The Impact Of Insurance Services In The Nigerian Economy

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The purpose of this research work was to identify the impact of insurance services in the Nigerian economy. This is because most of Nigerians looks at insurance industry as a weak and poor industry with little or no impact in the Nigerian economy. However, the researcher carefully x-ray the implication of effective contribution of insurance services to the Nigerian economy and also review the relationship between insurance industry and other economic activities in Nigeria. The researcher also examined the role of the Nigerian insurance industry in the economic development of Nigeria. Based on the findings, the researcher observed that the majority of the Nigerians lack better understanding of insurance, the result of the testing indicates that insurance industry has made a tremendous impact in the growth and development of Nigerian economy and will  do more.


Title page                                                                         i

Approval page                                                                 ii

Dedicate                                                                          Iii

Acknowledgment                                                             iv

Abstract                                                                          v

Table of contents                                                             vi


INTRODUCTION                                                                        1

1.1      Background of the Study                                        1

1.2      Statement of Problems                                            9

1.3      Objectives of the Study                                           10

1.4      Research Question                                                  10

1.5      Research hypothesis                                               11

1.6      The Scope and Limitation of the Study                  12

1.7      Significance of the Study                                        12

1.8      Definition of Operational Terms                             13

References                                                               17



REVIEW OF RELATED LITERATURE                      18

2.1  An Overview                                                            18

2.2      Classification of Insurance Business in Nigeria.    21

2.3      An Analysis of the Nigerian Economy                    26

2.4      The Impact of Insurance Services in the

Nigeria Economy                                                     28

2.5      The Role of Insurance Intermediaries in

Promoting the Economy                                         35

2.6      The Beneficiaries of Insurance in Nigeria               40

2.7      Factors Militating Against the Growth of

Insurance Services in Nigeria.                                41

2.8      The Challenges Facing the Insurance

Industry in Nigeria.                                                45

2.9   Summary and Conclusions                                    47

References                                                               49


3.1      Research Design                                                     50

3.2      Area of the Study                                                    50

3.3      Population of the Study                                          51

3.4      Samples Size and Sampling Technique          52

3.5      Method of Data Collection                                      53

3.6      Method of Data Presentation and Analysis            54

3.7      Validity of Data Instrument                                   55

3.8      Reliability of Data Instrument                                56

References                                                               57


PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA                                                                   58

4.1      Data Presentation and Analysis                           58

4.2      Testing of Hypothesis                                               78

References                                                               89



AND RECOMMENDATION                                      90

5.1      Summary of Findings                                             90

5.2      Conclusion                                                              92

5.3      Research Recommendation                                    92

References                                                               94

Bibliography                                                           95

Appendix                                                                 98

Questionnaire                                                         99



1.9     Background of the Study

Insurance which has existed from thousands of years, has emerged in today’s world as a very large field With many dimensions and specification. Today’s world is dominated by great changes. Anywhere in the world, industrialization is becoming a truly world wide phenomenon-within the frame work which accompanied by the organization of independence within global interdependence, everything is trusted into new and large dimension including risk and uncertainty.

Insurance been one of the most important ways of organizing security is at the crossroads of both phenomena.

This assertion does highlight the unique position of the insurance industry in contemporary business world. It also put into focus the overwhelming scores that accrue to this commercial organization in the changing times of our society. The developing of the insurance industry has now come to be regarded as a key feature in the economics on-goings of the business world and so it is first natural that Nigeria when it finally attained independence in 1960 identified insurance as one of the economic activities. She is however witnessing some tremendous progress in the field.

Before the existing of modern insurance, man lived in a subsistence though the environment was still exposed to hazards of risks. (natural disasters and fire accidents) the gradual development of man’s totality of life (economics, social, political and of course technological) has been equally followed by exposure to society become complex, the need to eliminate these risks or ameliorate the effects they might have on man and society makes a way of achieving social security.

