IMPACT OF UNIVERSAL BANKING ON THE INSURANCE INDUSTRY; A CASE STUDY OF SELECTED INSURANCE COMPANIES IN NIGERIA
In choosing any project, there must be the consideration of several factors, the most prominent of which should be the end-user value. The need should have arisen for the user to look out for an external help, such need could be a more reliable and comprehensive information concerning Universal Banking system. Ever since creation, there has been a continuous quest for man to improve his wellbeing through his relations to the problems and challenges posed by his environment. Tools upon tools have been fashioned and defined by man to aid him in conquering these problems and challenges posed by his overcrowded and pressurized work and leisure environment.
In the developed countries of the world, the Universal Banking system has been operating for almost a decade now. In Nigeria, it is a new innovation in the Banking and Insurance industries. Since January 1, 2001 when the central Bank of Nigeria approved the “Financial Supermarket” system, merchant bankers who fought and won the battle may have started counting their chicks even before they are hatched. And it is expected that their fortunes will be enhanced soon after. Proprietors of merchant banks had complained that the unequal playing field in the banking industry which had, over the years, tilted in favour of the Commercial Banks had been responsible for continued poor performance of their outfit. This is even so when it is on record that some merchant banks post a lot more profit than the commercial banks.
The news of Universal Banking ha caused some uneasiness in some quarters, notably, the Insurance industry. Although the proponents of government policies and the promoters of universal banking have assured the insurance industry that they have nothing to worry about. However, it does not really accord with sound reasoning that the insurance industry will remain the same after the introduction of Universal Banking (Nwite 2004).
The full impact of Universal Banking on insurance remains a matter of conjecture since the policy has just been newly introduced in Nigeria. Scarcity of detailed information on Universal Banking has not really helped matters. However, a report on universal banking has to do with the dismantling of functional barriers in the financial service delivery thereby granting each bank the right to decide to engage in any financial service from a wide range of service such as accepting deposit, lending, trading in financial instruments, foreign exchange transactions, underwriting of debts, equity issues brokerage, investment management and insurance. In order words, a bank can be a jack of all trade (financial services) whatever effect this will have on the banking industry is up to bankers to appraise. What bothers the researcher and warranted this write up is the need for us to be told what impact Universal Banking will have on the insurance profession and industry.
Take the often recycled arguments that are anchored on banks increased capital base for insurance. It has often been said that Universal Banking is the only way by which the huge capital investment of the banks could be justified. This will make sense if we fail to remember that the N500m capital base was considered the minimum for a bank to carry out the present functions they are performing. It was felt that the capital base of the banks were too small in comparison to the total deposits that they receive from the public. But now that they have increased their capital base to N25b it will no longer form a negligible ratio of the total deposit that they receive from the members of the public. The current capital base is the minimum they should hold to carry on with their present specialist banking services. Bankers have boasted that their huge capital base will boost public confidence in insurance. No insurance literate person will wait for bankers to engage in insurance before having confidence in the efficacy of insurance products.