What are the role of business and insurance in Nigerian economy?

Answer 1

THE ROLE INSURANCE IN NIGERIAN ECONOMY This sector represents the backbone of Nigeria's risk management system, ensures financial security, serves as an important component in the financial intermediation chain, and offers a ready source of long term capital for the infrastructure projects. The role of insurance in the growth and development of our economy cannot be over-emphasized.it mitigates the impact of risk and positively correlates to growth as entrepreneurs cover their exposures, otherwise risk-taking abilities are hampered. Thus, a strong and competitive insurance industry is a compelling imperative for Nigeria's economic development and growth. The Nigerian macro-economy overview is a compelling story of progression and advancement, attributably to a stable political environment and successful implementation of socio-economic and financial reforms. Though Nigeria has previously been extremely dependent on Oil and Gas revenue, recent statistics show a change in this trend. Militants unrest affecting oil producing region have resulted in significant reductions in oil contributions to GDP. On this flip side, increasing focus on developing the non- oil sector, combined with growth in key sectors such as Telecoms and Building Construction have boosted non-oil sector earnings and growth. As at Aug. 2005, prior to the announcement of the recapitalization directives, there were 22 insurance companies with a market capitalization of N28.94 billion listed on the Nigeria Stock Exchange. Now there are 26 active companies with a market capitalization of N683.1 billion, a 2,260% growth over two and half years,with quite a few still expected to be listed this year. The Nigerian Insurance Industry has evolved over the years following the announcement of new capitalization requirements for companies operating the sector. With the conclusion of the consolidation exercise, the number of players dropped from 103 to 49. Activities in the sector , however, noticeably increased; with enhanced public awareness of the sector and their operations, rapid expansions and strategic business acquisition, improved visibility and strict supervisory regulations. Therefore, in anticipation of the enormity of responsibility of the insurance sector, given the expected role in the transformation of the nation's economy, the reform in the sector became inevitable. One of the major outcomes of the consolidation and recapitalization exercise in the sector was the recertification of 49 companies, as against over 100 companies that were in existence in 2005. However, in spite of the reforms, the insurance sector is still faced with daunting challenges, which must be addressed to galvanize the economy. The growth of this sector was on how effectively the insurers are able to come up with designs suitable to our context and how effectively they are able to change the perceptions of Nigerians and make them aware of the insurable risks. The growth also depended on how service -oriented insurers are going to be, and the effective ness of the regulation. In recent times, NICOM has taken the bold steps the release of trapped funding to the sector, in the verification and recertification of insurance firms, in ensuring that claims are better scrutinized and in guidance note as well as corporate governance. The following functions were injected into the economy by the sector in order to better the lot of Nigerian Economy; a. Provision of indemnity/ compensation: as professional risk bearer that have entered into a contract of insurance with the insured that regularly pays his premium, it believes on the insurance company to indemnify if the insured peril occurs. When indemnified, it cushions the effect of loss suffered by the insured. b. Reduction of losses: through the payment of indemnity, losses suffered are reduced, making it possible for the sufferer to start again his business. c. Distribution or sharing of financial loss: insurance operations enable loss or losses to be distributed among different contributors that mean insurers who normally pay their premium regularly. These insurer contributions or premium normally grow to form what is known as a "pool" of financial resources. If any insured peril occurs, compensation or indemnification is effected from this common pool. Payment made from this common pool signifies or infers that the loss has been distributed among the various premium payers. Infect, the loss burden has been borne collectively. d. Confidence in investment: insurance has directly stimulated investment in various fields of human endeavors. Any investor who remembers that he is going to be indemnified if the insured peril occurs will be willing and confident to put more funds in his business or even expand his business. e. Provision of employment: normally, insurers and insured provide job opportunities to the citizenry. The insurance companies do employ additional hands as their business increases, while investors who take insurance protections are confident to invest and or expand their business. By so doing they equally employ people to work for them. f. Increase in investment: taking insurance polices to serve as boost to investors and entrepreneurs, various fields of business that are looked upon as very risky are being ventured into, meaning that with introduction of insurance many people are investing without fear of losing their capital. g. Mobilization of financial resources: different participants in insurance business/ classes of insurance normally pay their consideration/ premium. These insurers mobilize these funds which they utilizes to indemnify losses. Some of these funds are usually invested in other variable businesses or companies. For example, the mobilized fund may be used to buy shares of a blue chip company, attracting dividend to the insurance company yearly. h. Industrial growth and economic development: insurance business do stimulate entrepreneur to invest, expand, and diversify their various business. By so doing, they are contributing to the over all industrial, commercial and economic development of the nation.