ruttan, 1998) Thus, if the savings rate were 10 percent of income and the capital output ratio 4, the warranted rate of growth would be 2.5 percent. If the labor force was growing at 1.0 percent and labor productivity at 1.5 percent per year, the warranted and natural rates would be equal. An attraction of the Harrod-Domar model was that it attempted to study long run growth with the tools of Keynesian economics that had recently become familiar to economists. Use of the model diffused rapidly to the planning agencies of many newly independent countries. It seemed to confirm the widely held belief among development economists and planners that the transition from slow to rapid growth required a sustained rise in the rate of savings and investment.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used 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 critical analysis of the impact of insurance industry towards economic development of Nigeria
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
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.
Secondary source:
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
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information the critical analysis of the impact of insurance industry towards economic development of Nigeria. 200 staff of Emenite limited, Enugu state state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
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.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was critical analysis of the impact of insurance industry towards economic development of Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of impact of insurance industry towards economic development of Nigeria
Summary
This study was on critical analysis of the impact of insurance industry towards economic development of Nigeria. Five objectives were raised which included: To find out the various risk exposure in manufacturing firms in Nigeria, to find out various ways of handling such risks exposures in manufacturing firms, to find out the problems facing the insurance companies on identifying such risk exposures in manufacturing firms, to know the role of risk survey in manufacturing firms, to make recommendations on how to improve the manufacturing firms through adequate risk survey tools by the insurance industry. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Emenite limited, Enugu state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made processing engineers, electricians, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
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 channeling 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. However, the level of insurance market activity which should be commensurate with Nigeria’s huge potentials has not been attained. Insurance by reducing uncertainty and volatility smoothen the economic cycle and reduce the impact of crisis situations on the micro and macro level. But, the demand for protection against losses of life, property caused by natural disaster, crime, violence, accidents, fire etc are not so demanded in Nigeria. It is against the foregoing that this study was undertaken to explore the impact of insurance market activity on economic growth in Nigeria. 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.
Recommendation
This study recommends amongst others that:
- 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 dependants. 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.
- 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.
REFERENCES
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