CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF STUDY

            Insurance companies are financial institution with the fundamental role of protecting firms or businesses and individuals from financial losses and provides invisible fund to the economy.

            The services of insurance company is apparently important if a nation is to protect the future of business investment which is bedeviled with risk uncertainties to be less risky and make it protection and provision of scare investment fund to the industry is been played by insurance companies in Nigeria.

            The genesis of insurance companies in Nigeria back into time from the immediate family system, the community association, the age grade union and cultural associations. Member of this association renders some kind of insurance coverage to their members in terms of adversity, money is contributed to assist member to build a new house if loss by national disaster, burial for dead member and financial assistance to the family left behind. This is an insurance policy in a local setting in Nigeria.

            This practice developed to an organized association with rules and regulation guiding the welfare of members in terrible situation if distressed. This system does not allow for premium, however, the financial obligation was in the form of membership fees and contributions. Nigeria started to feel the emergence of modern insurance business in the middle of the 20th century only as a branch insurance companies with head quarters in Europe and America.

            This merger outfit developed rapidly into a large business conglomerate with financial assets comparable only to the banking sector.

            The first insurance company to have a full branch office in Nigeria was royal exchange the only company fully established in the country since then, more than sixty more companies have been incorporated in Nigeria. There are about three hundred (300) registered insurance companies in Nigeria today. Among them is Nicon Insurance Corporation. PLC, which obviously is the case study of this research.

1.2       STATEMENT OF RESEARCH PROBLEM

            The insurance industry is primarily a risk undertaking business the function of the insurance industry is essentially the same in the whole world. Which has not been effectively and efficiently achieve. Although the author has choose the topic of the impact of insurance industry  on the economic development. The problem and questions that militate against the normal function of the insurance industry needs to be highlighted. In an attempt to identifying the problems that have hindered the achievement of these functions, the need to provide solution to the problem cannot be over emphasize.

            One of the problems is economic instability which has eaten deep into the fabric of the nations and has been hindering the smooth operation of the insurance industry. Two, the political environment has adverse effect on the economic environment as various administration have come up with their various operational and investment policy in Nigeria and these has first of Insurance companies to reduce their staff strength and these has attending effect.

            In the making of the current economic crises, the government in an effort tried mitigate its effect on firms by embarking on the structural adjustment program (SAP) which can be assessed by its little contribution and in this totality fueled up inflation thus weakening the operation of firms in the insurance industry. Since customers are prospective customers can no longer afford to pay their premium nor are they willing to take new one.

            More devastating is the acute shortage of skilled manpower particularly at the top and middle management cadres the industry and admission of new insurers into the industry, since the national supervisor board (NSB) guideline state that at least one professionally qualified person must lead each department in the company before such a firm can be licensed.

            Not excluded his the management and staff relation which has not been cordial as result of some inconsistency in the system among which are delay in payment of staff salaries wages bonus and other allowance and more provision of poor relation and this leads effect such as stir (work to rule) embarked upon by workers.

            The investment climate in the country also create problems of managers in the industry due to lack of develop capital market, low yield from investment restrictive laws and regulations constraining the managers choice of investment.

            Excessive administration expenses on the same types of investment problem of advert effects of global inflation, non-profitability of insurances business of high claims paid as a result socio-political crises (Example 1998 SAPRIOT).

1.3       OBJECTIVE OF THE STUDY

            The objective of the study was to examine the Impact of the insurance industry on the economic development of Nigeria. This was carried out by applying various function of insurance as they effect the economy. The study also determine how insurance has been able to play an important role on the development of the economy. The following formed the objective of this study in the following area.

            The research is to find out if industry will influence and increase mobilization of saving particularly through life assurance policies, for productive use and as a source of long term.

            To determine if it will improve the development of capital market by providing a channel for the sourcing of funds by both public and private sectors of the economy.

            The study will determine the accumulation of foreign exchange for the Nigeria economy and direct equity and loan investment in the industrial enterprises.

            It will determine whether the upsurge of insurance companies will lead to the mobilization of fund for the government and the investment pattern of the economy and also type social development of the entire nation.

1.4       SCOPE OF STUDY

            Insurance industry in Nigeria is a very important business with so many names and branches all over the country. In research like this, it was difficult to cover up all the branches of insurance companies for that simple reasons, the national insurance corporation of Nigeria NICON plc was used as a representative sample in the insurance industry. In the case, out of the 25 branches of the corporation, the Benin and the head office Abuja would be covered due to time constraints and lack of funds to visit these important states.

            The activities include life and non-life assurances of the corporation life assurance are life pension, non-life insurance include. Accident, motor, fire, marine, workmen”s compensation, Aviation and miscellaneous.

1.5       SIGNIFICANCE OF STUDY

            The very concept of insurance has often been misunderstood and misrepresented in the society, not because of myopic disposition of the general popular but for the fact that insurance awareness has not been fully implemented into the system of which this research work intended to promote insurance awareness, with the view of identifying areas of immense benefit from the corporation to the insurance community as well as to insurance practitioners and the overall contribution to the development of the Nigeria economy.

            In the highlight of the above the researcher tends to investigate into the effect of insurance on the development of the Nigeria economy- it is hope that the finding and recommendation. From this study shall be careful to the following.

                                    The government as the determinate of the economic policies in Nigerian.

                                    The accountants, auditors and professional manager who are expected to use insurance in form of national decision making.

                                    The society who are wholly and practically involved in the use of insurance activities.

            Other investors who may want to invest in the insurance industry.

1.6       STATEMENT OF RESEARCH HYPOTHESIS

            In this study the following hypothesis will be tested.

Ho: There is no positive relationship between the saving of low-income (Rural) and high income (Urban) earners.

Ho: The insurance industry has no effect on the saying of household.

Hi: The insurance industry has effect on the saving of household.

1.7       LIMITATION OF STUDY

                                    Carrying out this research successfully was not achieved on a platter of gold researcher encountered a harvest of constraints.

            Firstly, the research was limited to Edo state and Abuja because of time and financial constraints. The time at the researcher”s disposal was not enough to research respondents outside Edo state and Abuja of course, time is very important in research study and a lot if it is needed to exhaust all the requirement of a particular study. That of finance was equally a very big problem as nothing can be done effectively and efficiently without adequate provision of it in fact a lot of money is required to procure some materials that are necessary of a research study. The result of these problem is that the research is restricted to Edo state and Abuja.

                                    Another limitation is in the interview and questionnaire. It was very difficult to get respondents to answer questions or fill their questionnaires truthfully, because comparative analysis of performance of any center is a very sensitive area of an enterprise. In fact the goodwill of the establishment as well as its public image hang on it. Of course, it would be easier for respondents to tell lies about the performance of their establishment as well as its public image. If this were done, it would be very defective to the reliability of the research.

            Also the respondents were not quite corporative. Some claimed that nothing materialistic was going to come out from helping to fill the questionnaires. Some feared the possibility of sack, dismissed and termination if they say the truth about the performance of their establishment.