Business Administration & Management

The Contribution of Insurance Business to the Economic Development of Nigeria

The Contribution of Insurance Business to the Economic Development of Nigeria (2005-2011)



Insurance is a form of risk management primarily used to hedge against the risk of a contingent uncertain loss. According to Adebisi, (2006) Insurance is an intricate economic and social device for the handling of risks of life and property. It is social in nature because it represents the cooperation of various individuals for mutual benefits by combining together to reduce the consequence of similar risks. As every new area of risks, and since with every passing day a new insurance package is amounted to take care of more and more areas of risks, the insurance booms.

Agbaje (2005) defined insurance as the business of pooling resources together to pay compensations to the insured or assured (I.e. the policy holder) on the happening of a specified event in return for a periodic consideration known as premium. Note that an insurance contract is usually evidenced by a document called the insurance policy which is usually signed at the foot by the insurer or assurer or his agent. Gollier (2003) argued that insurance involved the transfer of risk from an individual to a group sharing losses on an equitable basis by all members of the group. The group, known as what is now called Nigeria agents towards the end of the 19th Century by European trading companies mostly British.

These companies started affecting their insurance with established insurers in the London Insurance market. As time went on, some British insurers appointed Nigeria Agents to represents their interest in the country. These agents later metamorphosed into full branch offices of their parent companies in Britain. Osun Kunle 92002) opined that the first branch office in Nigeria was the Royal Exchange Assurance in 1921, later followed by other British companies, indigenous Nigeria Insurers and re-insurers later followed such as National Insurance Corporation of Nigeria (NICON) Established in 1969 and Nigeria reinsurance companies operating in Nigeria today.

Lynch (1992) Opined that insurance companies have continued to be on the increase since early sixties. This has been due to liberal financial legal requirements. With the increase in insurance business in Nigeria, it is anticipated that it should be able to contribute to the growth of the economy. More so, as insurance provides a hedge against loss, it is supposed to increase enterprise, thereby increasing national productivity.


One of the earliest and the most resilient problems in the insurance industry and the broking firms in particular has been contending with, and will continue to contend with is the problem of ignorance as the benefit of insurance products. Many do not know what insurance is all about even the educated ones.

Some believes insurance is a smart way of extorting money from the people. The problems created by some dubious practitioners who will collect premium without remitting same to the appropriate quarters do not help matters either. I believe that insurance practitioners especially the brokers will still need to do more in this areas of educating the public on the numerous benefits of insurance products and how such benefits can be harnessed. This will need intensive campaign at the grass roots level. Inadequate effort in this direction have defiled the huge premium that we are expecting from the insurance public.

Government will need to do more to enhance the process of turning around the economy to increase employment and it subsequent multiplier effect on the economy as a whole.

However, the age old religious belief that God is the best insurance is yet another factor. It is true, that is the best insurances, but we have to note that insurance is God’s creation through man to address a wide variety of human needs.

In view of the potential and actual contribution of insurances business to the economy, it has become pertinent to investigate into the actual contributions of the insurance industry in the growth of the Nigerian economy, and to what extent it has contributed. In this light therefore one begins to consider how insurance business has grown over time in Nigeria, and whether it has made meaningful contribution to the economy.


i. To examine the relevance of insurance business in Nigeria

ii. To assess the extent of insurance service provided to client in Nigeria

iii. To evaluate the contribution of insurance business to economic development in Nigeria.

iv. To identify the challenges facing the insurance business in Nigeria.

v. To make policy recommendation.


  1. What are the relevance of insurance business in Nigeria
  2. To what extent has the insurance services been made available in Nigeria
  3. To what extent has insurance business contributed to the economic development of Nigeria?
  4. What are the likely challenges facing insurance business in Nigeria?


H0: Insurance business has not make any significant contribution to economic development in Nigeria

H1: Insurance business has not make significant contribution to economic development in Nigeria


The scope of the study is confined to the contribution of the insurance business/industries to the economic development of Nigeria with particular interest on the period 2005-2011 and the data used for the study are data and time series based.



The study is important because the result and findings of the study will be useful to the following class of users:

  1. Policy makers: They shall consider this research work as basis for making economic policies.
  2. Academia: The research work is also significant to lecturers and students as an addition to existing literally works, thereby serving as a resource material to all who wish to further the study of the subject matter.
  3. Other researchers: The research work is significant because other researchers of related subject matter will make use of it as a resource material.


The challenges encountered by the researcher in the course of the study range from:

  1. Accesibility to relevant data: it was no easy to get relevant data that will help reseacher to develop more idea on the topic.
  2. Time constraint: this is another problem, the time limit is not much for a researcher to carry out more study on the work.
  3. Financial challenge: is also the most important problem that the researcher encountered during researching which involve traveling to relevant organizations and companies to get relevant data and information so limitation in data correcting went a long way in afffecting this research work..


Insurance: This is a contract in which the insurer, for a consideration or for a sum of money which is called premium, agrees to pay to the insured a sum of money or its equivalent whenever the event that was insured occurs.

Reinsurance: This is particularly important in any modem economy. It is simply a secondary insurance or the process by which an insurance company places a proportion of its insured risks which it cannot bear with another insurance or reinsurance company

Premiums: This is the amount paid by the insured to the insurer for the insurance cover provided in the policy.

Indemnity: The maximum amount pays able by an insurer to beneficiary of loss. The principle of indemnity implies that the claimant does not profit from the loss.

Insurable Interest: The pecuniary interest a person has in a possible subject matter of insurances such as car, property or life, such that he might suffer a financial loss as a result of the happening of the event insured against.

Insurer: The insurances company that has undertaken to provide an indemnity, pecuniary benefits or render services. The word insurer is sometimes synonymous to the word ‘Assurer; Assurance or assurer’ are however more applicable in life business. In view of the certainty of happening of the event assured, benefit could be paid on the death of the life assured or on the maturity of the policy.

Contribution: This is a doctrine, which enables an insurer to call upon another insurers similarly (but not necessarily equally) liable to the same insured to share the cost of an indemnity. It arises when there is more than one policy in respect of the same loss and each policy is covering the interest of the same insured.

Claims: A demand made by an insured or the insured’s beneficiary for payment of benefits or indemnity following a loss in accordance with the terms of an insurance contact.

Cover: A contract of insurance, to effect insurance, that is to ‘cover’ and insured for example, motor insurance with effect from a given time.

Cover Note: A document which signifies temporary acceptance of issuance of the policy document.

Excess: The portion of a loss which an insured is expected to bear while the insurer will be responsible for any amount of the insured loss over the portion. This is mainly applicable to motor insurance.

Pool (insurance): An agreement between a group of insurances and reinsurance companies to cede a percentage of some defined classes of business to a common source from where premiums, losses and expenses are shared in agreed proportion amongst them. Pools are usually formed to cater for volatile classes of business as v cli as to increase local retention capacity as in the case with most developing insurance markets.

Broker: A broker is an independent operator whose main duty is to bring parties to an insurance transaction together for a commission. The broker conducts his business for all and sundry and does not represent any particular insurer to the exclusion of others. The broker is professionally liable to the insured in view of his professed expertise in insurance.

Agent: One who solicits, negotiate and effects contract of insurances on behalf of insurer(s) within a defined limit of authority and subject to statutory and common laws. An agent may be a full time sales employee of an insurer or appointed on a part-time basis.

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