Assessing insurance as an investment and poverty mitigation option for the poor

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ASSESSING INSURANCE AS AN INVESTMENT AND POVERTY MITIGATION OPTION FOR THE POOR

ABSTRACT

This studyaims at assessing insurance as an investment and poverty mitigation option for the poor. Survey method was  adopted for the study. The target population adopted for this study comprised of all employee of NICON. The sample size for this study was two hundred (200) respondents selected amongst the target population. Random sampling was used to choose the sample size for this study. The research employed primary and secondary sources of data. Primary data were gathered through questionnaires distributed among the Among the selected two hundred (200) respondent. The data gathered from the questionnaire were analysed and presented in frequency and percentage tables. The data were also interpreted and the chi square statistical test was used to test the stated hypothesis. The result revealed that the insurance sector promotes investment for poverty alleviation. The result also revealed that socio economic factors affect the growth of the insurance sector The study recommended that poor communities and groups should be educated on the primary role of insurance companies.

 

CHAPTER ONE

GENERAL INTRODUCTION

1.0 BACKGROUND

This researchintends to examine the role of insurance in improving the welfare of poor people living in Nigeria. The study determines if the insurance sector can serve as a saving pathway in reducing poverty in Nigeria by serving as a good investment option to the poor. Specifically the study aims at assessing insurance as an investment and poverty mitigation option for the poor.

1.1 BACKGROUND OF THE STUDY

The rate of poverty currently plaguing the world particularly countries in Africa is becoming increasingly worrisome and requires urgent attention. The poor are faced with many risks and are highly vulnerable to fluctuations in their income and expenses arising from health costs, property theft and fire, violence, death, disability and catastrophes (Shaiubu, 2013). According to Lam (2014) one cause of poverty observed in developing countries is the credit constraint imposed on the poor. Therefore, providing cheap credit to the poor has been considered as a tool for economic development and poverty reduction (ibid, 2014). According to World Bank report access to adequate insurance protection can assist the poor to achieve sustainable growth and provide them with capability to attain a better standard of living (World Bank, 2000). It can mitigate the impact of personal and national calamities on the buildup of assets, providing escape from the vicious circle of poverty that engulfs each new generation (Justice, 2015).

Generally, in developed economies, insurance business contributes significantly to the Gross Domestic Product (GDP) (Hamisu, 2016). The main purpose of insurance apart from its basic function is to enhance National development through effective wealth creation, protection and conservation (Elendu, 2013). The Nigeria Insurance Industry is one of the key sectors of the Nigerian economy and plays a very vital role in the nation as a whole  through risk bearing, employment of labour, payment of tax, providing vehicle for investors and other financial investment services, (Agbamuche, 2012; Hamadu&Mojekwu, 2010; Okparaka, 2018). The industry mobilizes funds that are channelled into productive investments and also acts as a catalyst of economic growth, helping to accelerate the process of qualitative structural transformation (Okparaka, 2018).

The Insurance sector in Nigeria, like other insurance industries all over the world has grown in quantitative importance as part of the spread-out advancement of financial institutions, its qualitative importance has also grown as a result of increased risks and uncertainties in the country (Michael, 2017). Over the past decade, the insurance industry of Nigeria has grown steadily and this can be shown in the total premiums which have gone from about N101billion in 2007 to N380 billion in 2016 representing almost upsurge of almost 300% within a space of 10 years (ibid, 2017). The total premium of the insurance industry hit its highest in 2016 with a total insurance premium of N380billion(Onuoha, 2017).

However, despite the steady growth of the Nigerian industry, the level of poverty in Nigeria is increasing alarmingly. This is odd given the fact that the growth of the insurance sector is meant to trigger a reduction in the number of poor people living in the country.It is against this background, that this work aims atassessing insurance as an investment and poverty mitigation option for the poor. The findings of this study will help in the fight against poverty alleviation in Nigeria.

