Impact of Insurance Market in Financial Sector Development in Nigeria
Impact of Insurance Market in Financial Sector Development in Nigeria.
ABSTRACT
Insurance is one of the cornerstones of the modern-day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as an intermediary and as a provider of risk transfer and indemnification, may promote growth by allowing different risks to be managed more efficiently, promoting long-term savings, and encouraging the accumulation of capital.
The main objective of this work it to examine the impact of insurance market activities on financial sector development in the Nigerian economy.
Secondary data were applied in carrying out this research work, ordinary least squares and unit test was used to analyze it. The results showed and unit root test was used to analyze it.
The results showed a positive and significant impact. This is to say that the magnitude of the estimated co-efficient reveals that insurance market operation significantly contributes to the financial sector development in Nigeria.
We recommend therefore that the government through the monetary authorities should sustain the efforts geared towards deepening the financial sector as this will greatly improve the performances of the insurance market activities.
INTRODUCTION
Background of the Study
Insurance is one of the cornerstones of the modern-day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as an intermediary and as a provider of risk transfer and indemnification, may promote growth by allowing different risks to be managed more efficiently.
Promoting long-term savings and encouraging the accumulation of capital, serving as a conduit pipe to channel funds from policyholders to investment opportunities, thereby mobilizing domestic savings into productive investment (Skipper, 1997 and Arena, 1998).
According to Vayanos and Hammound (2006), a thriving insurance sector is not only evidence of an efficient financial service sector, but it is also a key barometer for measuring a healthy economy.
During the last decades, there has been faster growth in insurance market activity in both developing and transition economies given the process of financial liberalization and financial integration (Brainard, 2008), which raises questions about its impact on economic growth.
As noted by Wachtel (2001), Favara (2003), and Levine (2004), research efforts so far have not examined the impact of other financial markets or instruments on economic growth in a similar depth.
Compared to the vast literature focusing on the bank, stock, and bond markets and their respective environment, the insurance sector has hardly been investigated in its role vis-à-vis financial sector development.
The few research efforts on the insurance growth nexus, while emphasizing the importance of the topic, concentrated on a few countries over fairly short or distant time horizons (e.g. Catalan et al, 2000; Ward and Zurbruegg, 2000), dealt with specific subsectors (Beenstocket al,, 1988; Browne and Kim, 2000) only, are concerned with contagion and other possible negative effects the insurance sector can transmit onto the economy (e.g. Das et al, 2003) or treats the insurance-growth-link rather as a side issue (e.g. Holsboer, 1999).
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CSN Team.
