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THE
CONTRIBUTION OF INSURANCE BUSINESS TO THE ECONOMIC DEVELOPMENT OF NIGERIA
(2005-2011)
CHAPTER ONE
1.1
BACKGROUND OF THE STUDY
Insurance is
a form of risk management primarily used to hedge against the risk of a
contingent uncertain loss. According to Adebisi, (2006) Insurance is an
intricate economic and social device for the handling of risks of life and
property. It is social in nature because it represents the cooperation of
various individuals for mutual benefits by combining together to reduce the
consequence of similar risks. As every new area of risks, and since with every
passing day a new insurance package is amounted to take care of more and more
areas of risks, the insurance booms.
Agbaje
(2005) defined insurance as the business of pooling resources together to pay
compensations to the insured or assured (I.e. the policy holder) on the
happening of a specified event in return for a periodic consideration known as
premium. Note that an insurance contract is usually evidenced by a document
called the insurance policy which is usually signed at the foot by the insurer
or assurer or his agent. Gollier (2003) argued that insurance involved the
transfer of risk from an individual to a group sharing losses on an equitable
basis by all members of the group. The group, known as what is now called
Nigeria agents towards the end of the 19th Century by European trading
companies mostly British.
These
companies started affecting their insurance with established insurers in the
London Insurance market. As time went on, some British insurers appointed
Nigeria Agents to represents their interest in the country. These agents later
metamorphosed into full branch offices of their parent companies in Britain.
Osun Kunle 92002) opined that the first branch office in Nigeria was the Royal
Exchange Assurance in 1921, later followed by other British companies,
indigenous Nigeria Insurers and re-insurers later followed such as National
Insurance Corporation of Nigeria (NICON) Established in 1969 and Nigeria
reinsurance companies operating in Nigeria today.
Lynch (1992)
Opined that insurance companies have continued to be on the increase since
early sixties. This has been due to liberal financial legal requirements. With
the increase in insurance business in Nigeria, it is anticipated that it should
be able to contribute to the growth of the economy. More so, as insurance
provides a hedge against loss, it is supposed to increase enterprise, thereby
increasing national productivity.
1.2
STATEMENT OF THE PROBLEM
One of the
earliest and the most resilient problems in the insurance industry and the
broking firms in particular has been contending with, and will continue to
contend with is the problem of ignorance as the benefit of insurance products.
Many do not know what insurance is all about even the educated ones.
Some
believes insurance is a smart way of extorting money from the people. The
problems created by some dubious practitioners who will collect premium without
remitting same to the appropriate quarters do not help matters either. I
believe that insurance practitioners especially the brokers will still need to
do more in this areas of educating the public on the numerous benefits of
insurance products and how such benefits can be harnessed. This will need
intensive campaign at the grass roots level. Inadequate effort in this
direction have defiled the huge premium that we are expecting from the
insurance public.
Government
will need to do more to enhance the process of turning around the economy to
increase employment and it subsequent multiplier effect on the economy as a
whole.
However, the
age old religious belief that God is the best insurance is yet another factor.
It is true, that is the best insurances, but we have to note that insurance is
God’s creation through man to address a wide variety of human needs.
In view of
the potential and actual contribution of insurances business to the economy, it
has become pertinent to investigate into the actual contributions of the
insurance industry in the growth of the Nigerian economy, and to what extent it
has contributed. In this light therefore one begins to consider how insurance
business has grown over time in Nigeria, and whether it has made meaningful
contribution to the economy.
1.3 OBJECTIVE OF THE STUDY
i. To
examine the relevance of insurance business in Nigeria
ii. To
assess the extent of insurance service provided to client in Nigeria
iii. To
evaluate the contribution of insurance business to economic development in
Nigeria.
iv. To
identify the challenges facing the insurance business in Nigeria.
v. To make
policy recommendation.
1.4 RESEARCH
QUESTION
What are the
relevance of insurance business in Nigeria
To what
extent has the insurance services been made available in Nigeria
To what extent
has insurance business contributed to the economic development of Nigeria?
What are the
likely challenges facing insurance business in Nigeria?
