INSURANCE AS A TOOL OF ECONOMIC DEVELOPMENT IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

The insurance industry is a highly specialized industry that gives greater security to the fortunes of common people and among the whole society. It is one of the financial institutions in Nigeria today that aid economic development and growth. Egeria (1996:5) describes insurance as handmade of commerce which plays a vital role in the going concern of humans as an economic animal. Chikeleze and Echekoba (2008:186), defined insurance as a contract whereby one party, called the insurer, in return for a consideration, called the premium, undertakes to pay the other party, called the insured a sum of money or its equivalent in kind upon the happening of specified event that is contrary to the interest of the insured.

The modern insurance business was introduced into Nigeria in the late 20th century by the British merchant, who established trading posts on the west coast of Africa. Before the Advent of the European to Nigeria, organizations similar in purpose to insurance company were in existence known as traditional social insurance scheme. They include the Isusu, Social clubs, Age grade, etc, According to Okonkwo (1998:6), the first insurance company to register its presence in Nigeria was Royal Exchange Assurance with its office in Lagos in 1921. The enactment of workman compensation ordinance in 1942 and the Road traffic Act of 1945 both contributed to the meaningful takeoff of insurance industry in Nigeria. The need for control and timely intervention of government led to the formation of the National Insurance Corporation of Nigeria (NICON). In 1986, because of the Structural Adjustment Programme (SAP) brought about the emergence and proliferation of financial institution especially Deposit taking institution and insurance companies. Insurance capital base was raised from N1-N2million then. Fallout from this event was that only 57 out of 152 insurance companies qualified for registration. This was coupled with tighter control over the industry. 

Insurance represents a promise of future compensation relating to specific losses in exchange for periodic payments. Insurance are similar to banks and capital markets as they solve the need of business units and private households in financial intermediation. The only way out is to reposition the organization and business to meet with the demand of the period, create more awareness about the industry, training and retraining of staff, minimization of the wastages and maximization of gains in the interest of the economy.

Insurance is bought in order to hedge the possible risks of the future which may or may not take place. This is a mode of financially insuring that if such an incident happens then the lost does not affect the present well-being of the person or the property insured. Thus, through insurance a person buys security and protection.

One of the important outcomes of the consolidation and recapitalization in this 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.