Insurance, A Risk Transfer Mechanism: An Examination Of The Nigerian Banking Industry

Abstract

The study examines insurance as a suitable risk transfer mechanism for managing risks associated with the Nigerian banking industry. It explores risk and insurance; examines risks and features of insurable risks; outlines banking risks; highlights benefits of insurance to banks; and identifies banking risks and types of insurance banks purchase in Nigeria. The study adopts quantitative approach using the literature, and survey of 20 commercial banks in Nigeria selected through random probability sampling. Structured questionnaires were administered to 200 participants, 10 each from the 20 banks, selected through purposive sampling. The study concludes that banks purchase insurance to manage risks in the Nigerian banking industry; insurance is beneficial to banks and the economy; and insurance enhances banks' operations in the Nigerian banking industry. Implications for practice suggest that: insurance, if adequately arranged, serves as security and stimulus to banks; insurance facilitates spread of risk and stimulates banks' operations; and insurance reduces loss through risk prevention and reduction education. Thus, the study highlights the suitability of insurance for managing risks associated with banks' operations in Nigeria.