Insurance is one of the cornerstones of modern day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as intermediary and as 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 objectives of this work it to examine the impact of insurance market activities on financial sector development in the Nigeria economy. Secondary data were applied in carrying out this research work, ordinary least squares and unit test was used to analyse it. The results showed and unit root test was used to analyse 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 government through the monetary authourities should sustain the efforts geared towards deepening the financial sector as this will greatly improve the performances of the insurance market activities.
1.1 BACKGROUND OF THE STUDY
Insurance is one of the cornerstones of modern day financial services sector. In addition to its traditional role of managing risk, insurance market activity, both as intermediary and as 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 policy holders 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 have been faster growth in insurance market activity in both developing and transition economies given the process of financial liberalisation 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 similar depth. Compared to the vast literature focusing on 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). Given the growing importance of the insurance sector and the increasing number of interlinks to other financial sectors, the evolving role of insurance companies in financial sector development and overall economic growth and stability should be of growing relevance for policy makers and supervisors.
1.2 STATEMENT OF THE PROBLEM
During the last decades, there have been faster growth in insurance market activity in both developing and transition economies given the process of financial liberalisation and financial integration (Brainard, 2008), which raises questions about its impact on financial sector development.
However, Mackinnon and Shaw (1973) argue that one of the major challenges faced by the developing countries is the excess intervention and interference of the government in the financial system which is militatingagainst the expected growth trend of the financial sector.
According to history, Nigeria banking system is faced with some challenges majorly lack of confidence on the side of the customers due to the bank failure recorded in the past decade. financial institution has really deteriorated the confidence of the customers and hence depositors prefer to save their money in the corner of their bed than to save in the bank which is really affecting the intermediation processes as large quantum of money are still in the informal sector.
The Nigerian financial sector, like those of many other less developed countries, has been highly regulated leading to financial disintermediation which retarded the growth of the economy. The link between the insurance market and financial sector has been seen to be weak. The real sector of the economy, most especially the high priority sectors which are also said to be economic growth drivers are not effectively and efficiently serviced by the financial sector.
Social justification arises from the fact that the insurance sector is faced with many problems but also challenges, which is why it is necessary to intensify research efforts that may contribute to a better perception of the current state and prospects of the insurance market and the financial sector as a whole. This is the thrust of their research effort.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to empirically investigate the impacts of insurance market on financial sector development in Nigeria. The specific objectives are to;
- Determine the relationship that exists between Insurance market and the Nigerian financial sector
- Examine the impact of insurance market activities on financial sector development in the Nigerian economy.
- Proffer recommendation to enhance the performance of the insurance market in Nigeria.
1.4 RESEARCH QUESTIONS
- What relationship exists between Insurance market and the Nigerian financial sector?
- To what extent does an insurance market activity impact on financial sector development in the Nigerian economy?
- In what ways can the performance of the Nigerian insurance market be enhanced?
1.5 RESEARCH HYPOTHESES
H0: there is no relationship that exists between Insurance market and the Nigerian financial sector.
H1: there is a relationship that exists between insurance market and the Nigerian financial sector
H0: there exists no significant relationship between insurance market activities on financial sector development in the Nigerian economy.
H1: there is a significant relationship between the insurance market activities on financial sector development in the Nigerian economy.
1.6 SIGNIFICANCE OF THE STUDY
This study is very significant first because of its expected usefulness to formulators of insurance policy in Nigeria. Since the enactment of the first insurance legislation in 1961, several insurance policies and guidelines have been formulated, and new insurance regulations enacted to encourage the development and sustenance of insurance consciousness and awareness and ensure the penetration of insurance in Nigeria. Most of these policies and laws have failed to achieve the desired objectives. This study will serve as an eye opener to policy makers by revealing the current level of insurance awareness and factors influencing or militating against the cultivation of insurance awareness/habit in Nigeria. It will also guide them in the formulation and implementation of appropriate insurance policies and enactment of insurance laws that will bring insurance services nearer to the people at the grassroots and inculcate good insurance consciousness and habit into the Nigeria populace. Thus, this study will assist policy makers in formulating policies that conforms to the objectives of enhanced growth and productivity of the Nigerian economy.
- Academic Purpose
This study will also be of much use to students and lecturers of insurance, actuarial science, banking, finance and economics, and other researchers who may wish to carry out further studies on impact of insurance or investment of insurance funds or other related topics. The study will serve as a ready-made database for them to begin with. The study will also serve as a further contribution to knowledge in the areas of insurance, banking, finance and national economic development. It will be particularly useful to foreigners who may need to study the development of insurance business in Nigeria as one of the leading developing countries of Africa and the investment opportunities available.
- General and Interested Public
The study is also very significant because of the effect the findings will have on the Nigerian populace in general. By encouraging the development of good insurance culture, awareness and penetration of insurance in the rural and urban sectors, the study will help to increase the level of patronage of insurance products, understanding of the benefits of insurance as a financial solution to risks, and the deepening of the density of insurance, and as an efficient savings, credit and investment mechanism. This will in turn lead to increase in the number of insurance policyholders, increase in volume of insurance business, gross premium income, increased contribution to the Gross Domestic Product and economic growth and wellbeing of the populace.
- ORGANIZATION OF THE STUDY
The study is presented in five chapters. The first chapter introduces the study and establishes the problems to be addressed in the study. The background to the study, the scope of the study as well as the significance of the study is also discussed. While chapter two explores the review of the literature and other theoretical framework, the third chapter presents the methodology which includes the description of the procedure for the empirical analysis of the data and the estimation techniques used. The fourth chapter presents the result of the analysis while chapter five summarizes, concludes and proffers recommendations.
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