ABSTRACT
This
study is aimed at investigating the impact of insurance apathy, on economic
growth in Nigeria using the insurance industry in Nigeria as a case study. In
order to achieve this, the study shall determine the impact of insurance apathy
on economic growth on one hand; and by the insurance industry in Nigeria and
economic growth on the other hand. More so, the study shall investigate the
impact of insurance apathy on economic growth in Nigeria insurance by using Ordinary
Least Square (OLS) multiple regression methods. Data for the study shall be
collected from secondary sources such as Central Bank of Nigeria (CBN)
statistical Bulletins National Insurance Commission (NAICOM) reports, Nigeria
Insurers Association (NIA) reports, internet, textbooks, published journals
etc. The study period is from 1996 to
2014 which covers with the pre-consolidation and post-consolidation era in the
Nigerian insurance industry. Recommendations shall be made in accordance with
the findings of this study.
TABLE OF CONTENTS
CHAPTER
1
INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Problems
1.3 Research Objectives
1.4 Research Questions
1.5 Research
Hypotheses
1.6 Significance of the Study
1.7 Limitations of the Study
1.8 Scope of the Study
1.9 Definition of Terms
CHAPTER
2
REVIEW
OF RELATED LITERATURE
2.1 Conceptual Framework
2.1.2 Concept
of Apathy
2.1.3 Concept
of Investment
2.2 Theoretical Review
2.2.1 Prospect
Theory
2.2.2 Expected
Utility Theory
2.3 Empirical Review
2.3 Evaluation of the Literature Reviewed
CHAPTER
3
RESEARCH
METHODOLOGY
3.1 Research Design
3.2 Nature and Sources of Data
3.3 Population of the Study
3.4 Analytical Techniques/Methods
3.5 Model Specification
3.6 Description of Variables
3.6.1 Dependent
Variable
3.6.2 Independent
Variables
CHAPTER
FOUR
DATA
PRESENTATION, ANALYSIS AND INTERPRETATION OF
RESULTS
4.1 Data
Presentation
4.1.1 GDP Per Capita (GDPPC)
4.1.2 Insurance Penetration (INSP)
4.1.3 Total Insurance Investment
(T11)
4. 2 Analysis
of Results
4.3 Test
of Hypotheses
4.3.1 Hypothesis One
4.3.2 Hypothesis Two
4.4 Interpretation and Discussion of
Findings
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings.
5.2 CONCLUSION
5.3 RECOMMENDATION
REFERENCES
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The contribution of the insurance
industry to the economic growth and development of any nation cannot be
overemphasized (Yusuf, 2011; Oke, 2012; Oluoma, 2014). Basically, the insurance
industryundertakes the role of stabilizing and efficiently diverting risks from
businesses and individuals. Thus, the insurance industry eliminates unexpected
shocks to businesses and individuals thereby enhancing the overall growth of
the economy (PanAfrican Capital Research, 2013).
Despite
the huge expectations placed on the insurance industry, the insurance industry
in Nigeria has continued to be plagued by the big-headed challenge of apathy.
With the Nigerian population well over 170 million and an economic growth rate
averaging 7.4 percent in the last ten years, one would have expected the
insurance industry to perform better (NBS, 2014). Nevertheless, the Nigerian
insurance industry is still underperforming its potential and still remains at
a very under-developed stage in its growth. In terms of insurance penetration and
insurance density, Nigeria is ranked 84th and 86thin 2006
and 2007 respectively compared to 2nd and 32nd ranking of
South African in the same period in the continent and the world insurance
markets. This is not surprising going by the fact that Nigeria’s insurance
penetration in both 2003 and 2012 stood at 0.68 percent stagnantly. However, that of South African stood at 15.80
percent and 14.28% respectively. The insurance density for Nigeria in 2006 was
$248.1 while that of South Africa stood at $855.8 in the same period (Swiss Re
sigma Reports, 2004; 2007 in Omobola, 2008). This position was reinforced by
Bismarck Rewane (2015), who starts that the penetration rate of the insurance
industry in Nigeria has remained low standing at 0.7 percent while its contribution
to Nigerian’s Real Gross Domestic Product (GDP) has remained less than 1
percent. All these downturns point to the challenge associated with high
consumer apathy to insurance services amongst Nigerians.
Investments by firms in an economy play
a key role in generating economic growth. This truth is not lost on the
insurance firms in Nigeria as they also have embarked on investments. However,
available data shows that the total investment portfolio of insurance firms in
Nigeria is paltry when compared to the investment of other firms in the
financial services sector. For instance, the total investment portfolio of
insurance firms in Nigeria for the year 2000 was only, 192.64 billion. This
grew to N121,844.22 billion in 2005 and continued to grow reaching
N359.192.20 billion in 2011 (NAICOM,
2011). This seemingly impressible investment growth is less than what obtains
in the Nigeria banking industry. This is against the backdrop that a comparison
between the banking industry and insurance industry in Nigeria shows that the
insurance industry has not done very well. For instance, whereas the banking
industry deposit in 2003, 2005 and 2007 stood at $1 billion, $19 billion and
$37 billion, the gross premium income of the insurance industry stood at $0.423
billion, $0.609 billion and $0.823 billion in 2003, 2005 and 2007 respectively.
Of course with a greater amount of deposits coming into the banking industry
compared to the paltry sum coming into the insurance industry as premium
incomes, the total investment of the banking industry is greater than that of
the insurance industry (NIA 2006).
