THE IMPACT OF INSURANCE INDUSTRY ON THE ECONOMIC DEVELOPMENT OF NIGERIAN (A CASE STUDY OF NICON INSURANCE CORPORATION)
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THE
IMPACT OF INSURANCE INDUSTRY ON THE ECONOMIC
DEVELOPMENT
OF NIGERIAN
(A CASE
STUDY OF NICON INSURANCE CORPORATION)
ABSTRACT
This project attempts to focus and examine the impact of
insurance industry on the economic development of Nigeria with particular
reference to NICON Insurance Industry Corporation. This project had critically
examined the economic rational and strategies nature of insurance to the
economy of a developing nation like Nigeria, it also aimed at ensuring increased
performance in the insurance industry in economic developing. This research
work will thus attempt to identify the problems that have crippled the
activities of firms in insurance industry as well as making valuable
recommendations aimed at solving the problems. For the inputs treatment of this
research work, the study is divided into five chapters. Chapter one covers the
introductory aspect as this project topic, Chapter two entails the literature
reviews of the subject under study. Chapter three explains the methodology
adopted for the study. Chapter four is concerned with the presentation and
analysis of data; collected in the study and testing of hypothesis. The last
chapter is the summary of findings, conclusion as well as recommendations.
TABLE OF CONTENT
Title
page i
Certification iii
Dedication iv
Acknowledgement v
Abstract vii
Table
of content ix
CHAPTER ONE
Background
of study 1
Statement
of Research problem 3
Objective of study 5
Scope
of study 7
Significance
of study 8
Statement
of research Hypothesis 9
Research
methodology 9
Limitation
of Study 10
Brief
historical of Nicon Insurance Corporation 12
Definition
of study 14
CHAPTER TWO
LITERATURE REVIEW
Concept
of Insurance Industry 17
Concept
of Economy Development 20
Nature
of Insurance Industry 23
Types
of Insurance Industry 24
Nature
of Economic Development 27
Indicator
of Economic Development 30
Insurance
and Economic Development 33
Problem
in using Insurance as a tool for Economic
development
35
CHAPTER THREE
RESEARCH METHODOLOGY
Research
Design 39
Population
of study 39
Sampling
Procedure 40
Data
Collection 41
Data
Analysis Methodology 43
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Data
presentation and analysis 46
Data
analysis
Test
of hypothesis
CHAPTER FIVE
FINDING RECOMMENDATION AND CONCLUSION
Finding 63
Recommendation 66
Conclusion 69
Bibliography
71
Appendix 73
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Insurance companies are financial institution with the fundamental
role of protecting firms or businesses and individuals from financial losses
and provides invisible fund to the economy.
The services of insurance company is apparently important if a
nation is to protect the future of business investment which is bedeviled with
risk uncertainties to be less risky and make it protection and provision of
scare investment fund to the industry is been played by insurance companies in
Nigeria.
The genesis of insurance companies in Nigeria back into time from
the immediate family system, the community association, the age grade union and
cultural associations. Member of this association renders some kind of
insurance coverage to their members in terms of adversity, money is contributed
to assist member to build a new house if loss by national disaster, burial for
dead member and financial assistance to the family left behind. This is an
insurance policy in a local setting in Nigeria.
This practice developed to an organized association with rules and
regulation guiding the welfare of members in terrible situation if distressed.
This system does not allow for premium, however, the financial obligation was
in the form of membership fees and contributions. Nigeria started to feel the
emergence of modern insurance business in the middle of the 20th
century only as a branch insurance companies with head quarters in Europe and
America.
This merger outfit developed rapidly into a large business
conglomerate with financial assets comparable only to the banking sector.
The first insurance company to have a full branch office in Nigeria
was royal exchange the only company fully established in the country since
then, more than sixty more companies have been incorporated in Nigeria. There
are about three hundred (300) registered insurance companies in Nigeria today.
Among them is Nicon Insurance Corporation. PLC, which obviously is the case
study of this research.
1.2 STATEMENT OF RESEARCH PROBLEM
The insurance industry is primarily a risk undertaking business the
function of the insurance industry is essentially the same in the whole world.
