Insurance is a risk transfer mechanism where an individual or commercial enterprise shifts some of its uncertainty embedded in everyday life,to the shoulders of another,in return for a certain amount of money called premium. Inter alia, it is essentially an arrangement by which a party,called the ‘insurer’,promises to pay another party called the “insured”,a sum of money in the event of a loss occurring of the insured peril.
Insurance in Nigeria started gaining ground in the early part of the nineteenth century.The British bank of west Africa started operating as an insurance agent in 1894, while the Royal exchange assurance of London was the first to set up a branch office in Lagos in 1921. So many other insurance companies started coming on board since then, but the penetration and acceptance was largely low. During the oil boom era of the 70’s and early 80’s,there werr about 100 insurance operators in Nigeria.
The Nigeria Reinsurance corporation (Nigeria Re) was consequently set up in 1977 to ensure that insurance premiums generated in Nigeria is retained locally for investment purpose.
In addition to this is to stem the flow of foreign exchange out of Nigeria. The ten percent compulsory cession to the National insurance corporation of Nigeria (NICON) was halted. Insurance in Nigeria are classified into four main categories according to the nature of the cover they provide:
(3) marine and aviation
(4) life assurance.
All the various insurance forms such as fire,windstorm, explosion,burglary or theft etc fall under the four categories earlier mentioned.Insurance has played a role in the Nigerian economy of returning the insured to the status quo before the occurrence of the insured event.
Without it, it might be difficult,if not impossible for individuals,businesses to recover and carry on in the personal life and businesses respectively.
The Nigeria Re paved way for private investments in reinsurance. Consequently, in 1984, the Universal reinsurance company became the first private reinsurance company in Nigeria, with the number further increasing towards the end of the 80’s. There are some middlemen who link up the buyers and sellers of insurance together. These intermediaries are in 5 categories namely:
(1) Insurance brokers: they are professionals that place insurance business with the insurance companies. There are over 200 licensed insurance brokers in Nigeria.They are experts and provide expert advice to their clients, and in the processing of claims. They have strict requirements guiding their operations and as such carry out their functions with great care at all times.
(2) Insurance agent: are individuals from other fields ,but assist in placing insurance business with insurance companies. They want to make extra income from commission derivable from performing this task. They are not professionals, and so owe nobody any duty of care when placing clients with an insurance company.No strict requirement by law guides them in their operations,the extra income is the only attraction.
(3) Consultants: They are middlemen not registered under any regulations but engage in the placing of insurance business.
(4) The loss adjusters: they are professionals,employed by the insurance companies to investigate losses in a claim situation.They present their reports,which will assist the insurers in deciding how to settle the claims,as well as the amount to be paid in.They are independent contractors ,who must be registered and their chief executive officer must be a professional.
(5) Actuaries: These are the crop of professionals that specialize in the calculation of premium payable for life assurance policies.
Insurance and assurance don’t mean the same. A lot of people think it to be the same,or do not understand the differences. Insurance is concerned with the indemnity and compensation for losses suffered such as theft, fire,marine etc under some uncertain situations whereas Assurance is concerned with the payment of an agreed sum, after a specified event,such as upon death which is for life assurance.we can see by this distinction that assurance relates more to life policies.
Note that all insurance policies come as life or non life.Therefore any insurance policy that does not fall in the life category is non life.
Insurance companies are able to assume risks in Nigeria by relying on the following:
(A) Large Numbers law: here,the insurer can ascertain to a high level of accuracy,the expected loss under its risk portfolio. As its exposure base increases,so also will its actual loss experience.
(B) Large capacity: Most insurance companies are large financial enterprises that have the capacity to bear the consequences of a loss,along with accumulated fund through premium collected is what enables them to pay claims,and leaves a profit margin for them.They collect a large number of premiums from people,then settle few claims of people who eventually suffer losses.
(C) Better information about risks: insurance companies now have better ways of assessing risk.
(D) Co-insurance: they use risk transfer mechanisms to transfer some of the risk it is bearing through co-insurance.An example of an event where this took place was the last Dana plane air crash that took place in Lagos,Nigeria.The insurance was done such that many insurance companies settled the claims,including an international Insurance rather than one single insurance firm.
(E) Re-insurance– This is the transferring of risk to companies that insure insurance companies.
(F) provision of loss prevention services: here,insurance companies encourage,and facilities loss prevention through rating measures that reduces claims.
We can see from all discussed in this piece that the role of insurance companies in the economic development of Nigeria is due to risk and uncertainty.
Risk abounds in every facet of our national life,for individuals and businesses.Whether when we cross the road,travel by water,visit people abroad etc or we enter into sales or supply contract,employ people,erect business structures,risk is involved.
Uncertainty on the other hand is a state of the mind. They both are linked together.Both risk and uncertainty are the reasons insurance companies blossom . Without which most businesses will die off quickly, and many will be unable to recover from the financial mess resulting afterwards.
In conclusion,we can see that insurance companies contribute a great deal towards the continuous existence of business ventures,without which the economy wont function. I hope the reader now understands in totality the operators, its existence and how it has come of age in Nigeria.
The limiting factor, to mostly the life assurance has been religious inclination of a large majority who see no need for insuring life, and peg it on the why the need for insuring life when it belongs to the creator.
All in all,the contribution of the insurance sector to the gross domestic product (GDP) has been increasing continually and its contribution to the overall economy will continue to increase.