1.5 RESEARCH HYPOTHESIS
H0:
Insurance business has not make any significant contribution to economic
development in Nigeria
H1:
Insurance business has not make significant contribution to economic
development in Nigeria
1.6 SCOPE OF THE STUDY
The scope of
the study is confined to the contribution of the insurance business/industries
to the economic development of Nigeria with particular interest on the period
2005-2011 and the data used for the study are data and time series based.
1.7 SIGNIFICANCE OF THE STUDY
The study is
important because the result and findings of the study will be useful to the
following class of users:
Policy
makers: They shall consider this research work as basis for making economic
policies.
Academia:
The research work is also significant to lecturers and students as an addition
to existing literally works, thereby serving as a resource material to all who
wish to further the study of the subject matter.
Other
researchers: The research work is significant because other researchers of
related subject matter will make use of it as a resource material.
1.8 LIMITATION OF THE STUDY
The
challenges encountered by the researcher in the course of the study range from:
Accesibility
to relevant data: it was no easy to get relevant data that will help reseacher
to develop more idea on the topic.
Time
constraint: this is another problem, the time limit is not much for a
researcher to carry out more study on the work.
Financial
challenge: is also the most important problem that the researcher encountered
during researching which involve traveling to relevant organizations and
companies to get relevant data and information so limitation in data correcting
went a long way in afffecting this research work..
1.9 DEFINITION OF TERM
Insurance:
This is a contract in which the insurer, for a consideration or for a sum of
money which is called premium, agrees to pay to the insured a sum of money or
its equivalent whenever the event that was insured occurs.
Reinsurance:
This is particularly important in any modem economy. It is simply a secondary
insurance or the process by which an insurance company places a proportion of
its insured risks which it cannot bear with another insurance or reinsurance
company
Premiums:
This is the amount paid by the insured to the insurer for the insurance cover
provided in the policy.
Indemnity:
The maximum amount pays able by an insurer to beneficiary of loss. The
principle of indemnity implies that the claimant does not profit from the loss.
Insurable Interest:
The pecuniary interest a person has in a possible subject matter of insurances
such as car, property or life, such that he might suffer a financial loss as a
result of the happening of the event insured against.
Insurer: The
insurances company that has undertaken to provide an indemnity, pecuniary
benefits or render services. The word insurer is sometimes synonymous to the
word ‘Assurer; Assurance or assurer’ are however more applicable in life
business. In view of the certainty of happening of the event assured, benefit
could be paid on the death of the life assured or on the maturity of the
policy.
Contribution:
This is a doctrine, which enables an insurer to call upon another insurers
similarly (but not necessarily equally) liable to the same insured to share the
cost of an indemnity. It arises when there is more than one policy in respect
of the same loss and each policy is covering the interest of the same insured.
Claims: A
demand made by an insured or the insured’s beneficiary for payment of benefits
or indemnity following a loss in accordance with the terms of an insurance
contact.
Cover: A
contract of insurance, to effect insurance, that is to ‘cover’ and insured for
example, motor insurance with effect from a given time.
Cover Note:
A document which signifies temporary acceptance of issuance of the policy
document.
Excess: The
portion of a loss which an insured is expected to bear while the insurer will
be responsible for any amount of the insured loss over the portion. This is
mainly applicable to motor insurance.
Pool
(insurance): An agreement between a group of insurances and reinsurance
companies to cede a percentage of some defined classes of business to a common
source from where premiums, losses and expenses are shared in agreed proportion
amongst them. Pools are usually formed to cater for volatile classes of
business as v cli as to increase local retention capacity as in the case with
most developing insurance markets.
Broker: A
broker is an independent operator whose main duty is to bring parties to an
insurance transaction together for a commission. The broker conducts his
business for all and sundry and does not represent any particular insurer to
the exclusion of others. The broker is professionally liable to the insured in view
of his professed expertise in insurance.
Agent: One
who solicits, negotiate and effects contract of insurances on behalf of
insurer(s) within a defined limit of authority and subject to statutory and
common laws. An agent may be a full time sales employee of an insurer or
appointed on a part-time basis.
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