Insurance, simply defined is a risk transfer mechanism whereby risks individuals and Organisations are exposed to are transferred to another party (the Insurance Company) in return for a form of consideration on the part of the transferring party (the insured) which is usually the Premium paid. It is a transfer measure of the Risk Control element in the Risk Management chain.
According to Investopedia, a Recession is a significant decline in activity across the economy, lasting longer than a few months which is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP) and it is generally agreed that Nigeria is in recession.
The current recession being experienced by Nigeria is as a result of a number of factors come of which are listed below:
- The continued drop in oil prices vis a vis the over-dependency on crude oil as the sole source of foreign exchange;
- The continued devaluation of the Naira against other foreign currencies;
- The continued sabotage of the economy by the Militants operating in the oil rich Niger Delta region grinding the oil production (and of course the oil-driven economy) to a near standstill;
- The continued exploration of alternate energy sources by developed Countries;
- The steady erosion of the Country’s foreign reserve by past administrations; etc.
Statistics have shown that the rate of Insurance penetration in Nigeria has revolved around 0.6% in the last few years which is a misnomer as Nigeria is considered one of the economic giants of Africa and this statistic is prior to the recession Nigeria is currently facing.
What this implies in lay man terms is that the number of people/organisations who purchase insurance voluntarily is about 0.6% and since the purchase of insurance is a direct corollary of disposable income; in a Country where insurance is largely considered a fraud, a Ponzi scheme and/or a luxury, Insurance has naturally taken a back seat in the priority list of these individuals and corporate entities.
While many believe that insurance as afore-stated is a luxury that can be done away with in this current economic situation where the actual value of the Naira has been greatly eroded and disposable income is an all-time low, the truth of the matter is that Insurance is actually a crucial requirement of individuals and corporate bodies alike willing to stay afloat and weather the recession storm.