ROLE OF INSURANCE MIDDLE-MAN IN THE GROWTH AND DEVELOPMENT OF INSURANCE BUSINESS

CHAPTER ONE 

INTRODUCTION

1.1     Background of the study

The insurance industry is a highly specialized industry that gives greater security
to the fortunes of common people and among the whole society. It is one of the
financial institutions in Nigeria today that aid economic development and
growth. Egeria (1996:5) describes insurance as handmade of commerce which plays
a vital role in the going concern of humans as an economic animal. Chikeleze
and Echekoba (2008:186), defined insurance as a contract whereby one party,
called the insurer, in return for a consideration, called the premium,
undertakes to pay the other party, called the insured a sum of money or its
equivalent in kind upon the happening of specified event that is contrary to
the interest of the insured. The modern insurance business was introduced into
Nigeria in the late 20th century by the British merchant, who established
trading posts on the west coast of Africa. Before the Advent of the European to
Nigeria, organizations similar in purpose to insurance company were in
existence known as traditional social insurance scheme. They include the Isusu,
Social clubs, Age grade, etc, According to Okonkwo (1998:6), the first
insurance company to register its presence in Nigeria was Royal Exchange
Assurance with its office in Lagos in 1921. The enactment of workman
compensation ordinance in 1942 and the Road traffic Act of 1945 both
contributed to the meaningful takeoff of insurance industry in Nigeria. The
need for control and timely intervention of government led to the formation of
the National Insurance Corporation of Nigeria (NICON). In 1986, because of the
Structural Adjustment Program (SAP) brought about the emergence and
proliferation of financial institution especially Deposit taking institution
and insurance companies. Insurance capital base was raised from N1-N2million
then. Fallout from this event was that only 57 out of 152 insurance companies
qualified for registration. This was coupled with tighter control over the
industry.The importance of insurance in modern economies is unquestioned and has
been recognized for centuries. Insurance “is practically a necessity to
business activity and enterprise.” But insurance also serves a broad public
interest far beyond its role in business affairs and its protection of a large
part of the country’s wealth. It is the essential means by which the “disaster
to an individual is shared by many, the disaster to a community shared by other
communities; great catastrophes are thereby lessened, and, it may be,
repaired.” Insurance is an essential element in the operation of sophisticated
national economies throughout the world today. Without insurance coverage, the
private commercial sector would be unable to function. Insurance enables
businesses to operate in a cost-effective manner by providing risk transfer mechanisms
whereby risks associated with business activities are assumed by third parties.
It allows businesses to take on credit that otherwise would be unavailable from
banks and other credit-providers fearful of losing their capital without such
protection, and it provides protection against the business risks of expanding
into unfamiliar territory – new locations, products or services – which is
critical for encouraging risk taking and creating and ensuring economic growth.
Beyond the commercial world, insurance is vital to individuals. Lack of
insurance coverage would leave individuals and families without protection from
the uncertainties of everyday life. Life, health, property and other insurance
coverage’s are essential to the financial stability, well-being and peace of
mind of the average person. Insurance is a financial product that legally binds
the insurance company to pay losses of the policyholder when a specific event
occurs. The insurer accepts the risk that the event will occur in exchange for
a fee, the premium. The insurer, in turn, may pass on some of that risk to
other insurers or reinsurers. Insurance makes possible ventures that would
otherwise be prohibitively expensive if one party had to absorb all the risk.
Advancements in medicine, product development, space exploration and technology
all have become a reality because of insurance.Insurance intermediaries
facilitate the placement and purchase of insurance, and provide services to
insurance companies and consumers that complement the insurance placement
process. Traditionally, insurance intermediaries have been categorized as
either insurance agents, insurance middle man or insurance brokers. The
distinction between the two relates to the manner in which they function in the
marketplace.Insurance agents are, in general, licensed to conduct business on
behalf of insurance companies. Agents represent the insurer in the insurance
process and usually operate under the terms of an agency agreement with the
insurer. The insurer-agent relationship can take a number of different forms.
In some markets, agents are “independent” and work with more than one insurance
company (usually a small number of companies); in others, agents operate
exclusively – either representing a single insurance company in one geographic
area or selling a single line of business for each of several companies. Agents
can operate in many different forms – independent, exclusive, insurer-employed
and self-employed.