Despite all the odds against the insurance industry in
Nigeria, it is still a goldmine capable of contributing meaningfully to the
economic growth of Nigeria. This is based on the fact that the various reforms
carried out in the industry namely mergers and acquisitions exercise, market
development and redistribution initiative, ‘No premium No cover regulation’ and
government supports and legislation (via local content initiative in the oil
and gas industry etc) are targeted at enhancing the performance of the
insurance firm.
At this point, it is pertinent to argue that beyond all
the challenges confronting the insurance industry in Nigeria notable among
which are ignorance, low level; of disposable income, religion and even low
insurance education; apathy could be said to be the ‘mother’ of them all. It is
obvious that consumer apathy to insurance, as a result of poor public image
arising from delayed payment of claims, often lead to low premium income and
low investment portfolio by the insurance firms.
Based on the foregoing, this study sets out to evaluate the
impact of insurance apathy on economic growth in Nigeria.
1.2 STATEMENT OF THE PROBLEMS
The insurance industry in Nigeria is
besieged with various challenges which have not allowed it to contribute
meaningfully to the economic growth of Nigeria. Non-remittance of insurance
premium by insurance intermediaries such as the insurance agents and brokers
has affected the insurance industry negatively as it led to consumer apathy. It
is important to note that the insurance industry is a broker market as such 90
percent of the premium incomes are controlled by the brokers while the
remaining 10 percent are shared between insurance agents and insurers through
direct marketing [one-on-one-transfer] . Hence, with non-remittances of premium
by the brokers and agents, the insurance firms are left to struggle to cover
policy payments in case of any arising claim. The implication of this is that
the insurance firms are left with limited funds to undertake any investment
thereby reducing their contribution to the economic growth in Nigeria. Through
this ugly practice of non-remittance of premiums, apathy already shown by
Nigerians towards insurance services is exacerbated.
Moreso, low coverage level for insurance
services in Nigeria has been identified as a major problem. For instance, the
insurance policy holders in Nigeria is put at 1.5 million which is negligible
when compared with the over 170 million population of Nigeria. This shows a
worrisome low penetration rate and simply implies that many individuals and
businesses in Nigeria are not yet in tune with insurance services and do not
accept them.
1.3 RESEARCH OBJECTIVES
The main objective of the study is to
examine the impact of insurance apathy on economic growth in Nigeria. The specific
objectives of the study are as follows.
i.
To determine the impact insurance
apathy on economic growth in Nigeria.
ii.
To determine the impact of
total investment by the insurance industry on economic growth in Nigeria.
1.4 RESEARCH QUESTIONS
In line with the stated
objectives, this study aims to provide answers to the following questions:
i.
Does insurance apathy have
any significant impact on economic growth in Nigeria?
ii.
To what extent has insurance
industry investment influenced economic growth in Nigeria?
1.5 RESEARCH HYPOTHESES
i Ho1:
Insurance apathy has no positive and significant
impact on economic growth in Nigeria.
ii H02: Insurance industry investment
has no positive and significant influence on economic growth in Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
i. The economy
In recent times, the Nigerian economy is
facing a downturn trend which had affected its growth rate. This shows that
growth has been attributed to the monolithic nature of the Nigerian economy
which is solely dependent on the oil industry. Hence, there is a need for the
government to turn to other industry in order to boost Nigeria’s economic
growth and this role can efficiently be undertaken by the insurance industry.
If the insurance industry is well harnessed, it has the potentials of
contributing to the growth of the Nigerian economy.
ii. To
The regulatory authorities
This study will act as an eye opener to policy makers by
revealing the current level of insurance awareness in Nigeria and factors that
have made the penetration rate of insurance industry to remain low. Moreso,
this study will guide policymakers in the formulation and implementation of
appropriate insurance policies and laws that would bring insurance services
nearer to the people thereby boosting the industry’s revenue (and investment). This
achievement on the part of the insurance industry will ultimately lead to the
growth of the Nigerian economy.
iii. To academics
Finally, this study will guide students, lecturers and
researchers in insurance to formulate research questions and hypotheses in
carrying out their study. Literature generated in the study will also help them
develop appropriate empirical literature and theoretical framework for their
study.
1.7 LIMITATIONS OF THE STUDY
i.
Funds
There was not enough money to travel
to places for data collection and to carry on typing of this work.
ii.
Time
Another factor
that served as a limitation to this study was time. The time for this study is
at the time of writing first semester examination and writing of various class
assignments making it difficult for the researcher to do do more than this work.
iii.
Data availability
Most places visited for collection
of data for this work, seems very far and the roads are not motorable making it
difficult for the researcher to go back to some places where the personnel were
not on seat to approve the issuance of the data to the researcher.
1.8 SCOPE OF THE STUDY
The focus of this study is to establish
the impact of insurance apathy on economic growth in Nigeria. In achieving
this, the study shall adopt data from 1996 to 2014 so as to determine the impact
of insurance apathy on economic growth in Nigeria. This period covers both the
pre-consolidation and post-consolidation era in the insurance industry in
Nigeria. The year 1996 as chosen for starting this study is remarkable because
available industry data on total investment by the insurance industry. Prior to
1996, the available data on total investment by the insurance industry in
Nigeria is scarce.
Moreso, 18 years (1996 to 2014), is not
long enough to introduce the problem of auto-correlation into the study thereby
avoiding the issue of spurious result.
1.9 DEFINITION OF TERMS
i. Insurance Apathy:General
lack of interest exhibited by Nigerians towards insurance services.
ii. Insurance
Penetration: A measure of how well people are conversant with insurance
service. It could equally measure the degree of acceptability of insurance
related services.
iii. Total Investment: The amount of resources (especially
money) put into a business in order to make profit. Normally, the profit made
is referred to as the return on investment (ROI).
iv. Economic
growth: Total value of goods and
services produced in an economy within a year.
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