Which has not been effectively and efficiently achieve. Although the author has
choose the topic of the impact of insurance industry on the economic development. The problem and
questions that militate against the normal function of the insurance industry
needs to be highlighted. In an attempt to identifying the problems that have
hindered the achievement of these functions, the need to provide solution to
the problem cannot be over emphasize.
One of the problems is economic instability which has eaten deep
into the fabric of the nations and has been hindering the smooth operation of
the insurance industry. Two, the political environment has adverse effect on
the economic environment as various administration have come up with their
various operational and investment policy in Nigeria and these has first of
Insurance companies to reduce their staff strength and these has attending
effect.
In the making of the current economic crises, the government in an
effort tried mitigate its effect on firms by embarking on the structural
adjustment program (SAP) which can be assessed by its little contribution and
in this totality fueled up inflation thus weakening the operation of firms in
the insurance industry. Since customers are prospective customers can no longer
afford to pay their premium nor are they willing to take new one.
More devastating is the acute shortage of skilled manpower
particularly at the top and middle management cadres the industry and admission
of new insurers into the industry, since the national supervisor board (NSB)
guideline state that at least one professionally qualified person must lead each
department in the company before such a firm can be licensed.
Not excluded his the management and staff relation which has not
been cordial as result of some inconsistency in the system among which are
delay in payment of staff salaries wages bonus and other allowance and more
provision of poor relation and this leads effect such as stir (work to rule)
embarked upon by workers.
The investment climate in the country also create problems of
managers in the industry due to lack of develop capital market, low yield from
investment restrictive laws and regulations constraining the managers choice of
investment.
Excessive administration expenses on the same types of investment
problem of advert effects of global inflation, non-profitability of insurances
business of high claims paid as a result socio-political crises (Example 1998
SAPRIOT).
1.3 OBJECTIVE OF THE STUDY
The objective of the study was to examine the Impact of the
insurance industry on the economic development of Nigeria. This was carried out
by applying various function of insurance as they effect the economy. The study
also determine how insurance has been able to play an important role on the
development of the economy. The following formed the objective of this study in
the following area.
The research is to find out if industry will influence and increase
mobilization of saving particularly through life assurance policies, for
productive use and as a source of long term.
To determine if it will improve the development of capital market by
providing a channel for the sourcing of funds by both public and private
sectors of the economy.
The study will determine the accumulation of foreign exchange for
the Nigeria economy and direct equity and loan investment in the industrial
enterprises.
It will determine whether the upsurge of insurance companies will
lead to the mobilization of fund for the government and the investment pattern
of the economy and also type social development of the entire nation.
1.4 SCOPE OF STUDY
Insurance industry in Nigeria is a very important business with so
many names and branches all over the country. In research like this, it was
difficult to cover up all the branches of insurance companies for that simple
reasons, the national insurance corporation of Nigeria NICON plc was used as a
representative sample in the insurance industry. In the case, out of the 25
branches of the corporation, the Benin and the head office Abuja would be
covered due to time constraints and lack of funds to visit these important
states.
The activities include life and non-life assurances of the
corporation life assurance are life pension, non-life insurance include.
Accident, motor, fire, marine, workmen’s compensation, Aviation and
miscellaneous.
1.5 SIGNIFICANCE OF STUDY
The very concept of insurance has often been misunderstood and
misrepresented in the society, not because of myopic disposition of the general
popular but for the fact that insurance awareness has not been fully
implemented into the system of which this research work intended to promote
insurance awareness, with the view of identifying areas of immense benefit from
the corporation to the insurance community as well as to insurance
practitioners and the overall contribution to the development of the Nigeria
economy.
In the highlight of the above the researcher tends to investigate
into the effect of insurance on the development of the Nigeria economy- it is
hope that the finding and recommendation. From this study shall be careful to
the following.
The government as the determinate of the economic policies
in Nigerian.
The accountants, auditors and professional manager who are
expected to use insurance in form of national decision making.
The society who are wholly and practically involved in the
use of insurance activities.
Other investors who may want to invest in the insurance industry.
