The Contribution of Insurance Industry To Economic Growth in Nigeria : Current School News

The Contribution of Insurance Industry To Economic Growth in Nigeria

Filed in Insurance by on July 3, 2020

The Contribution of Insurance Industry To Economic Growth in Nigeria.

ABSTRACT

This study empirically investigates the effect of insurance industry contribution to economic growth in Nigeria.

The Augmented Dickey Fuller Test, Ordinary lease Square Method, Descriptive Statistic, Co Integration and granger causality test was applied to annual Nigeria data spanning from 1981 – 2015.

The result of the estimation suggests that there is a long-run relationship between the dependent and independent variables.

However the study found that in the short-run insurance contribution to economic growth (proxied by total insurance investment) has a positive but insignificant effect on gross domestic product in Nigeria.

Giving that the insurance industry is not as established as its banking counterpart the insignificant impact on the economy is not surprising. However, the positive relationship is encouraging suggesting that in the long run the impact will be significant.

Hence,  the study recommended that, The national insurance commission (NAICOM) which is the regulatory body for insurance business in Nigeria, in conjunction with the government should work to see that some of the premiums collected and other income generated by the industry are being invested to ensure diversification of investible fund of insurance industry to boost the economy.

INTRODUCTION

Background of the Study

The role of insurance investments in promoting economic growth cannot be over emphaized. In the last few decades, insurance industry is one of the key sectors of the Nigerian economy and plays a vital role in the nation economy.

The business of the insurance industry is such that it provides services in form of security against general uncertainities which are likely to occur in everyday life, thereby resulting in liabilities that convert to a financial loss, (Yinka and Akinolo, 2013).

These services are usually provided by the insurer to the insured in return for a given small consideration known as premium which basically serves as the central source of insurance funds and also if well invested gain the industry returns.

Futhermore, the pool of these premiums are used in the settlement of claims by the insured and the investment returns serve as profit to the organization, (Omoke, 2011).

In Nigeria we have two types of insurance business, life and non-life insurance which results into the accumulation of funds by insurance companies which depends on the method of operation, and there is usually a considerable time lag between payment of premium and the settlement of claims.

This allows the insurers to withhold funds to cover liabilities to policy holders, (Zurbruegg, 2000). At the same time, unused premium receipts are invested to produce a satisfactory yield and a return for investors so that the shareholders can be paid dividends and any underwriting losses,  that is excess claims over payment can be balanced by any investment gains.

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CSN Team.

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