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The aim of this research work is to appraise the problems and prospects of government supervision and control of insurance industry in Nigeria”. The specific objectives of this research study include the following: To examine the adequacy of government supervision and control of the insurance industry. To investigate the extent to which corporate governance of the Nigerian insurance sector impacts on its supervision and control.For a successful completion of this research work, the researcher made use of both primary and secondary methods of data collection for information gathering. Primary data were collected through: Questionnaire administration, Oral interview, and Personal observation. Secondary data were collected through; Periodicals and journals, Textbooks and lecture note books, and Internet. The data collected were presented in tables and analyzed with simple percentage while the hypotheses stated were tested with chi square. The summary of findings made by the researcher includes the following:The shortage of trained/qualified personnel is a factor behind non compliance with law governing the conduct of insurance business by some operators in the sector. Based on the findings, A strong and competitive insurance industry is a compelling imperative for Nigeria’s economic development and growth due to the fact that the country has a considerable high level of rural population, a good proportion of which are either illiterate or with very low-levels of basic education. In recommendation, the regulators of the Nigerian insurance sector should adopt effective and efficient policies that can properly checkmate insurance activities in the country and ensure that such policies go in accordance with insurance principles in the country.
1.1 BACKGROUND OF THE STUDY
Insurance is a safe-guard against risks. Any device aimed at reducing the chances of a risk occurring, when it happens, reducing the extent of its damage and providing the affected persons with compensation is a form of insurance. Insurance as a contract is between two parties where one party called the insurer undertakes to pay the other party called the insured a fixed amount of money in the occurrence of a specified insured event.
Obasi (2010) defines it as “a contract between the person who buys insurance and an insurance company who sold the policy”. He opined that “by entering into the contract, the insurance company agrees to pay the policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called insurance premiums”. The types of insurance products available in Nigeria include, motor insurance; general accident insurance; fire insurance; marine, aviation and transit insurance; life insurance; oil and gas insurance; health insurance; among others.
Insurance industry is generally seen as the backbone of any country’s economy, since it ensures financial security, serves as an important component in the financial intermediation chain, and offers a ready source of long term capital for infrastructural projects.
Babalola (2008) argues that the insurance industry “mitigates the impacts of risks and positively correlates to growth as entrepreneurs cover their exposures, otherwise risk-taking abilities are hampered”.
Insurance also promotes the growth of businesses both small and large as it provides stability by allowing them operate effectively as they are secured in knowing they have financial security should their business encounter loss. Insurance is also very important to the financial system. In collecting relatively small amount called premium from the insured in the economy, insurers are able to pull together a large pool of funds that could be invested for short and long term periods (Obasi, 2010). Such long-term funding of the economy is very critical for economic growth, and in deepening and broadening of the domestic financial system.
Thus, a strong and competitive insurance industry is a compelling imperative for Nigeria’s economic development and growth due to the fact that the country has a considerable high level of rural population, a good proportion of which are either illiterate or with very low-levels of basic education. Years of misgovernance has straddled it with poor infrastructure and poverty (Osaghae, 2005). There are risks of potential abuse, low level awareness, poor market penetration, low operating capital as well as low capacity for retention and acceptance of foreign risks (Daniels, 2008). In this context, supervision and control of the country’s insurance sector is perhaps regarded as a sine qua nonfor the conduct of insurance business, and certainly so, in an age of regulation even if governments cannot (and should not) regulate everything (Scott, 2008), the context of a developing country with poor infrastructure informs the need for a strong regulatory regime for insurance business considering its high-abuse potential mentioned earlier. The challenge of course is how to ensure the institution of an appropriate and adequate system of supervision and control.
The enactment of the Insurance Companies Act of 1961 Marked the first direct measure taken by Government to establish and organise the insurance industry. By the provisions of the Act, the office of the Registrar of Insurance was created to supervise insurance practice in Nigeria. Other provisions of the Act included minimum capital requirement and other conditions for registration, monitoring and control of insurance operations generally. This was followed by a series of legislations decades after which sought to further the course of insurance regulation in the country, and this research study is meant to critically analyze the problems and prospects of such supervision and control.
The National Insurance Commission (NAICOM) is the regulatory body of insurance industry. NAICOM’s Director (Inspectorate), Barineka Thompson stated that the commission has concludedarrangements to move finally from rules-based supervision to risk-based supervision by the end of 2013 in order to strengthen its supervision and enforcement efforts. He stated that the effort by the commission is to effectively and efficiently regulate the activities of the insurance sector
1.2 STATEMENT OF THE PROBLEM
The problems to be addressed by this research work include the following:
1. Inadequate government supervision and control of the insurance industry in Nigeria.
2. The presence of an ineffective corporate governance system in the insurance sector.
3. Shortage of trained/qualified personnel.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this research work is to appraise the problems and prospects of government supervision and control of insurance industry in Nigeria. The specific objectives include the following:
1. To examine the adequacy of government supervision and control of the insurance industry.
2. To investigate the extent to which corporate governance of the Nigerian insurance sector impacts on its supervision and control.
3. To investigate whether there is shortage of trained/qualified personnel.
1.4 RESEARCH QUESTIONS
The following research questions are formulated for the purpose of this research study:
1. Is there adequate supervision and control of the insurance industry in Nigeria?
2. Does corporate governance of the Nigerian insurance sector impacts on its supervision and control?
1.5 RESEARCH HYPOTHESES
The following hypotheses are formulated for the purpose of this research work:
HO: There is inadequate government supervision and control of the insurance industry in Nigeria.
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