IMPACT OF INSURANCE MARKET ACTIVITY ON ECONOMIC GROWTH IN NIGERIA
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ABSTRACT Insurance is one of the cornerstones of modern day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as intermediary and as provider of risk transfer and indemnification, may promote growth by allowing different risks to be managed more efficiently through promoting long term savings, encouraging the accumulation of capital, serving as a conduit pipe to channelling funds from policy holders to investment opportunities as well as mobilizing domestic savings into productive investment. Insurance is an indispensable aspect of a nation’s financial system and theoretical conceptions explain that financial systems influence savings and investment decisions through lowering the costs of researching potential investments, exerting corporate governance, trading, diversification and management of risk, mobilization and pooling of savings, conducting exchange of goods and services and mitigating the negative consequences that random shocks can have on the economy. However, the level of insurance market activity which should be commensurate with Nigeria’s huge potentials has not been attained. Insurance by reducing uncertainty and volatility, smoothen the economic cycle and reduce the impact of crisis situations on the micro and macro level. But, the demands for protection against losses of life, property caused by natural disaster, crime, violence, accidents, fire are not met in Nigeria. It is against this background that this study examined the impact of life-insurance penetration, non-life insurance penetration, total insurance penetration and insurance density on economic growth in Nigeria. The study adopted the ex-post facto research design and annualized cross sectional data for 26-year period 1987-2012 were collated from the Central Bank of Nigeria statistical Bulletin, National Insurance Commission and Nigerian Insurers Association. Four hypotheses were proposed and tested using the Ordinary Least Square (OLS) regression model. Descriptive statistics and graphs were also used to complement the regression results. The results emanating from this study indicate that while life insurance penetration and insurance density had positive and significant impact on economic growth in Nigeria, both total insurance penetration and non-life insurance penetration had positive but insignificant impact on economic growth in Nigeria under the period of this study. The study therefore recommends among others, that for the insurance industry in Nigeria to exert more positive impact on the Nigerian economy, government policies concerning insurance should focus more on attracting rural communities into the insurance bracket. This will assist at enhancing savings therefore providing funds for investment into the Nigerian real sector. TABLE OF CONTENTS Title Page. . . . . . . . . . . i Approval Page. . . . . . . . . . ii Declaration. . . . . . . . . . . iii Dedication. . . . . . . . . . . iv Acknowledgments. . . . . . . . . . v Abstract. . . . . . . . . . . vii Table of Contents. . . . . . . . . . viii List of Tables. . . . . . . . . . . xi List of Figures. . . . . . . . . . xii CHAPTER ONE INTRODUCTION 1.1 Background of the Study. . . . . . . . 1 1.2 Statement of the Problem. . . . . . . . 4 1.3 Objectives of the Study. . . . . . . . 5 1.4 Research Questions. . . . . . . . . 5 1.5 Research Hypotheses. . . . . . . . . 6 1.6 Scope of the Study. . . . . . . . . 6 1.7 Significance of Study. . . . . . . . . 7 1.8 Operational Definition of Terms. . . . . . . 8 References. . . . . . . . . . 10 CHAPTER TWO REVIEW OF RELATED LITERATURE 2.1 Theoretical Review. . . . . . . . . 11 2.1.1 Theories of Economic Growth. . . . . . . 11 2.1.2 Theoretical Review of the Nigerian Insurance Industry. . . . 19 2.1.3 Theories of Reinsurance in Nigeria. . . . . . . 25 2.1.4 Classifications of Insurance Business in Nigeria. . . . . 30 2.1.5 The Nigerian Financial System. . . . . . . 43 2.1.6 Theories of the Financial System. . . . . . . 46 2.1.7 Theories of the Role of Insurance in Financial Intermediation. . . 48 2.1.8 Environmental Factors affecting Insurance Market in Nigeria . . . 57 2.2 Empirical Review. . . . . . . . . 68 2.2.1 Financial Structure and Economic Growth. . . . . . 68 2.2.2 Financial Intermediation and Economic Growth. . . . . 73 2.2.3 Insurance Industry and Economic Growth. . . . . . 79 2.2.4 Life Insurance and Economic Growth. . . . . . 86 2.2.5 Non-Life Insurance and Economic Growth . . . . . 88 2.2.6 Insurance Penetration and Growth. . . . . . . 91 2.2.7 Insurance Density and Growth. . . . . . . 92 2.2.8 Insurance Sector Development and Capital Market Growth. . . . 92 2.3 Review Summary. . . . . . . . . 94 References. . . . . . . . . . 96 CHAPTER THREE RESEARCH METHODOLOGY 3.1 Research Design. . . . . . . . . 110 3.2 Nature and Sources of Data. . . . . . . . 110 3.3 Model Specification . . . . . . . . 110 3.4 Description of Variables. . . . . . . . 113 3.4.1 Dependent Variables. . . . . . . . . 113 3.4.2 Independent Variables. . . . . . . . 113 3.4.3 Control Variables. . . . . . . . . 114 3.5 Techniques of Analysis. . . . . . . . 115 References. . . . . . . . . . 116 CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA. . . 4.1 Presentation and Interpretation of Data. . . . . . 117 4.2 Test of Hypotheses. . . . . . . . . 126 4.2.1 Test of Hypothesis One. . . . . . . . 126 4.2.2 Test of Hypothesis Two. . . . . . . . 126 4.2.3 Test of Hypothesis Three. . . . . . . . 129 4.2.4 Test of Hypothesis Four. . . . . . . . 130 4.3 Implication of Result. . . . . . . . . 132 References. . . . . . . . . . 134 CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS. . . . . . 5.1 Summary of Findings. . . . . . . . . 135 5.2 Conclusion. . . . . . . . . . 136 5.3 Recommendations. . . . . . . . . 137 5.4 Recommendation for Further Studies. . . . . . 138 5.5 Contribution to Knowledge. . . . . . . . 139 Bibliography. . . . . . . . . . 140 Appendix. . . . . . . . . . 154
