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.
TABLE OF CONTENT
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TITLE PAGE……………………………………………………………….i
APPROVAL PAGE…………………………………………………………ii
DEDICATION……………………………………………………………..iii
ACKNOWLEDGEMENT………………………………………………….iv
ABSTRACT…………………………………………………………………v
TABLE OF CONTENT…………………………………………………….vi
CHAPTER ONE: INTRODUCTION
1.1 Background of the study………………………………………….1
1.2 Statement of the problem…………………………………………..3
1.3 Objective of the study……………………………………………………………..5
1.4 Research hypotheses……………………………………………….6
1.5 Significance of the study……………………………………………7
1.6 Scope and limitations of the study…………………………………7
CHAPTER TWO
2.0 Literature Review: Introduction
2.1 Theoretical literature
2.1.2 The Evolution of modern Insurance Business in Nigeria…..9
2.1.3 Concept of insurance business……………………………..11
2.1.4 Classification of insurance Business………………………………..13
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2.1.5 The mechanism of insurance……………………………….14
2.1.6 The insurance industry and Nigerian Economy…………..15
2.1.7 The investment case for the insurance sector………………16
2.1.7.1 Key factors for prospects in the industry………………………17
2.1.7.2 Real sector growth……………………………………………………….18
2.1.7.3 Implications of government legislation………………………….18
2.1.8 Evolution of capital requirements in the insurance sector…20
2.1.8.1 Pre-recapitalisation/consolidation………………………….21
2.1.9 Contributions of insurance to the gross domestic product in
Nigeria…………………………………………………………………………22
2.1.10The insurance industry in Nigeria and the Financial Strategy (FSS) 2020…
………………………………………………27
2.1.10.1 Intended position of the industry………………………………….28
2.1.10.2 The way forward………………………………………………………….29
2.1.10.3 The code of ethics…………………………………………..30
2.2 Empirical literature……………………………………………31
2.3 Limitations of the previous studies……………………………38
CHAPTER THREE
3.0 Research Methodology ………………………………………………39
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3.1 Model specification…………………………………………40
3.2 Method of Evaluation………………………………………41
3.2.1 Evaluation Based on statistical criteria……………………42
3.2.2.1 Coefficient of multiple Determinations (R2)……………42
3.2.3 Evaluation Based on Econometric criteria…………………42
3.3 Co-integration and Error Correlation representation……44
3.4 Justification of the model……………………………………45
3.5 Data required and sources…………………………………..45
CHAPTER FOUR
4.0 Presentation and interpretation …………………………………..47
4.1 Unit root test…………………………………………………47
4.1.1 Co-integration Test…………………………………………48
4.2 Presentation of regression result……………………………..49
4.3 Economic a priori criteria…………………………………..50
4.3.1 Statistical criteria (first order test)……………………….51
4.3.1.1 Coefficient of multiple determinations (R2
)
4.3.1.2 The student’
s t – test…………………………………….51
4.3.1.3 F – Statistics……………………………………………..53
4.3.2 Econometric criteria (second order test)…………………54
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4.3.2.1 Test for Autocorrelation…………………………………..54
4.3.2.2 Normality Test for Residual…………………………………………55
4.3.2.4 Test for multicollinearity…………………………………57
4.4 Policy implications……………………………………………58
CHAPTER FIVE
5.0 Summary of the findings, Recommendations and conclusion
5.1 Introduction………………………………………………….60
5.2 Summary of findings…………………………………………60
5.3 Recommendations……………………………………………61
5.4 Conclusion……………………………………………………..63
5.5 Areas of further Research……………………………………65
Bibliography………………………………………………………………66
Appendix…………………………………………………………………..75
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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
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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 wellbeing 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
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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,
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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,
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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.
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• 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.
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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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The study however suffered an initial and usual constraint of time and finance, there
was also poor information supplied by some of the respondents who feared exposing
official secrets. This caused an initial setback in the investigation. They were however
over taken with time and this resulted to the success in the regard.
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