1.2     
STATEMENT
OF THE PROBLEM

Insurance
industry is generally seen as the backbone of any country‘s risk management
system, 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. Omar (2005) 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 small-scale and large-scale
firms as it provides stability by allowing large and small businesses operate
with a lesser risk of volatility or failure. Insurance is also very important
to the financial system. In collecting relatively small premium from the
insured in the economy, insurers are able to pull together large 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 the deepening
and broadening of the domestic financial system. Amidst the tremendous benefit
of insurance policy, most firm or individuals would not have been able to tap
into the stream of services offered by these insurance company without the
services of the insurance middle man. It is on this backdrop that the researcher
intends to investigate the role of insurance middle man in the growth and
development of insurance business in Nigeria. 

1.3     
OBJECTIVE
OF THE STUDY

The
main objective of this study is to investigate the role of insurance middle-man
in the growth and development of insurance business; specific objective are:

i)            
To investigate the role of insurance
middle-man in the growth of insurance business

ii)          
To ascertain the relationship between
insurance middle-man and the growth of insurance company

iii)         
To ascertain the relationship between
insurance middle-man and the policy holder/insured

iv)        
To proffer suggested solution to the
identified problem

1.4     
RESEARCH
HYPOTHESES

To
aid the completion of this study, the following hypotheses were formulated by
the researcher:

H0:insurance
middle-man does not play any significant role in the growth of insurance
business

H1:insurance
middle-man does play a significant role in the growth of insurance business

H02:there
is no significant relationship between insurance middle-man and the growth of
insurance business

H2:there
is a significant relationship between insurance middle-man and the growth of
insurance business

1.5     
SIGNIFICANCE
OF THE STUDY

It
is believed that at the completion of the study, the findings will be of great
importance to the management of insurance company as the study seek to
enumerate the importance of insurance middle-man in the growth of insurance
business in Nigeria, the study will also be of benefit to the insurance
middle-men as the study seek to enumerate their role in risk management and
their importance to the policy holders. The study will also be of great
importance to researchers who intend to embark on a study in a similar topic as
the findings and literature in the study will serve as a reference point. Finally the study will be useful to teachers,
students, academia’s researcher and the general public.

1.6     
SCOPE
AND LIMITATION OF THE STUDY

The
scope of the study covers the role of insurance middle-man in the growth and
development of insurance business, but in the cause of the study, there were
some factors which limited the scope of the study;

AVAILABILITY OF RESEARCH MATERIAL:
The research material available to the researcher is insufficient, thereby
limiting the study       

TIME: The time frame
allocated to the study does not enhance wider coverage as the researcher has to
combine other academic activities and examinations with the study.

FINANCE:
The finance available for the research work does not allow for wider coverage
as resources are very limited as the researcher has other academic bills to
cover

1.7     
DEFINITION
OF TERMS

Insurance agent

Insurance
agents are, in general, licensed to conduct business on behalf of insurance
companies. Agents represent the insurer in the insurance process and usually
operate under the terms of an agency agreement with the insurer.

Insurance Brokers

Insurance
brokers typically work for the policyholder in the insurance process and act
independently in relation to insurers. Brokers assist clients in the choice of
their insurance by presenting them with alternatives in terms of insurers and
products

Insurance

Insurance is a means of
protection from financial loss. It is a form of risk management primarily
used to hedge against the risk of a contingent,
uncertain loss

Middle-man

An
intermediary or agent between two parties; especiallya dealer, agent, or company intermediate between the
producer of goods and the retailer or consumer.

1.8     
ORGANIZATION
OF THE STUDY

This
research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview,
of the study), statement of problem, objectives of the study, research
question, significance or the study, research methodology, definition of terms
and historical background of the study. Chapter two highlight the theoretical
framework on which the study its based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the
study. Chapter four concentrate on the data collection and analysis and
presentation of finding.  Chapter five
gives summary, conclusion, and recommendations made of the study.