The Role of Insurance in an Emerging Economy, Paper presented by
Nigerian Council of Registered Insurance Brokers at the Annual Lecture of Actuarial and Insurance Students of the Lagos State Polytechnic on May26, 2016
• Show me a Nation with a buoyant economy, I will tell you a Nation that has paid close attention to the Growth of its Insurance
• No Nation grows without proper Insurance in place.
• This presentation seeks first and foremost to provide a more details understanding of the role, benefits and capabilities of the Insurance (Industry), as well as an overview of the functioning of the insurance mechanism.
It expounds upon the very real value that insurance offers individuals, institutions and the economy by providing a sense of security and peace of mind, encouraging loss mitigation, increasing prosperity, and generally making people more aware of the reality of risks and their consequences through information pricing signals
2. Succinct Definition of Insurance and an Emerging Market.
Insurance is commonly defined as a risk transfer mechanism whereby the individual or Insurance is commonly defined as a risk transfer mechanism whereby the individual or business enterprise can shift/transfer some of the uncertainties of life on the shoulder of other (Underwriter).
Insurance should be perceived not only as a protection mechanism, but more importantly as a partnership that allows individuals and businesses to spread their wings and go where they might otherwise not have dared to go
An Emerging Economy:
This describes a Nation’s economy that is progressing towards becoming more advanced, usually by means of rapid growth and individualization.
Those Countries experience an expanding role both in the World economy and on the political frontier
3. The Role & Effect of Insurance on Economy
• It allows different risks to be managed more efficiently
• It encourages loss mitigation
• It enhances peace of mind and promotes financial stability
• It helps relieve the burden on Government for providing all services of social protection to citizens via social security systems
v. It facilitates trade and commerce, supporting businesses and economic growth
vi. It mobilizes domestic savings
vii. It creates employment
viii. It fosters a more efficient allocation of capital, advancing the development of financial services
• It is an invisible earnings to the economy;
• It contributes to increase/growth in GDP of an economy
• It funds development
• It contributes to the IGR (Internally Generated Revenue) of the government through payment of taxes; and
• It helps businesses going through the payment of claims
Correct and unbiased information on how insurance contributes to society and the economy is paramount, since lack of sufficient education often results in negative opinion of the industry that can severely impact consumer confidence- a vital component of the industry’s efficiency in managing risks and alleviating suffering.
As an example, we can cite the confusion that often exists surrounding what a policy cover and what it doesn’t; a responsibility often shared by the insured and the insurer, where in the former does not diligently read and the later does not sufficiently explain
The insurance industry has already taken an important step in educating consumers and helping them appreciate better what insurance covers and what it doesn’t by clarifying policy wordings
Companies can do even more by treating claims fairly and rapidly; and clearly and vocally communicating reasons for denying claims when denials is justified.
It is indeed important to remember why insurance is so pervasive (and usually voluntarily) in the developed world today and increasing its presence in the developing world-because it answers some of our most basic needs and it is generally for less costly in the long run to be insured than uninsured.
Thank you for listening.