LIMITATIONS TO THE DEVELOPMENT OF INSURANCE IN NIGERIA
(A STUDY OF NATIONAL INSURANCE CORPORATION OF NIGERIA NICON)
ABSTRACT
Regulation of Nigeria’s insurance industry has become substantially intensified in the last two decades. This paper critically evaluates the philosophy and challenges of insurance regulation in the context of post-authoritarian governance and increasing economic liberalization in Africa’s potential largest insurance market. The last two decades has witnessed among others, government regulatory intervention through the establishment of a regulator and mandatory recapitalization. Temporally, the trajectory of developments in the last decade which coincides with post-authoritarian military rule in the country is significant. As a developing economy, the Nigerian insurance industry presents an example of untapped and gross under-utilization of its boundless potentials. Adopting a qualitative approach, this paper explores the factors responsible for the industry’s slow growth in comparison with its huge human and material resources and what lessons might be learnt to chart a way forward. The information for the study was collected using primary and secondary methods of data collection. For the primary data collection, questionnaires, personal observations and oral interviews were used while existing literature relevant to the topic was consulted for the secondary data. The researcher used chi-square statistical model to analyze the data. Three major findings were made: The study also revealed the effect the development will have in insurance, example protecting the retired account providing greater acceptance capacity and reducing possible financial stain. The study also shows how the insurance companies negotiate for their make use of brokers. Recommendation are there should be need for insurance companies to intensity their market, rather then content themselves with more sale of their product. The insurance company should try as much as possible to create demand for their service in evolving now policy lives. The insurance company as well cognizance must be taken care of air socio culture environment.
TABLE OF CONTENTS
Title page i
Approval page ii
Dedication iii
Acknowledgment iv
Abstract v
CHAPTER ONE
INTRODUCTION
1.1 Background of the study 1
1.2 Statement of problem 4
1.3 Objective of the study 5
1.4 Research question 6
1.5 Research Hypothesis 6
1.6 Significance of the study 7
1.7 Scope and Limitation of the study 8
1.8 Definition of terms 10
References 12
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 An overview 13
2.2 History of Insurance in Nigeria 13
2.2.1 Traditional insurance system 14
2.2.2 Modern insurance 15
2.3 History of NICON Insurance company 16
2.4 The effect of insurance business on economic development in Nigeria 20
2.5 contributions of insurance to growth and development
of Nigeria 26
2.6 Role of insurance in economic growth 30
2.7 importance of insurance 35
2.8 How insurance can guaranty once future 40
2.9 problems of Nigerian insurance sector 43
2.10 challenges and prospects of insurance business 46
References 55
CHAPTER THREE
RESEARCH METHODOLOGY AND DESIGN
3.1 Research Design 56
3.2 Sources of data 56
3.2.1 Primary data 56
3.2.2 Secondary data 57
3.3 Population of the study 58
3.4 Sample size and sampling techniques 59
3.5 Instrument in determining sample size 60
3.6 Validity and reliability of instrument used 61
3.7 Method of data presentation and analysis 62
References 65
DATA PRESENTATION AND ANALYSIS
4.1 An overview 66
4.2 Data presentation 66
4.3 Data analysis 67
4.4 Testing of Hypothesis 74
4.5 Discussion of findings 84
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary findings 86
5.2 Conclusion 88
5.3 Recommendations 89
5.4 Suggestion for further studies 90
Bibliography 91
Appendix 92
Questionnaire 93
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Regulation of Nigeria’s insurance industry has become substantially intensified in the last two decades. This paper critically evaluates the philosophy and challenges of insurance regulation in the context of post-authoritarian governance and increasing economic liberalization in Africa’s potential largest insurance market. The last two decades has witnessed among others, government regulatory intervention through the establishment of a regulator and mandatory recapitalization.
Temporally, the trajectory of developments in the last decade which coincides with post-authoritarian military rule in the country is significant. As a developing economy, the Nigerian insurance industry presents an example of untapped and gross under-utilization of its boundless potentials. Adopting a qualitative approach, this paper explores the factors responsible for the industry’s slow growth in comparison with its huge human and material resources and what lessons might be learnt to chart a way forward.
The first part of the paper traces the origin of insurance in the country to its colonial heritage. The second part examines the rationale for regulating insurance business. The focus then shifts to regulation of insurance in Nigeria. The paper is yet to be concluded as there are outstanding issues for analysis in on which research is still in progress.
Nigeria, a country of more than 140 million people with a landmass of about 923,768.64sq. km and immense human and material resources is a former British colony. Hence, the country shares almost all its political and economic settings from its former colonial heritage. Before the introduction of the modern form of insurance, some form of social insurance had existed in the Nigerian society. These social schemes evolved through the existence of extended family system and social associations such as age grades and other unions (Osoka, 2008). Until 1966, Nigeria copied British parliamentary system of government. This British system still dominates aspects of the country’s socio-economic settings. For instance, the legal practices in Nigeria still reflect its colonial heritage. Economic institutions such banks and insurance companies, in practice, copy the British style of conducting their businesses.2 However, the country’s progress since independence in 1960, has however been undermined by long years of military rule, political instability and systemic corruption. In 1999, a civilian government was finally elected to office after a successful political transition process.
The development of insurance are intertwined with the advent of British trading companies in the region and the subsequent increased inter-regional trade. Increased trade and commerce led to increased activities in shipping and banking, and it soon became necessary for some of the foreign firms to handle some of their risks locally (Uche and Chikeleze, 2001). Trading companies were therefore subsequently granted insurance agency licences by foreign insurance companies. Such licences made it possible for such firms to issue covers and assist in claimssupervision.
