AN EVALUATION OF THE REFORMS IN INSURANCE SECTOR
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AN EVALUATION OF THE REFORMS IN INSURANCE SECTOR
PART ONE OF AN EVALUATION OF REFORMS IN THE INSURANCE SECTOR
Financial resources have long been seen as a critical factor in economic progress. As a result, resource mobilisation has been regarded as critical in attaining quick economic growth in emerging countries.
As we all know, insurance plays an important role in the mobilisation of financial resources in every country’s economy by covering various types of risk.
The services that insurance provides to industries such as agriculture, oil and gas, the financial sector of the economy, and various other critical sectors make insurance essential to the development of the economy.
Insurance assists individuals and organisations in prospering by assisting in the recovery of regular losses, the recovery of catastrophic losses, and the prevention of losses. Because of the crucial role that the insurance sector plays, it is critical that laws and regulations be put in place to govern how it operates.
There is no denying that Nigeria is through terrible times. There are numerous issues plaguing society. Resources are limited and compete for a variety of applications. The vast bulk of the people is impoverished. Corruption is at an all-time high, and many businesses are gasping for air.
Every day, the security of life and property is jeopardised, and unemployment is on the rise. Almost everyone experiences anxiety and uncertainty. Education lacks morality,
hazards and risks surround us, and in order to grow, individuals and corporate bodies are taking tremendous chances, despite the fact that uncertainty cannot be completely eliminated, because risk exists everywhere there is doubt.
“To try to eliminate risk in business enterprise is futile,” writes Irukwu (1998). “Risk is inherent in the commitment of present resources to future expectations.” Economic advancement can be described as the ability to take bigger risks.
Attempting to remove or even minimise dangers can only make them illogical and painful. In such a case, the most straightforward way to limit risk is through insurance, which provides coverage to its clients.
In reality, insurance entails the pooling of funds by a group of people exposed to similar risks, so that the few who experience losses can be compensated from the common fund.
This, of course, is predicated on the assurance that not everyone who has purchased insurance would incur loss at the same time. An insurer’s skill resides in his ability to determine a fair contribution among fund members while also keeping a secure and profitable fund.
1.1 BACKGROUND OF THE STUDY
Life insurance companies, non-life insurance companies, and those that do both are all types of insurance firms. They function as financial intermediaries and mobilise relatively long-term capital. Their primary investments are in the stock market, government securities, public sector firms, and the mortgage industry.
Anyanwu (1993:190) provides a brief history of the Nigeria insurance business. Royal Exchange Assurance was the first insurance business to open a full-service branch office in Nigeria. It launched its first office in Lagos in 1921, and three more British-owned insurance businesses entered the Nigerian market until 1949;
by the time of independence in 1960, the country had roughly 25 insurance companies. Nwankwo (Ibid) observes a significant increase in the number of insurance businesses from 1949, reaching 63 in March 1973. The figure had climbed to 70 by 1980. It was 87 in 1985, 103 in 1990, 121 in 1992, and 107 in 1993 (Akpan 1999:33).
In 1977, the Nigeria Reinsurance Corporation was formed to offer insurance coverage for the Insurance Corporation. It was also expected to help the government achieve its economic and social goals in the insurance and reinsurance sectors.
“All registered insurance companies in Nigeria are statutorily required to contribute 20 percent of the total sum insured to the Nigeria Reinsurance Corporation” (Ekezie 2002:14).
The first insurance law was passed in 1961, and another insurance decree was passed in 1997, increasing the paid-up capital of both life and general insurance to N20 million and N50 million, respectively, where general insurance comprises oil and gas insurance among other operations. The minimum paid-up capital for reinsurance is N150 million (Akpan 1999:33).
The Nigerian Insurance Industry has arrived at the light at the end of the tunnel. With the merger of 71 mega enterprises and a total capital base of over N200 million, the industry has seen a new “rebirth” and is poised to chart a new route across the African continent.
Because philanthropy begins at home, potential sources of business in the Nigerian market must first be explored to their full potential. The Insurance Act of 2003, among other things, requires owners of public buildings with more than two floors to insure them,
and the Pension Reform Act of 2004 requires labour with five employees or more to purchase a Group Life Assurance policy, which requires multinational corporations to insure at least 40% of their assets in the Nigerian insurance market.
1.2 STATEMENT OF THE PROBLEM
To have a better understanding of the subject, we shall examine into Insurance Reforms. Furthermore, several factors hinder the growth of the insurance sector, despite the fact that the status of the economy effectively dictates the character and quality of the Insurance sub-sector.
At this point, I’d like to identify the factors that have rendered the insurance sector inefficient and what needs to be done to correct those unhealthy competition among rival industries, unfair premium rates, underwriter wars, depressed incomes, unabated rise in claims profile, and operating last further reduced margins to an uncomfortably low level.
1.3 RESEARCH QUESTIONS
The following research question is being addressed in this project.
To what extent have insurance reforms aided the insurance sectors?
Is the insurance sector reform giving insurance customers hope?
What is the significance of insurance reforms in the Nigerian economy?
What is the rate of growth in the insurance industry?
OBJECTIVE OF THE STUDY
The study’s major goal is as follows:
To investigate the primary goal of the insurance reforms.
To investigate the insurance reform’s relevance to the industry.
Identifying challenges that have arisen as a result of the reforms.
Make recommendations for the efficient operation of Nigeria’s insurance sector.
RESEARCH HYPOTHESES
HO: There is no discernible difference in the recently completed insurance sector reforms in Nigeria.
H1: There is a substantial difference in the recently completed insurance sector changes in Nigeria.
SIGNIFICANCE OF THE STUDY
The purpose of this study is to provide the evaluation of the reforms implemented in the insurance sector. This research is thought to be essential for:
The government is in charge of policy formulation.
The business community for the purpose of capital formation and investment.
The work produced will be used as a resource for researchers.
This study will broaden the researcher’s understanding of the reforms.
1.7 LIMITATIONS OF THE STUDY
The researcher has the following constraints.
Material: It took the researcher a significant amount of time and effort to convene the key players in the Insurance industry about the importance of the research, and it was difficult for them to give information even when they were assured that such information would be treated strictly confidentially, as well as in obtaining hard copy materials.
Finance: As a student, the researcher did not have enough money to conduct thorough study, thus the investigation was limited to the topic’s area.
Time: Due to time constraints, this research was not carried out extensively, and hence most of the work that would have been completed was not possible.
1.8 ORGANISATION OF THE STUDY
This study is divided into five chapters, which work together to create the overall study meaningful, cohesive, and complete.
The first chapter covers the introduction, problem statement, research question, purpose of the investigation, research hypothesis, significance of the study, limitations of the study, operational definition of words, and study organisation.
The second chapter reviews the literature, and the third examines the research technique. The fourth chapter provides a thorough examination of the interpretation of data gathered through the use of table figures to properly explain the findings. The summary, conclusion, and recommendations are covered in Chapter 5.
DEFINITION OF TERMS IN BUSINESS
Insurance: A contract in which a premium is paid in exchange for the insurer (Insurance Company) paying compensation in specific events such as death, fire, theft, vehicle accident, and so on.
Risk is defined as the variation in probable outcomes that occurs in a particular scenario.
A premium is a fixed periodic payment made on an insurance policy.
Insured: A person or property that has been insured against loss and will be compensated by the insurance company.
The insurance company that bears or carries the risk of insurance is referred to as an insurer.
Capital refers to money invested in a business as a portion of past wealth that, rather than being used up, is retained for future wealth creation.
Policy: The agreement between the insurance company and the person who is insured.
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