1.6 STATEMENT OF RESEARCH HYPOTHESIS
In this study the following hypothesis will be tested.
Ho: There is no positive
relationship between the saving of low-income (Rural) and high income (Urban)
earners.
Ho: The insurance
industry has no effect on the saying of household.
Hi: The insurance
industry has effect on the saving of household.
1.7 LIMITATION OF STUDY
Carrying out this research successfully was not achieved on
a platter of gold researcher encountered a harvest of constraints.
Firstly, the research was limited to Edo state and Abuja because of
time and financial constraints. The time at the researcher’s disposal was not
enough to research respondents outside Edo state and Abuja of course, time is
very important in research study and a lot if it is needed to exhaust all the
requirement of a particular study. That of finance was equally a very big
problem as nothing can be done effectively and efficiently without adequate
provision of it in fact a lot of money is required to procure some materials
that are necessary of a research study. The result of these problem is that the
research is restricted to Edo state and Abuja.
Another limitation is in the interview and questionnaire.
It was very difficult to get respondents to answer questions or fill their
questionnaires truthfully, because comparative analysis of performance of any
center is a very sensitive area of an enterprise. In fact the goodwill of the
establishment as well as its public image hang on it. Of course, it would be
easier for respondents to tell lies about the performance of their
establishment as well as its public image. If this were done, it would be very
defective to the reliability of the research.
Also the respondents were not quite corporative. Some claimed that
nothing materialistic was going to come out from helping to fill the
questionnaires. Some feared the possibility of sack, dismissed and termination
if they say the truth about the performance of their establishment.
1.8 BRIEF HISTORY OF NICON PLC
NICON insurance plc was established by the federal
government of Nigeria under No 22 of 169 (As amended by cap 263 of 1990) as
fully owned by federal government insurance company to break the monopoly of
foreign insurance companies then operating in Nigeria.
The promulgation of decree 22 in July 1969 could be said to
have signaled the end of the domination of Nigeria insurance companies that
operated in the Nigeria market. This also started an era of boom in the Nigeria
insurance industry as NICON with full government banking and the attendant
financial muscles were able to effectively resist the expatriates owned
companies.
The functions and activities of NICON were clearly spelt
out by the act establishing it as follow.
Subject to the provision of this decree the corporation has
power within and outside Nigeria to carry out any class of insurance business.
Without any prejudice to the generality of subsection (1) of this
section, the corporation shall have to do any of the following.
To insure any property of the government of any state in
the federation or any statutory incorporations.
To insure any property in which and government mentioned in
paragraph (1) of this subsection or any statutory corporation has an interest
including property held on trust for each government or corporations.
To accept re-insurance of any part of right undertaken by
any other person (being risk such the corporation has power to insure against
and retrieve and part of such right)
To act as an insurance agent or insurance brother in
relation to the insurance of any property in (1) and (2) or this subjection.
The establishment of NICON was intended to half the outflow of
insurance fund from Nigeria so that such could be used to develop the Nigeria
economy.
Today, the leadership position of the company in the
Nigeria insurance industry is not only recognized but also justifiably
respected.
NICON is consulted by government state and federal on insurance
matters. At different time the company has used its position of strength to
assist in settling up new state owned insurance companies and provide remedy
for ailing ones.
The company has also been playing a leadership role in the development
of manpower for the Nigeria insurance industry.
1.9 OPERATIONAL DEFINITION OF TERMS
NICON-
National Insurance Corporation of Nigeria
Cession-
The portion of risk that is transferred by insurance to the re- insurer
Indemnity-
The maximum amount payable by insurance to
a beneficiary of a loss.
Premium-
The calculated cost of a risk changed to the insured by the insurer for
providing insurance protection against a specific risk for a specific period of
time.
Reserve-
The actual or potential liabilities which is allocated and kept in a special
account by insurance companies to cover unearned premium, outstanding claims
and future losses.
Underwriting-
This is the act of doing the work of an under writer in accessing a risk and
deciding the premium and other relevant matter.
Underwriting- anyone who
is ready to accept the insurance risk.
Surrender value- a
monetary worth or value on its surrender by the assured.
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