INSURANCE EDUCATION AND THE DEMAND FOR LIFE INSURANCE IN NIGERIA

INSURANCE EDUCATION AND THE DEMAND FOR LIFE INSURANCE IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The history of insurance industry in Nigeria could be traced to the British colonial trading companies that established agency offices in Nigeria, on behalf of insurance companies in the UK. After the Nigerian political independence of 1960, indigenously owned insurance companies sprang up with many inadequacies which in turn brought confidence crisis and strong apathy to not just life insurance purchase but an industry-wide boy cut (Augustine and Bamidele, 2013).

The federal government of Nigeria in an attempt to urge Nigerians to patronize the life insurance cover has put a number of policies, programmes and incentives in place without achieving any significant changes in the economy (CBN, 2006). Among the programmes put in place are compulsory national health insurance scheme, life insurance policy for all workers and health care services to the grass root level. But in spite of all the efforts made by the government, the management and development of life insurance policy in Nigeria have been unimpressive, leaving the nation with low industrial production and the entire populace with a low quality of life (Mojekwu and Ibekwe, 2015). This antecedent has forced stakeholders to now look at how to build an appropriate framework that would educate consumers on the need for insurance policy.

Consumer education is often considered an integral part of insurance schemes; a win-win solution that benefits both insurance practitioners and their clients. It is supposed to help potential clients make sound choices and practitioners stimulate demand. Insurance education gives consumers an overview of insurance and provides a comprehensive insurance knowledge (Dror, Dalal and Matul, 2010). It can be acquired through formal and informal way.

The literacy level of a country can provide a picture of the percentage of the population with formal education and informal education which of course can give an insight of how people in such country are knowledgeable about insurance (Churchill, 2006). It should however be noted that not all those with formal education has an in-depth of what insurance really means, some  of these people with formal education still thinks the best  thing is self insurance which means that they prefer to maintain a fund to cover possible losses rather than by purchasing an insurance policy (Ackah and Owusu, 2012). Research has shown that this set of people practice self insurance the most. A previous study by Garba and Jibril (2011) suggested that lack of knowledge about insurance product and to an extent misunderstanding of the concept of insurance account for low uptake of life insurance policy among low income population in Nigeria.

Insurance education can be defined as a process whereby the knowledge of the consumers in relation to the insurance products and concepts, and the financial risks and protection is increased, so that the consumers can make the correct choices (Leppert et al., 2012). Insurance education is computed to give a quantifiable measure of a person’s knowledge and attitude towards insurance (Ackah and Owusu, 2012).

Most people in the informal sector do not take up insurance as a way of preparing towards future unforeseen misfortunes, this could be because the perception among some individuals who felt that preparing ahead of possible misfortunes is like inviting evil. Other reasons given for low insurance up-take were the general lack of insurance knowledge amongst the populace, low income level and reliance on God’s protection to prevent calamities (Ackah and Owusu, 2012).

Life insurance plays an important role in an individual’s personal financial plan, as suggested by most personal finance and financial planning books (Sarwar and Qureshi, 2013; Bawa and Ruchita, 2011; Sarkodie and Yusif, 2015). Life insurance helps individuals save money while protecting against personal risks in life. However, financial planners and representatives of life insurance companies would attest that many individuals are often reluctant to allocate funds to life insurance and fail to see its underlying benefits as a personal risk management tool (Asinobi and Ojo, 2014).

Life insurance is a policy that replaces a lost stream of income that results from the death of an individual (Todd, 2004). Life insurance is undertaken to provide protection to the insured's family, creditors, or others against the loss of earning capability of the insured in the event of his death or serious injury. According to Oke et al (2010) life insurance is a protection of an economic value of an asset.

Adeyemi (2005) opines that the importance of insurance education and its over bearing contribution to the attendant growth of life and general insurance practices in Nigerian cannot be undermined. Similarly, Tajudeen et al (2009) are affirmative to the need for articulate insurance education, since the insurance industry is perceived as an indispensable tool of economic progress, growth and development. This research work is therefore carried out to examine the effect of Insurance Education on Demand for Life Insurance.