The first of such agency in Nigeria came into force in 1918 when the Africa and East Trade Companies introduced the Royal Exchange Assurance Agency. Other agencies included Patterson Zochonis (PZ) Liverpool, London and Globe, BEWAC’s Legal and General Assurance and the Law Union and Rock (Osoka, 2008). There was an initial slow pace of the growth of the insurance industry in the country, particularly between 1921 and 1949. This has been traced to adverse effect of the World War II on trading activities both in United Kingdom and Nigeria. As soon as the war ended, business activities gradually picked up again, and insurance industry in Nigeria began to record remarkable improvement in growth. It was not until 1958 that the first indigenous insurance company, the African Insurance Company Limited, was established (Nigeria Re, 1993). At independence, only four of the then 25 firms in existence were indigenous.
1.2 STATEMENT OF PROBLEM
The problem militating against the development of insurance in Nigeria are:
Inadequate orientation about insurance and its benefits in the rural communities One of the earliest and the most resilient problems the insurance industry, and the broking firms in particular has been contending with and will continue to contend with is the problem of ignorance as the benefits of insurance products. Many do not know what insurance is all about; even the educated ones.
Some believe insurance is a smart way of extorting money from the people. The problems created by some dubious practitioners who will collect premium without remitting same to the appropriate quarters do not help matters either.
Poor knowledge of the benefits of insurance by Nigerians It is believed that insurance practitioners, especially the brokers will still need to do more in this area, especially in educating the public on the numerous benefits of insurance products and how such benefits can be harnessed. Furthermore, as a result of the persistent political and economic crises, we have been unable to educate the public about what they stand to gain from insurance.
Poor attitude of Nigerian towards insurance business in Nigeria
Hence the old attitude towards the insurance that was based on ignorance keeps rearing its ugly head against the growth of the industry, especially the broking subsector.
1.3 OBJECTIVE OF THE STUDY
The aim of this research work is to examine the limitations to the development of insurance in Nigeria.
The specific objectives of this research work are to:
1. To find out how insurance cover are sold to the consumers.
2. To examine the extent of development of insurance in Nigeria
3. To find out the factors militating against the development of insurance in Nigeria.
4. And also proffer solutions to the problems identifies.
1.4 RESEARCH QUESTIONS
The following research questions were formulated by the researcher:
How is insurance covers sold to the consumers in Nigeria?
What is the role of insurance policy in the development of Nigeria?
What is the extent of development of insurance in Nigeria?
What are the factors militating against the development of insurance in Nigeria?
How the problems militating against the development of insurance in Nigeria be solved?
1.5 RESEARCH HYPOTHESIS
The following are the hypothesis formulated by the researcher in this research work:
HYPOTHESIS ONE
Ho: Insurance covers is not sold expensively to the consumers in Nigeria.
H1: Insurance covers is sold very expensive to the consumers in Nigeria.
HYPOTHESIS TWO
H0: Insurance do not have any role to play in the development of Nigeria.
H1: Insurance has significant role to play in the development of Nigeria.
HYPOTHESIS THREE
H0: insurance has no significant growth in Nigeria
H1: Insurance has significantly grow in Nigeria.
HYPOTHESIS FOUR
H0: there is no problem militating against the development of insurance in Nigeria.
H1: there are so many problems militating against the development of insurance in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
This research work will be of immense help to:
The student: it will help the researcher to know more on the factor militating against the development of insurance in Nigeria.
The Stake holders: this study will be of great importance to stake holders as it will enrich their knowledge on the effects of this problems on investment.
Insurance company: this will equally be of help to the insurance companies and financial institutions in Nigeria because when they abide by the recommendations provided by the researcher it will help them in time of financial crisis.
The country at large: this study will be of great importance to the country Nigeria as it will help the policy makers to prorogate laws that will guide insurance contracts in Nigeria.
1.7 SCOPE AND LIMITATION OF THE STUDY
The area of this research work is Enugu metropolis were the NICON insurance is situated and the study is on the limitations to the development of insurance in Nigeria.
The researcher in carrying out this study encountered numerous problems, which includes:
i) Fund.
ii) Time.
iii) Lack of research materials
iv) Responds of the respondents
i) FUND – This included lack of enough fund to move around and visit the various areas in the state, and also lack of money to buy enough research material which constitutes on impediment of to researchers high cost of transportation in the city due to long distance also imposed its own limitation on the researcher.
ii) TIME – Time is also another constraints to the researcher. This is because the researcher is combining school activities and at the same time this made her unable to cover a lot of interesting areas but therefore limited her research work only at Enugu metropolis.
iii) LACK OF RESEARCH MATERIALS: lack of research materials was also one of the problems faces by the researcher in the cause of this research work
iv) RESPONDS OF THE RESPONDENTS: Another constraint to the researcher is that some of the respondents found it difficult to express their problem as regards the subject matter.
From the above points the researcher tried her best to bring out in details study on the limitations to the development of insurance in Nigeria but the above constraints have limited the researcher to carry out her research work effectively.
1.8 DEFINITION OF OPERATIONAL TERMS
Insurance: this is a safe guide against risk.
Product: this means here, the insurance services rendered to the entire public.
Economy: activities related to the production and distribution of good and services in a particular geographical region.
Business; the work of buying or selling productions or services for money.
Industry: Business, production, manufacturing, trade, trading, commerce, commercial enterprise countries were industry is developing rapidly.
Management: the organization and coordination of the activities of a business in other to achieve defined objectives.
Claim: to say that some thing is true, even though there is no definite proof.
Policy holder: the owner of an insurance policy, usually, but not always the insured.
Marketing: the management process through which goods and services move from concept to the customer.
Infancy: the first stage of any thing, the beginning or early period of existence.
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