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ABSTRACT
This work examined the contributions of the insurance
industry to the gross domestic product (GDP) in Nigeria. Data for the
study were basically through the secondary process, extracted from
journals, newspapers, internet, magazines, textbooks, CBN statistical
Bulletin and Statement of Account etc. The Ordinary Least Square
technique was used to test the validity of the hypotheses stated in the
study. The research revealed that insurance industry through her routine
activities has contributed significantly to economic growth of Nigeria.
Through the signs from a priori expectation, it revealed a positive
linear relationship between insurance contributions with gross domestic
product (GDP) in Nigeria. However, the study revealed a negative
relationship between total investments of insurance industry to gross
domestic product. This is due the negligence of investment in the
industry. Furthermore, the study exposed that neglect of laws governing
insurance practise in Nigeria, poor accounting practice, poor claims
settlement, failed public image, negligence of investment, low awareness
of insurance etc as the major problems of the industry. The researcher
recommended an increased supervisory role of NAICOM (National insurance
commission), prompt payment of premiums, effective utilisation of
insurance funds, research, improved public awareness through adverts and
campaigns as possible solutions to the challenges facing the industry.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Insurance
is a course of productive that enhances the quality of life and ensures
the development and survival of all other businesses in general. The
main purpose of insurance apart from its basic function is to enhance
National development through effective wealth creation, protection and
conservation.
In the view of this, Oshinloye et al (2009), shows that
the important of insurance to any Nations economy cannot be undermined.
He said that no country can experience a meaningful development without
the presence of formidable insurance industry, thereby making insurance
business in any nation indispensable irrespective of its quota to the
gross domestic product (GDP) or its level of awareness among the
populace. According to Ezirim and Muoghahu (2002), in a typical market
economy of the globe the insurance industry is perceived as an
indispensable tool of economic progress, growth and development. It is
seen as vital to the well-being of and smooth functioning of a modern
economy. Like most financial institutions, is seems as a conduct for
mobilizing monetary from the surplus economy agents and channelizing
them to more efficient uses.
Oba (2003) wrote that, the performance
of the insurance sub- sector is a function of a social economic and
political environment in which it operates. In fact, the state of the
insurance industry of a country is a reflection of its economy.
Insurance remains one of the major indices for the level of development
of a nation’s wealth and plays very significant roles in the
mobilization of investable resources of an economy.
In developing
economics of the world, were financial systems are not highly
sophistically insurance provides the necessary bridge between commerce
and industry thereby making it possible for continued economic
activities. Unfortunately, the Nigeria situation is different. It is no
longer news at all to observe that the economy appears to have defiled
economy prescriptions which are intended to a positive impact on the
well- being of the people.
According to Szablick (2009), Nigerian
insurance is now the most developed among Africa. The industry has
underperformed its role in the financial sub- sector of the economy,
when compared with other parts of the world. The total insurance shared
of the world market is only 0.01% compared to South Africa with 0.86%
several factor account for the under performance of the insurance
industry, such as low capitalization, high receivable and poor public
perception of the importance of the insurance for business.
Insurance
companies are established to provide financial security to their policy
holders, through the pooling and investment of premiums, out of which
those who suffer unexpected losses are indemnified.
In Nigeria, the
returns on investment insurance funds lay behind the rate of inflation
in the economy, there is market instability due to inadequate
information in the market, which made it difficult for insurance
companies to make a long term planning and make optimal use of fund for
investment.
Based on the fore-going this research investigates the
contribution made by the insurance industry on the economic growth and
development of Nigeria. Possible factors affecting the impact of
insurance on the economy will be reviewed.
1.2 STATEMENT OT THE PROBLEM
This section of the research emphasizes on some of the challenges faced by insurance
companies in the discharge of their duties that contribute to gross domestic product (GDP).
According
to Obasi (2010), Nigerian has a negative attitude towards insurance
companies. This accounted largely for the low patronage and performance
stemmed from the poor attitude of insurers in the non claims payment.