1.2   Statement of the Problem

The significance of insurance education to the demand for life insurance policies in Nigeria cannot be overstated, but despite the role played by the insurance industry to individuals, businesses and economic development of the nation at large, it is well known that people have poor attitude towards ownership and patronage of life insurance policies. When compared with the developed foreign countries, the Nigerian insurance industry has achieved only a little because of the lack of insurance education, ineffective marketing strategies, poor affordability and low investment in insurance products (Obasi, 2010).

Several researches cut across the different products being marketed by the insurance companies identified poverty, low per capita income, lack of trust and confidence in insurance institution and lack of awareness of insurance as being responsible for the poor patronages for life insurance services in Nigeria.

Identifying the bottlenecks to the growth of the insurance industry in Nigeria, Omar (2007) explains that low level of income, low level of education, lack of insurance awareness, low personal selling rate, low advertisement rate, low knowledge of insurance utility are some of the impediment to customer’s patronage of insurance policies.

Other impediments to the growth of the insurance industry in Nigeria include; poorly developed distribution channels, poor capitalisation; lack of requisite skill to participate in highly specialized transactions especially in high value risk segments such as marine, aviation, and oil and gas; unsophisticated product offerings, with only a few companies creating new opportunities and exploring ways of filling existing gaps in the market; inability to attract and retain skilled talents; low technology leverage; and low investment and assets management. Therefore, this research study is carried out to examine the relationship between Insurance Education and the Demand for Life Insurance in Nigeria with a special reference to secondary school teachers in Lagos Mainland Local Government.

1.3       Objectives of the Study

The major objective of this research work is to explore the link between insurance education and demand for life insurance. While other specific objectives are:

i. To investigate the effect of insurance education on purchase of life insurance in Nigeria.

ii. To find out the effect of awareness creation on patronage of insurance policies.

iii. To find out whether formal education is a determinant of consumer buying behavior of insurance.

1.4 Research Hypotheses

Presented below are formulated hypotheses to be tested in the course of the research study;

Hypothesis 1:

Ho:  There is no significant relationship between insurance education and purchase of life insurance in Nigeria.

Hi:           There is a significant positive relationship between insurance education and purchase of life insurance in Nigeria.

Hypothesis 2:

Ho: Awareness creation will not enhance consumers’ patronage of insurance policies.

Hi: Awareness creation will enhance consumers’ patronage of insurance policies.

1.5   SIGNIFICANCE OF THE STUDY

The study would help identify the reasons for the level of patronage of insurance as a risk transfer mechanism and create a changed behaviour of people in Nigeria. Findings that emerged from the study would serve as a spring board to generate interest for further research into the other aspects of life insurance challenges. The research work would also be of enormous assistance to various levels of educational institutions in the country, especially the universities as reference material for further studies and research work on insurance education as a risk management strategy. The study would further contribute to the existing literature on insurance education and the demand for life insurance in Nigeria.

1.6 SCOPE AND LIMITATION OF THE STUDY

The study was aim at evaluating the demand for Life Insurance in Nigeria with a special reference to secondary school teachers in Lagos Mainland Local Government.

The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following.

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

b) 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.

1.7 DEFINITION OF TERMS

INSURED: The person covered by an insurance policy

PREMIUMS: The monthly or annual amount that you must pay in order to have the insurance coverage.

FACE AMOUNT: The dollar amount that the insurance policy would pay out upon the death of the Insured.

PRIMARY BENEFICIARY: The person(s) designated to receive the proceeds of the life insurance policy upon the death of the Insured.

CONTINGENT BENEFICIARY: The person(s) designated to receive the proceeds of the life insurance policy if the Primary Beneficiary is no longer living.

TERM LIFE COVERAGE: The type of coverage that lasts for only a specified period of time (the “term”) and has a defined ending date. The face amount would be paid to the designated beneficiary if the Insured dies while the policy is in force.

WHOLE LIFE COVERAGE: The type of coverage that can last for as long as the Insured is alive, provided that all of the premiums are paid. This type of coverage usually keeps the same premium rate throughout the life of the policy.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is 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.


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