CHAPTER ONE
INTRODUCTION
Appreciation of the topic to be discussed will not be fully attained if a brief historical review of the steel industry is not given.
In the past, developing countries, Nigeria inclusive did not have a balance of economy and they urgently needed to be rescued from their under development trap. This they realized could not be achieved until they developed their own iron and steel industries, the bedrock of any economy. This recognition let Nigeria to develop its steel industry through this did not come into being until after the attainment of its independence.
In 1978, therefore, negotiations between Nigeria and foreign partners gave rise to the Delta steel company, Ajaokuta steel project and the three inland rolling mills at Osogbo, Katsina and Jos.
Thus, during the last 30 years, the federal government has been actively involved in the development of viable steel industry for Nigeria.
The Ajaokuta steel company Ltd, is an integrated blast finance producer of bars, shapes and medium structural. The present total in the company is in excess of N6 billion pre-sfem and definitely more if adjusted to reflect current replacement cost.
Any project with such a huge sum of money invested in it, which serves as the bedrock of a nation’s economy is bound to pose a great concern and in an effort to provide protection, insurance is the best solution to it. Insurance is a business designed to absorb the risk of others, and remembering that risk is inherent I the production of steel, the steel industry, therefore, understands what risk is and appreciates the cushion provided by the insurance
The portifolio of insurance industry is made up of the following policies: fire, theft, burglary, machinery breakdown, group personal accident insurance to mention but a few.
With the provisions of these various covers each of the steel companies established is free to take up any of the insurance covers that best fits the risk faced. This security provided by the insurance industry goes along way to aid the economic development of the steel industries.
1.2 STATEMENT OF PROBLEMS
The occurrences of accident in the steeling Rolling mills are the major problem in the steel rolling company. It is a fundamental knowledge that accidents do not just happen, they are caused by human frailties as well as error of judgment. About 95% of the accidents are caused by human failures and mistakes while 5% could be traced to technical fault, disasters and other causes some of which are often regarded as act of God.
The regulatory institution for insurance business in Nigeria, NAICOM has severally accused insurance firms of not living up to their expectations regarding service delivery or meeting up with regulations governing their activities ( NAICOM, 2005). Not many of them attract investors’ attention as their performance is poor. By the above reasons, it might be important to determine the optimal cost efficiency level for the production of insurance services in the economy. The main problems have been poor performance, and the Nigerian’s attitudes towards demand for insurance services have been lukewarm because of lack of enough local literature on insurance activities.
1.3 Objectives of the Study.
The main objective of this study is to analyze the effect of insurance industry development on steel industry in Nigeria.
Specific Objectives
The specific objectives of this study are:
- To examine the effect of life- insurance penetration on economic growth in Nigeria.
- To assess the effect of non-life insurance penetration on economic growth in Nigeria.
- To evaluate the effect of insurance density on the growth of Nigerian economy.
- To Investigate the effect that insurance Industry’s expenditure has on economic growth in Nigeria.
1.4 Research Questions
This research seeks an answer to the following questions:
- To what extent does life- insurance penetration exert positive and significant effect on economic growth in Nigeria?
- To what extent does non- life insurance penetration exert positive and significant effect on economic growth in Nigeria?
- How far does insurance density have a positive and significant effect on the profitability of the insurance Industry in Nigeria?
- To what extent does insurance Industry’s expenditure exert positive and significant effect on economic growth in Nigeria?
1.5 Research Hypotheses
The hypotheses of this study are as follows:
- Life insurance penetration does not exert positive and significant effect on the growth of the Nigerian economy.
- Non- life insurance penetration does not have a positive and significant impact on steel industry in Nigeria.
1.6 Scope of the Study
The research is centred on the effect of insurance industry performance on economic growth in Nigeria. For proper analysis, a period of 27 years was reviewed, i.e. 1988-2014. This research covers the best performing and quoted insurance companies both with the National Insurance Commission (NAICOM) and the Nigeria Stock Exchange (NSE).
The period is about 27 years. This period is enough to assess the impact of sub-sector in the economic development of a country. The choice of this period allows for comparison of various economic development indicators such as the Gross domestic product growth rates (GDPGR), Gross domestic product (GDP), insurance premium, savings, expenditure, investment and total assets.
1.7 Significance of the Study
This study is significant because, it provides information on the relationships between the insurance industry and the Nigerian economic growth, the performance and efficiency of insurance industry which if considered, will be of benefit and useful to the following:
The insured: This study will build up confidence in insured to invest more in the insurance industry, the confidence of investors to invest in Nigeria will influence the growth of the economy positively. The study, therefore, would help investors to choose the best investment options.
Policy Makers: This study provides a plat form that could assist policy makers to come up with policies capable of impacting positively on business risk management. The evaluation of alternative policy strategies based on the assumption that policy can react to data that are not available to policy makers. This study provides policy makers with a large pool of resources on improving and repositioning the insurance industry and to enhance productivity and economic growth.
Insurers: The study will help the staff of insurance companies to see the need to improve their customer service, corporate governance and rebranding of their products to meet the need of the insured and the general public.
Economic watchers and the General public: Economic analysts will utilize the platforms of this study in their analysis on the relationship between the insurance industry and the Nigeria economy in general. More so, the general public through the findings of this research will be better informed and educated on the kinds of risks and how to manage them effectively. The general public particularly those that are interested in the insurance industry will find this study useful because it will help them to understand more about the performance of the Nigerian insurance industry as it relates to economic growth.
Financial Market Regulators: This research provides required empirical and theoretical base concerning the working of the insurance industry. Such insights will offer useful guides to insurance market regulators like the Central Bank of Nigeria (CBN) and National Insurance Commission (NAICOM)).
Banks and Other Financial Institutions: Financial institutions that deal with insurance companies will find this study very important, because, it gives a fair picture of the performances of such insurance firms while in their terms of credit, whether or not to grant them credits and other considerations. It provides benchmarks for caution, lending, credit policy formulation and adjustments since the insured pays their premiums through them and the insured are also indemnified or compensated through them, especially, banks.
Researchers and students: Academically, the study will assist broadening the frontier of knowledge in various ways. The study will add to literature and other areas of interest in subsequent studies, and it is also expected to provide vital information to guide future researchers in the related field. This study would contribute to existing literature in the area of finance since there is a paucity of literature on the insurance industry.
1.8 Limitation of The Study
The major limitation of this study was associated with data generation. Generating accurate statistical data from various insurance companies and financial institutions and publications covering 27 years period posed some challenges. This is because, Nigerians as at now, still have a poor attitude towards data documentation and record keeping.
The dearth of local literature on insurance is also expected to affect the quality of this work. The reason is that, although this study is meant to close a local gap, foreign theoretical and empirical studies constitute the volume of data used in the review of the literature.
More so, the time needed to go round to all the insurance companies for first-hand data collection was faced.
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