In the Nigerian economy, modern insurance, which is a follow-up to the traditional arrangements by the extended family and other traditional societies, and organizations (to help any members who suffered any loss by way of accident or death) is at the early stage of development. As a result of this, we are experiencing the usual problems of late comers. Those problems coupled with an array of socio-economic leaves us with wider scope for development in this filed. This not withstanding, the Nigerian economy is witnessing a tremendous impact has attracted the researcher’s interest and as such, hence carefully look at this industry in the economy; the technicalities of insurance and the volume of business operation.

However, the subject of insurance can never be discussed in isolation of its definition. Many writers and authorities in insurance literature have given several definition of the term “insurance”. These  definitions of all portray the viewpoint of these writers. The selection of a convenient definition therefore poses a big problem. However, for a working definition in this paper, it is necessary to look at insurance from the major points of view. These should throw enough light of the concept of insurance at least for the purpose of this thesis.

The sociological biased writer sees insurance as a device whereby the participants provide financial compensation or succor to those among them encountering the misfortunes of contingencies  that befalls man.

For legal consideration, the lawyers defines insurance as a contract whereby a person called the insurer or assurer aggress in consideration of money paid to him called the premium by another person called the insured or assured, to indemnity the latter against lost resulting to him on the happening for certain events. The policy is the document in which the terms used for the contract is contained.

For economic point of view, insurance is defined as the elimination of risk or loss by the payment of premium to an insurance company which undertakes to pay for specified losses; the losses of a few are met from the premium of many (Bello 1990). Consequent to the tremendous progress made in this industry in recent years in terms of growth, no single definitions given above adequate coverage for the scope and purpose of this study.

In line with insurance and risk management, insurance can be defined as a contract between two parties namely the insured and the insurer, whereby the insured pays a relatively small amount of money called premium to the insurer who undertakes to pay the sum assured or its equivalent in accordance with the contractual term if the event (s) takes place within the period of the contract.

Prior to the days of modern insurance, most of the communities in Nigeria have some form of organized arrangement, which has some features of insurance. These arrangement, which really had been in transmitted from generation to generations were a part of our culture in the traditional society. Even as at now elements of these arrangements have not been completely destroyed by the influence of civilization and rapid industrialization. However, the extended family, age grade associating and cultural union where the main actors in maintaining these forms of rudimentary social security. They provide some kind of insurance protection to their members especially during periods of adversity. The activities of these associations and traditional bodies were however, built on moral foundation and so were quite unsuitable for contemporary economies of today. They are fast given way to an organized and more sophisticated modern insurance run on a purely commercial basis for the overall benefit of the insuring community.

Before the first insurance office was opened in Nigeria, insurance business was mainly on marine for export products. Small personal insurance, bank mortgages security and a few motor insurance. These were all transacted by agencies for European offices. Modern insurance was really introduced into this country in the early 20th century when European trades was established , trading posts  all over the country with the involvement of Nigeria in the economic activities of the nation coupled with more awareness in the direction of security and insurance in particular. There was a tremendous progress in the establishment of insurance companies by indigenous entrepreneurs between 1960s and 1976, a large number of indigenous companies started operations and these companies now under-write a substantial volume of the total insurance business in Nigeria.

The fact that life is full of risks should not be over emphasized here, this is due to the fact that every human is aware of the fact that possibility of being filed with one of these hazards of life is not remote. These life hazards will cause man or his estates some financial loss, the purpose of insurance is to compensate or indemnify the victim of circumstance.

Insurances does not eliminate the loss and cannot stop the disaster or misfortune from happening, it is not a safety device, all it does is to soften the blow in a purely financial way  offering industry compensation thereby putting him back in the financial position he was enjoying before the insured event. It is also important to note that despite the set up policy holders are required to pay premium in conformity with the terms of the contract.

