This study empirically investigates the effect of insurance industry contribution to economic growth in Nigeria. The Augmented Dickey Fuller Test, Ordinary lease Square Method, Descriptive Statistic, Co Integration and granger causality test was applied to annual Nigeria data spanning from 1981 – 2015. The result of the estimation suggests that there is a long-run relationship between the dependent and independent variables. However the study found that in the short-run insurance contribution to economic growth (proxied by total insurance investment) has a positive but insignificant effect on gross domestic product in Nigeria. Giving that the insurance industry is not as established as its banking counterpart the insignificant impact on the economy is not surprising. However, the positive relationship is encouraging suggesting that in the long run the impact will be significant.
Hence, the study recommended that, The national insurance commission (NAICOM) which is the regulatory body for insurance business in Nigeria, in conjunction with the government should work to see that some of the premiums collected and other income generated by the industry are being invested to ensure diversification of investible fund of insurance industry to boost the economy.
- Background of the Study
The role of insurance investments in promoting economic growth cannot be over emphaized. In the last few decades, insurance industry is one of the key sectors of the Nigerian economy and plays a vital role in the nation economy. The business of the insurance industry is such that it provides services in form of security against general uncertainities which are likely to occur in everyday life, thereby resulting in liabilities that convert to a financial loss, (Yinka and Akinolo, 2013).
These services are usually provided by the insurer to the insured in return for a given small consideration known as premium which basically serves as the central source of insurance funds and also if well invested gain the industry returns. Futhermore, the pool of these premiums are used in the settlement of claims by the insured and the investment returns serve as profit to the organization, (Omoke, 2011).
In Nigeria we have two types of insurance business, life and non-life insurance which results into the accumulation of funds by insurance companies which depends on the method of operation, and there is usually a considerable time lag between payment of premium and the settlement of claims. This allows the insurers to withhold funds to cover liabilities to policy holders, (Zurbruegg, 2000). At the same time, unused premium receipts are invested to produce a satisfactory yield and a return for investors so that the shareholders can be paid dividends and any underwriting losses, that is excess claims over payment can be balanced by any investment gains.
Similarly, Vayanos and Hammound (2006) and Zurbruegg (2000) argued that a thriving insurance sector is not only evidence of an efficient financial service sector, but it is also a major indicator for measuring a vigorous economy. Although economic literature has shown that the insurance companies business tends to increase economic development.
This research will investigate 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 of Problem
Insurance services are recognized by both individuals and corporate bodies to be effective tools for the transfer of risks which are vital for economic growth. These services enable people to carry out their economic activities unmindful of the adverse effects of this risk.
Insurance industry in Nigeria experience trubulent times as a result of the following factors, undercapitalization, low labour productivity, low premium collection and this has over the years made the operations of the insurance industry in Nigeria not having much contribution to gross domestic product (GDP).
Statistics from the National Bureau of Statistics (NBS) annual report have shown that the federal government of Nigeria in September 2005, announced new minimium share capital requirement for companies operating in the insurance industry, spacifically, the minium capital base of non-life insurance increased from #200 million in 2005 to #3 billion in 2007.
The National Bureau of Statistics (NBS) annual report recoded that GDP growth rate stood at 7.43% as at December 2019 and 6.48% as at December 2010, this was as a result of the decline recorded in insurance investment however, this study will research on how total insurance premium and investment contributes to economic growth in Nigeria. Hence the following research questions will be asked.
- What are the effects of insurance industry contributionon GDP in Nigeria?
- What is the relationship between insurance contribution 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 determine whether the contributions of insurance industry has any effect on gross domestic product (GDP) in Nigeria.
- To determine the relationship between insurance contribution and gross domestic product (GDP) in Nigeria.
1.4 Research Hypotheses
H0– insurance contribution has no positive effect on gross domestic product in Nigeria.
H1-insurance contribution has positive effect on gross domestic product in Nigeria.
H0 – There is no positive and significant relationship between the total investment of insurance business and the gross domestic product in Nigeria.
H1 – There is a positive and significant relationship between total investment of insurance business and gross domestic product in Nigeria.
1.5. Significance of the Study
The findings of this study will be of a great importance to policy makers, investors, regulators, researchers and financial analyst who have vested interest in understanding the contributions of insurance industry to economic growth. In this regard, an effective solution will be preferred to assist their effort of relevant government authorities. However, a suggestion that will enable them appreciate the need for a reduction in policing the affairs of the insurance industry will be made
The findings of this research will also benefit undergraduates in the universities. It will add to the volume of literature is available in the library on the topic and also serve as a source of reference for further research.
1.6 Scope and limitation 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 (1981 – 2015).
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