 

 

1.2 STATEMENT OF THE PROBLEM

Many people in third world countries including in Nigeria live in poverty (Work Bank, 2015). Depending on the method used, approximately 2.5 billion people live under the international poverty line (Justice 2015). One dimension of poverty is the market failure of exclusion inaccessibility of the poor to formal financing mechanisms-both credit and insurance, since the poor are often considered too poor to bank, or insure (Dror, 2006). This has been challenged both academically and empirically by for example professor Yunus of the Grameen Bank, showing that there is willingness among the poor to use financial services (i.e. loan, save, or pay premiums to be insured) for both investments and consumption smoothening (Armendáriz and Morduch, 2005; Dror, 2006).

The insurance industry through the adoption of micro- insurance could help in the poverty alleviation process by protecting the poor from financial shocks which leaves their income to be invested on their path to economic growth. Micro insurance has therefore been acknowledged to have the potential as an additional risk transfer mechanism to reduce the vulnerability of the poor (Morsinket al., 2011; Barnett et al., 2007).  Therefore, this research aims at Assessing insurance as an investment and poverty mitigation option for the poor.

1.3 RESEARCH QUESTION

This research therefore aims to explore the following questions:

  1. What are the risk factors associated with the poor?
  2. What is the level of accessibility of insurance to the poor?
  • How affordable are insurance policies to the poor?
  1. Are optimal risk management measures available for the poor?

1.4  OBJECTIVES OF THE STUDY

The general objective of the research is to assess the role of  insurance as an investment and poverty mitigation option for the poor. Specifically, the research sought to address the following objectives:

  1. To asses the risks associated with the poor.
  2. To asses accessibility of insurance to the poor.
  • To asses affordability of insurance policies to the poor.
  1. To determine optimal risk management measures for the poor.
    • RESEARCH HYPOTHESIS

This study identified the following hypothesis to achieve the study objective:

Hypothesis One

Ho:     Insurance Sector promotes investment for poverty alleviation

H1:     Insurance Sector does not  promote investment for poverty alleviation

Hypothesis Two

H0: Socio economic factors affect the growth of the insurance sector

H1: Socio economic factors do not affect the growth of the insurance sector

 

1.6  SCOPE OF THE RESEARCH

The study aims at Assessing insurance as an investment and poverty mitigation option for the poor. The study covers the employees of NatoinalInsurance Corporation of Nigeria (NICON), Lagos. This population was chosen because the researcher  sincerely believed that these set of respondents possess adequate knowledge which would be useful in answering the research question.

1.7 SIGNIFICANCE OF THE RESEARCH

It is hoped that the result of this study concerning  insurance as an investment and poverty mitigation option for the poor would contribute to current knowledge oninsurance awareness amongst low income earners and its effect on poverty reduction. Secondly, the finding unearthed will be useful o insurance companies and insurance service providers  throughout the country. This would also help stakeholders in insurance business to formulate and implement policies that will help them to effectively increase the level of awareness and design products to suit low income earners.

Lastly, the findings of this research will serve as a guide to future research work in this area of study.

1.8 LIMITATIONS OF THE RESEARCH

The researcher faced some challenges in undertaking the study. A major constraint emanates from the insufficiency of funds to carry out a more expansive study. Also, few noteworthy prior research could be found which could clearly explain the relationship between insurance as an investment mechanism and poverty mitigation option for the poor.

The sample size for the respondents in this study was not too large to generalize the result of the study. The sample is thus convenience based. Time limitation was another for which the sample size selected is small.

The above mentioned limitations of the research should be taken into consideration by readers when concluding on the research findings.

1.9 ORGANIZATION OF THE RESEARCH

The research was organized in five chapters;

Chapter one provides an introductory overview of the full study comprising the statement of the problem, objectives of the study, research questions, methodology and relevance of the study. Limitations of the study, operational definition of terms and how the thesis was organized are also captured in this chapter.

Chapter two follows with a review of relevant literature on the insurance sector in Nigeria and the effect of insurance on poverty reduction.

Chapter three presents detailed methodology used for the study and gives an overview of the population sampling technique, the research design, research instrument, the data collection procedures and data analysis procedures. It also provided analytical framework and the relevant variables that were included in the model to be used in the study.

Chapter four focuses on the findings and analysis of the data collected from the respondents.

Chapter five summarizes, concludes and offer recommendations for future research studies.

ASSESSING INSURANCE AS AN INVESTMENT AND POVERTY MITIGATION OPTION FOR THE POOR

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