Co-development of insurance, banking sectors would enhance economic growth

Overview of economic development of most advanced economies reveal that a twin development of insurance and banking sectors were a major vehicle for growth, as both sectors have been seen to complement each other.

Consequently, where they run in parallel like what research shows about Nigeria, there is a sluggish kind of development that lack critical support for individual and sectoral developments.

Analysts who reviewed the structure of Insurance and Banking market in Nigeria saw some uncomplimentary relationship between both sectors, but posit that a lot can be achieved if stakeholders particularly government make frantic efforts to bring both sectors on the same table.

In a USAID funded research work on “Assessment on How Strengthening the Insurance Industry in Developing Countries Contributes to Economic Growth” published in 2006, according to Yemi Soladoye, managing director, Risk-Guard Africa, when higher levels of banking and insurance activity coexist, countries are more likely to have higher level economic growth.

“Higher level economic growth cannot be explained as well by the individual development of the banking or insurance markets as it can by the joint development of the two markets.” According to the report, the benefits derivable from an insurance market development are closely related to how well the supply of insurance can meet the demands created for its services by other financial institutions and the economy.

On how the micro finance banks could assist in insurance deepening, Ogunbiyi noted that with well over 864 micro finance banks(MFBs) and 20 million customer base across the country, the nation’s insurance industry have the capacity to generate a minimum N60 billion annually if at least each borrowing customer of the banks are insured with a minimum N3,000 premium.

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This will not only facilitate more access to finance for small and medium scale enterprises, poverty alleviation and economic development, but will ensure stability of the micro finance banks in terms of risk management and loan recovery processes.

According to him, the potential of the insurance industry in the area of micro insurance is huge if only the sector could leverage on available opportunities, while taking experiences from other developed micro insurance markets like Kenya, India and Bangladesh.

In his paper recently titled “Role of MFBs in Advancing Micro Insurance Business in Nigeria” said the poor Nigerians suffer numerous challenges including sicknesses; accidents; dreaded diseases, drought; fire; flood; storm; theft; political violence; religious violence; unforgiven quarrels; death and so require one form of micro insurance to get out of these troubles or move out of poverty.

Other risk exposures include water – borne diseases; absence of medical facilities to diagnose and to treat; ignorance – cultural and religious beliefs; alcoholism; hazardous jobs – snake bite, falling from tree top and social expenses – wedding, funeral, and extended family.

Akin Ogunbiyi, group managing director, Mutual Benefits Assurance plc said insurance anywhere in the world, especially in developed countries, are actually tools for wealth and value creation and there is really no growth or development that can actually come unless the insurance industry is strong, reliable and able to play the role as major mover of the economy.

According to him, the Nigerian economy today is a rent economy where everything depends on the federal government and the national budget. “But if the national economy have to witness the growth and development it desires, the private sector has to be well mobilised through enabling environment, policies and programmes that will allow foreign direct investment to be channelled to the right sectors of the economy.

Ogunbiyi said this is why after over 90 years since insurance came to the shores of Nigeria, the industry has not been able to issue up to one million individual policies whether motor, life or householder policy.