Besides, the initial capital usually, subscribed by the share holder, the funds that occurred from the collection of the premium are the bedrock of financial operation of insurance company.                                      

1.10Statement of Problems

This research work looks into the following problems that emerge from the impact of insurance services in the Nigerian economy.

a.          The failure on the part of the insured in reaching the policy wordings.

b.          It is certain that insurance agents and brokers operating in the insurance industry conduct them selves in unethical behaviours.

c.           The services provided by the insurance industry are not properly appraised to meet the demand of consumers. 


1.11Objectives of the Study

The specific objectives of the study are:

1.          To educate and orient the masses on the importance and it’s role in the development of the economy.

2.          To identify how insurance services assist commercial transaction in the Nigerian economy.

3.          To examine the impact of insurance industry in the Nigerian economy. 

1.12Research Question

1.          Can these insurance services change the negative perception of the pubic on the insurance industry if properly delivered?

2.          Will the appropriate recommendation on improving service delivery be implemented?

3.          Is the role of insurance industry positive to the development of the Nigerian economy? 


1.13Research hypothesis

1.          Ho: Insurance services cannot change the negative perception of the public on the industry, if properly delivered

Hi:   Insurance services can change the negative perception of the public on the insurance industry, if properly delivered.

2.          Ho:   The appropriate recommendation on improving service delivery will not be implemented.

Hi:   The appropriate recommendation on improving services delivery will be implemented.

3.          Ho:   The role of insurance industry is not positive to the development of Nigerian economy.

Hi:   The role of insurance industry is positive to the development of Nigerian economy. 



1.14The Scope and Limitation of the Study

The scope of this research work covers Anammco ltd, IGI insurances company ltd, fidelity bank plc, Royal Exchange assurance company (Nig) ltd, Zenith Bank plc, SEDI limited and General public.

a.          Financial resources to facilitate intensive and proper data collection.

b.          Time: The time for the conduct of this research was rather too short when combined with the academic calendar of the institution.

c.           Insufficient data: Data were rather insufficient for proper research, more so, access was not allowed to the available data as when needed.

1.15Significance of the Study

The study is important in many aspects.

a.          This study is done is partial fulfillment of the requirements for the award of a Bachelor of science (BSC) degree in insurance.

b.          This research work will also serve as a foundation tool for students researching on the related topic.

c.           This study will completely assess the role played by the insurance industry.

d.          It will give room for new innovation in product offered to the insuring pubic.

e.           The study will act as a means of creating more awareness of insurance services to the public.

f.            The study will change the negative perception of the public on the image of the insurance industry.   

1.16 Definition of Operational Terms

Cede: This is the transferring of risk from a ceding company to a reinsurance company.

Client: A person who use the services or advice of professional person or organization (Hornby 2001-10).

Economic: This refers to trades, industry and development of wealth at a country.

Hazards: This is used to describe a condition, which may increase the chance of loss arising from a given peril.

Indemnity: This is putting the insured in the same financial position he was enjoying before the insured risk occur (Eche et al, 1999:30)

Insurable interest: This is the legal right that the insured have to insure.

Insurance: This refers to a contract between two parties, namely the insured and the insurer, whereby the insured pays a relatively small amount of money known as premium to the insurer who undertakes to pay the sum insured or it’s equivalent in accordance with the contractual terms if the insured even (s) takes place within the period of the contract.

Interest Cover: Ration of earnings of the fixed interest payment necessary to service loan capital.

Intermediary: A person or an organization that helps other people or organization to make an arrangement by being a means of communication.

Investment: This is the given up of a capital sum now in exchange of the future such as an income flow or capital gain.

Moral Hazards; This refers to behaviour by the insurance that could increase the chance or size of a loss.

Peril: Dangers or any event that causes a loss and which may be includes or excluded on an insurance policy.

Policy: This refers to a document which contains the terms used in existing contract as evidence.

Service: An organization or company that provides something for the public or does something for the government is rendering service.

Under-writer:  This refers to a person or institution that assess a risk and decides whether to accept or not and if to accept at what premium rate.

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The Impact Of Insurance Services In The Nigerian Economy