This tradition of defaulting in claims translated to some form of bad
publicity for the industry and consequently, confidence in the industry
eroded significantly. Because of the confidence crisis of the industry,
Nigerians developed strong apathy for insurance which made the industry
pariah industry. The industry has refused to change with the times, as
policy documents still carry clauses that breeds distrust with
customers. (Obasi, 2010)
The abysmal level of insurance culture
developing economies has attracted relative interests among researches
and practitioners alike (Yusuf, Gbadamosi, and Hamadu, 2009). Omar
(2005) assessed customer’s attitude towards life insurance patronage in
Nigeria and found out that there is lack of trust and confidence in the
insurance companies. Other major reason, he adduced is lake of knowledge
about life insurance products. An instructive opinion suggested by the
researchers is the call for a renewed marketing communication strategy
that should be based on creating awareness and informing the customers
of the benefit inherent in life insurance so as to reinforce the
purchasing decision.
Furthermore, Yusuf (2006) noted that religion
historically has provided a strong source of cultural opposition to
life- insurance as many religious people believe that a reliance on life
insurance results from distrust of God’s protecting care. Until the
nineteenth century, European nations condemned and banned life insurance
on religious grounds. (Yusuf, Gbadamosi and Hamadu, 2009). Some
scholars are of the opinion that religious antagonism to life insurance
still remains in several Islamic countries.
Researchers have also
proven that another major challenge of insurance industry is
unfavourable macroeconomic environment. A stable macroeconomic
environment promotes the savings necessary to finance investments, a
pre-condition for achieving viable insurance industry and sustainable
economic growth. Insurance companies are sensitive to economic
fundamentals; this means that insurance companies factor macroeconomic
variables into the amount they collect as premium and their investment
decisions in order to meet up with claims. These macroeconomic variables
include the size of the current account deficit in relation to foreign
exchange reserve, government debt, government deficits, inflation,
interest rate and exchange rates etc. Nigeria’s macroeconomic policies
over the last periodic financial indiscipline, leading to volatile and
generally high inflation, large exchange rate swings and negative real
interest rates for extended periods. Government is not sincere in
promoting a favourable macroeconomic environment that will allow the
financial service industries thrive. This will adversely affect the
operational efficiency o the insurance industry.
In spite of the following challenges facing insurance industry, the following research questions will be asked;
• What is the relationship between insurance contribution and gross domestic product (GDP) in Nigeria?
• What major challenges face the activities of insurance business in Nigeria?
•
What is the significant relationship between total investment of
insurance business and gross domestic product (GDP) in Nigeria?
1.3 OBJECTIVES OF THE STUDY
The major objective of the study is to appraise the contribution of
the insurance industry to the growth of Nigeria economy. Other specific
objectives include;
• To verify the existence of any relationship
between the insurance contribution and the gross domestic product (GDP)
in Nigeria.
• To expose the challenges to an effective contribution of insurance funds to the economy.
• To examine the significant relationship between total investment of insurance business and gross domestic product in Nigeria.
1.4 RESEARCH HYPOTHESES
Hypotheses for the research are stated in the null an alternative forms as follows;
Hypothesis 1
Ho
– There is no significant relationship between the total investment of
insurance business and the gross domestic product in Nigeria.
H1 – There is a significant relationship between total investment of insurance business and gross domestic product in Nigeria.
Hypothesis 2
Ho – insurance contribution do not significantly relate with gross domestic product (GDP) in Nigeria.
H1 – insurance contribution do significantly relate with gross domestic product (GDP) in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
This study will be of immense
benefit to authorities in the insurance industry, relevant government
agencies (policy makers) and students in the universities. To the
authorities in the industries, the findings will expose the various
means of tackling the challenges of insurance investment in the economy
it. It will also reveal some of the loopholes in their endeavour to
enhance on the activities of insurance in the economy. In this regards,
an effective solution will be preferred to assist their efforts.
The
relevant government authorities, a suggestion that will enable them
appreciate the need for a reduction in policing the affairs of the
industry will be made. This will ensure that insurers are given a free
hand to operate within the armpit legitimacy.
The findings of this
research will also benefit under graduates in the universities. It will
add to the volume of literature that is available in the library on the
topic and also serve as a source of reference for further research.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The
scope of the study is limited to the examination of the contribution of
the insurance business to the gross domestic product (GDP) of Nigeria. A
range of time is taken from (1985 – 2010).
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