THE CONTRIBUTIONS OF INSURANCE INDUSTRY TO GROSS DOMESTIC PRODUCT (GDP) IN NIGERIA (1985-2010)

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.

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 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 well- being 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 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, 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, 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.
• 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.

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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