Insurance and Economic Development

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The impact of the insurance industry on a county’s economy
According to the social and economic value of insurance, a paper by the Geneva association
(2012), 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. There has been a fast growing trend in the size and value
of the insurance market and its activities thereof. This has been due to the fact that there has been
an emerging market given the process of liberalization and financial integration, which raises
questions about its impact on the economic growth of a nation.
The insurance mechanism involves the management and mitigation of risk, and is based on a
principle of shared responsibility between insurer and insured. However, insufficient
communication from the insurance industry has largely contributed to a lack of understanding of
its benefit to society. The banking sector has consistently offered a relatively clear picture of how
it operates and what it contributes to society and economies. The insurance industry, on the other
hand, has tended to neglect its image, and informed poorly or not at all of the precise
mechanisms that allow it to function. This is due to several reasons, many of which are related to
the low-profile nature of the insurance sector and its stability, in contrast to the banking industry,
as well as the fact that insurance is usually conducted locally even if some companies operate
globally.
Generally, Insurance has a real effect on the global economy, of course, through the sheer
number of people that the sector employs. But it also acts in a complementary fashion with the
banking sector, offering easier access to credit, channeling savings into long-term investments
and providing greater transparency and liquidity to the markets, thus providing further support
and growth to the economy.
It is in this vain that this paper will dwell on determining the impact of the insurance industry on
the economy of a nation, region and the world at large, beginning with that of Nigeria, Sub
Saharan Africa, England and the United States of America.

United States of America
The United States being a vast nation and economy, only two states will be referred to in relation
to insurance and its impact on the nation’s economy. The insurance industry, comprises of health,
life, disability and property-casualty insurers, plays a vital role in California’s economy. In
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addition to providing jobs and paying claims, each year insurance companies invest hundreds of
billions of dollars into California’s economy through investments in corporate stocks, mortgage
loans and real estate holdings. According to the US Bureau of Economic Analysis, insurance
carriers and related activities in California accounted for $29.6 billion in 2008, or 1.5 percent of
the Gross State Product (Swenson, 2007).
According to Swenson (2007) the industry’s economic impact can be demonstrated by putting it
in perspective with other well known California industries. Insurers contribute to California’s
economy almost as much as the motion picture and sound recording industries ($34 billion
representing 1.8 percent). Insurers contribute slightly more than the computer systems design
industry ($28 billion representing 1.46 percent). Insurers have a broad array of investments
across California. For example, life insurers have $546.8 billion invested in California’s
economy, consisting of $424.2 billion in stock and bond holdings, $67.1 billion in mortgages,
$4.2 billion in real estate and $51.4 billion in other investments. Life insurers make long-term
investments because their business requires the payment of claims over extended periods of time.
Iowa’s insurance industry is an important and growing part of the Iowa economy. According to
recent U.S. reports, Iowa’s insurance industry had 2.6 percent of the state’s jobs yet generated 5.6
percent of the state’s contribution to gross state product. This report investigates several
attributes of Iowa’s insurance industry and assesses its overall value to our economy – its
economic impact. Iowa’s insurance sector experienced greater expansion than the national
insurance sector during the previous 15 years. In 2005, employment in Iowa’s insurance carrier
industry was nearly twice its level in 1990, while U.S. insurance carrier employment remained at
its 1990 level. Employment in insurance agencies, brokerages, and related industries has grown
moderately but steadily in both Iowa and the United States.

Nigeria
The British colonial government introduced insurance business into Nigeria in 1910. Before this
time some forms of traditional social insurance had been in existence in every part of Nigeria.
This was in the form of mutual and social scheme, which evolved through the extended family
system, age grades and clan union of African cultures (Osoka, 1992).

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In Nigeria, insurance carriers accounted for 61% of jobs, while insurance agencies, brokerages
and providers of other related-insurance services accounted for 39% of jobs in the industry. The
majority of establishments in insurance industry were small. However, a few large
establishments accounted for many of the jobs in the industry (National Bureau of Statistics,
2009). Insurance carrier tends to large establishments, often employ 250 or more workers, and
whereas agencies and brokerages tend to be much smaller frequently employ fewer than 20
workers. Many insurance carriers’ home and regional offices are situated near large urban
centres. Insurance companies which deal directly with the public are located throughout the
country. Most of the workers are working in local insurance company offices. Many others in the
industry work for independent firms in small towns and cities throughout the country (Mia de
Vos et al., 2011).

Sub Saharan Africa
The sub-Saharan Africa countries has a combine population of 780 million is which is the ninth
population of the world in 2011. With this population one might expect the sub-Saharan African
to be one of the largest markets for insurance but the insurance sector only account for 0.2% of
total world premium. The insurance penetration (premium as percentage of GDP) in sub-Saharan
is very low compare to other regions of the world. According to Swiss Re (2012) between 2000
and 2011 the average growth rate of insurance premium in sub-Saharan Africa is 7.1% annually
and in 2011 it reached about 8.9 billion USD.
The oil producing countries and middle countries experienced the highest growth of premium in
sub-Saharan Africa. Based on Swiss Re report the six largest markets for insurance in Africa are
South Africa, Nigerian Kenya, Angola, Namibia and Mauritius. These six countries have a
combine market of 68%. The little fact provided shows that the SSA insurance markets subSaharan Africa are in a typical early phase of development, where the main focus lies on
commercial lines of business in non-life and group business in life. Insurance penetration in SSA
is very below the other regions of the world. However, it is only life insurance that is below
expectation given the current level of income in Sub-Saharan Africa. Motor and business line
related to the extraction of gas, oil and other renewable resources dominated while the personal
non-life accounted for low percentage. The situation is not different in life insurance as
individual take up of personal life insurance is very low while the group business dominates.
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The African insurance market has strong growth potential, especially in sub-Saharan Africa,
driven by economic activity which will boost demand for insurance.
Life insurance penetration in sub-Saharan Africa, though still very low, is increasing gradually
along with rising awareness of the usefulness of insurance, efforts by insurance companies to
expand their presence by introducing micro-insurance and also through alternative distribution
channels.

REFERENCES
1. Geneva paper, (2012) The social and economic value of insurance
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2. Mia. de Vos C, Hougaard C, Smith A (2011). Exploring the Potential in the Nigeria
Insurance market using data from the EFInA Access to finance in Nigeria survey 2010
3. Osoka O (1992) Insurance and Nigeria Economy, Abiola Press Limited, Lagos
4. Swenson David (2007) The Economic Impact of the Insurance Industry on Iowa,
Department of Economics, College of Agriculture, Iowa State University
5. Swiss Re Sigma,(2012) “World Insurance in 2012”.

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