THE ROLE OF INSURANCE IN RISK MINIMISATION IN SMES IN NIGERIA CASE STUDY OF UYO, AKWA IBOM STATE

THE ROLE OF INSURANCE IN RISK MINIMISATION IN SMES IN NIGERIA CASE STUDY OF UYO, AKWA IBOM STATE

  • The Complete Research Material is averagely 52 pages long and it is in Ms Word Format, it has 1-5 Chapters.
  • Major Attributes are Abstract, All Chapters, Figures, Appendix, References.
  • Study Level: BTech, BSc, BEng, BA, HND, ND or NCE.
  • Full Access Fee: ₦6,000

Get the complete project » Instant Download Active

CHAPTER ONE

INTRODUCTION

Background of study

Life is full of risks; expected or unexpected. In recent years there have been a lot of disasters and uncertainties affecting personal lives and the business environment across the globe. These events have had adverse effects on the socioeconomic activities on developed and developing nations; particularly Nigeria. There have been violent floods, fire outbreaks, traffic accidents, occupational hazards, accidental damage to properties and harm caused to lives, theft and armed robbery, as well as other unforeseen events that impact negatively on various economic ventures; especially the private sector investment activities. These mishaps remind us of the need to adopt risk management measures. Risk is everywhere but the business world is much exposed to it. To overcome the losses arising from these risks some take up insurance, others do not. Aizenman and Marion (1999), highlight the adverse effects of risks on investment using macroeconomic data from more than forty (40) developing countries. They emphasized the fact that the uncertainty about business decisions in the future and the resulting gains cannot be optimistic. Despite efforts by successive governments through economic reforms to heighten the private sector to complement government’s investments and enhance economic growth, the sector’s response is relatively low; and this could be attributed to their risk averse attitude. Entrepreneurs make decisions regarding their investment in a dynamic and risky environment. The outcomes of their decisions are generally not conclusive due to the uncertainties associated with the future outcomes. Variability in future outcomes is the biggest source of risk, particularly among Small, and Medium Scale Enterprises (SMEs). The use of insurance as a risk mitigation tool provides confidence and prospects in successful business decisions, however to some degree. The basic function of insurance is risk transference; risk is transferred from one party (the insured) to another party (the insurer). The transfer of risk by no means eliminates the possibility of misfortune, but the insurer provides financial security and tranquillity for the insured when the insured risk occurs. In return, an insured pays a premium in a very small amount when compared with the potential losses that may be suffered (Morton, 1999). Insurance as a risk management tool in Nigeria is made extensive and mandatory by the Insurance Act, 2006 (Act 724). The Act makes it compulsory for private commercial property owners such as hotels, restaurants, hospitals and clinics, Auto shops, manufacturing firms and many other related businesses to obtain fire and liability insurance just as it is compulsory for vehicle owners to obtain the Third Party Motor Insurance cover under the compulsory third party motor insurance Act 1958 (Act 42).

1.2 PROBLEM STATEMENT

 Risk is one of the most overlooked areas in SMEs in spite of the fact that it is clear to most entrepreneurs that, operating any business involves risk such as losses associated with property, income, injury and liability. These risks are inevitable to most entrepreneurs in businesses. Prudent business owners take steps to minimize the risk of their businesses in other to maximize returns on investments. A good risk management system is a continuous process of analysis and communication to select the appropriate tool to manage risk. SMEs in Nigeria serve as vital indicative sources of growth, technological innovation and flexibility. However, they are saddled with challenges to complement government’s efforts towards growth and development strategies. SMEs are exposed to many risks in their ordinary course of business, such as interest rate risk, foreign exchange risk, market risk, natural disasters, political risk, and technological risk and so on, that minimize their profit by increasing their financial losses. In Akwa Ibom state, Nigeria, the level of patronage of insurance by SMEs as a risk transfer mechanism to mitigate risks such as collapse of building, fire outbreaks, accidents, burglary, business interruptions, and dishonesty of personnel tend to be wavy. What were the recovery measures in the wake of the potential losses and financial hardships? In view of this, the researcher examined the extent to which non-life insurance was used as a risk management tool by SMEs.

1.3 OBJECTIVES OF THE STUDY

 The research broadly sought to assess the extent to which SMEs adopt insurance as a risk management tool and the benefits there in. Specifically, the research intended to achieve the following objectives to:

 1. Identify what business risk(s) SMEs face in Uyo, Akwa Ibom State.

 2. Examine the response of SMEs towards the use of non-life insurance to mitigate pure risk(s) in Uyo, Akwa Ibom State.

 3. Assess the benefits SMEs derive from using insurance as a risk management tool in Uyo, Akwa Ibom State

 4. Identify any problems SMEs encounter in using insurance in Uyo, Akwa Ibom State.

 5. Find out solutions to the challenges that SMEs encounter in using insurance in Uyo, Akwa Ibom State.

1.4 RESEARCH QUESTIONS

The main research question addressed was: do SMEs use insurance to mitigate business risk(s)?

 The specific related questions to solve the research problem included the following:

1. What were the risk exposures that an SME was faced with in Uyo?

 2. Did entrepreneurs of SMEs have enough insurance for their businesses in Uyo?

3. What was the level of response to using insurance as a risk management tool in Uyo?

4. What benefits did SMEs derive from using insurance as a risk management tool in Uyo?

 5. What were the problems that SMEs encounter in using insurance in Uyo?

 6. What were the solutions to overcome the challenges that SMEs encountered in using insurance in Uyo?

1.5 SIGNIFICANCE/JUSTIFICATION 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 the owners of SMEs. The research would benefit, risk managers, business consultants and business continuity consultants by identifying areas that they might need to consider when preparing disaster recovery plans, particularly for SMEs. Findings that emerged from the study would serve as a spring board to generate interest for further research into the other aspects of 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 as a risk management strategy. The study would further contribute to the existing literature on mitigating and providing confidence to entrepreneurs in their investment decisions. Also, the insurance regulator in the country should find it useful to adopt pragmatic means to enforce the unenforced insurance Acts in the country. Lastly, it might influence the level of premium incomes of non-life insurance companies in the country.

1.7 SCOPE  OF STUDY

The study covered the use of insurance as a risk management tool by SMEs, evidence and prospects in the metropolis. Four categories of insurance protection were classified for any businesses: property, liability, people and income (Dorfman, 2008). These categories remained the focal points of reference in the research. Indemnification and risk pooling of the various categories of insurable risks enhance commercial transactions and the provision of credits by reducing losses. The research took a period of five months. Uyo Metropolis in Akwa Ibom was used due to  numerous presence of SMEs.

1.8 LIMITATION OF STUDY

Data gathering was challenged as follows: there was delay in getting responses on time due to the schedule of work, especially entrepreneurs. Again, the questionnaires were read and interpreted to non-literates before they could respond. Extra time and financial resources were committed. The limited time given for the completion of the thesis had a negative impact on my productivity at the office and stressed me. Notwithstanding the above limitations, the study results were not affected and thus the findings were credible, reliable and useful for any purposes of evaluation and feedback.


You either get what you want or your money back. T&C Apply







You can find more project topics easily, just search

Quick Project Topic Search