What Is Insurance?
According to web finance business dictionary, ” An insurance company is a business that provides coverage in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.”
The simple logic behind insurance is that a number of persons agree to device a kind of cooperative in order to spread the loss of an individual member among other participants.
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Since every business involves taking risks, there is always a higher probability for either a small or large scale loss. So therefore, there is a need for some form of insurance as it helps to spread an individual loss over a large number of people who agrees to cooperate with each other during the event of a loss. The larger the number of participants the easier the process of risk distribution.
Loss is shared among the participants by payment of premium which is usually calculated on the probability of loss.
An insurance company usually employs the services of a host of insurance agents to effectively render its services which is usually related to risk reduction.
Clients usually pay a fee, and in exchange, insurers promise to cover all costs associated with future calamities (which may or may not actually occur).
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Insurance Industry In Nigeria
In Nigeria, there are a number of popular insurance companies, some of which are
2. Custodian Insurance plc
3. Consolidated hallmark insurance
4. Lead way Insurance
5. IGI Insurance
6. Gold link Insurance
7. Niger Insurance plc
8. NEM Insurance
9. Mutual Assurance plc
10. Staco Insurance plc
11. NICON and a host of others.
There are various types of insurance available but the most suitable insurance plan for an individual or business usually depends on a number of factors such as the level of income, the type of business, type of job, personal health status e.t.c. some of the types of insurance available in Nigeria are marine insurance, life insurance, fire insurance, motor insurance, burglary insurance, credit insurance, personal accident insurance, health insurance, aviation insurance e.t.c.
The terms and conditions governing each of the various types of insurance greatly differs. Insurance offers a great range of benefit to individuals, companies and the country at large.
But in Nigeria, the penetration of insurance among the masses is relatively low. Insurance companies in Nigeria mostly generate their premiums from companies and firms who are already educated on the importance of getting an insurance cover and those who are compelled to take insurance by the law, while amongst the masses, only less than one percent of the Nigerian population has an insurance cover.
Importance Of Insurance
One of the most important benefit of insurance includes providing security against losses for the insured, other benefits of insurance are listed as follows:
1. Stimulating the economy
Insurance companies play a very big role in boosting the economy of a nation by investing the premium paid by their clients into other sectors in the financial market.
Insurance companies invest the premium paid by their clients into government stocks and securities. This helps to boost the economy as well as creating employment opportunities.
2. Financial recovery
Insurance helps individuals, companies and buisness owners to recover from major disasters such as earthquake, fire, flood, theft e.t.c.
Insurance company aids quick recovery during such unfortunate incidents by releasing funds for reconstruction and recovery.
It also helps to instill confidence in an entrepreneur who is insured by increasing his risk taking ability and also enabling the entrepreneur to invest more than he/she is used to.
This is because of the fact that an entrepreneur under the cover of insurance will be duly indemnified in cases of loss.
3. Safety and security
Insurance helps to provide entrepreneurs with security and safety. Most businesses involves risks and uncertainty, therefore insurance helps to provide succor and security against such unfortunate occurrence.kmnm
4. Insurance encourages saving
As much as insurance tends to protect the insured against risks, it also helps to encourage savings, especially when premiums are paid regularly.
For instance, in life savings where the insured pays his premiums regularly, the insured is qualified to get a tangible amount of money when his savings are mature enough.
Life savings also instills confidence in an insured individual since there is a life policy which his family will fall back on, in cases of premature death. Other importance includes:
a. Source of capital.
b. Reducing or preventing financial losses.
c. Protection against loss.
d. Provides peace of mind.
Challenges Facing Insurance In Nigeria
Aside from the above mentioned roles and benefits of insurance generally, the insurance sector in Nigeria is still below average in comparison to its counterparts in the western world.
A lot of problems plague insurance companies in Nigeria and this has seriously affected the growth and popularity of insurance among the teeming masses. Some of the major problems that have affected the growth of insurance companies in Nigeria are discussed below:
1. Lack Of Skilled Professionals
Most insurance companies in Nigeria lack adequately skilled cooperate professionals ( underwriters, brokers, actuaries, etc) due to poor remuneration packages unattractive for the highly skilled and experienced professionals and lack of Continuous Professional Development (CPD) programs and professional training programs for employees.
This shortage of skilled professionals have led to inefficiency and inability to meet up with cooperate objectives and hence contributed to the poor growth of insurance companies in Nigeria.
2. Lack Of It Infrastructure
Most insurance companies in Nigeria are not fully automated and still makes use of the manual system of operation.
This is the major reason behind the poor document management system obtainable in most insurance company in Nigeria and has led to delays in service delivery (such as claims settlement), fraudulent practices, mistakes and errors due to the primitive mode of operation.
This is why the insurance industry’s statistics are not always available on time. Also, the Nigerian insurance industry regulatory body (NAICOM) has failed to adopt a guideline that would compel all insurance companies in Nigeria to fully adopt the use of an integrated computer software system.
3. Poor Risk Management
Insurance companies in Nigeria lack proper risk management plans to control risks associated with the insurance industry.
Another risk management problem is the low level of implementation of NAICOM’s Enterprise Risk Management (ERM) framework due to inadequate working capital, lack of risk management and assessment experts in the insurance industry and lastly, lack of adequate IT facilities.
4. Poor Market Concentration
Insurance in Nigeria holds a large degree of unpopularity amongst the masses. Only a few knows and understands what insurance means and just lures than one percent of the population has an insurance cover.
This is a major problem to the insurance industry as the high unpopularity and non acceptance has limited the industry’s contribution to the nation’s GDP.
Some of the reasons for the poor acceptance of insurance in Nigeria are lack of eye catching advertisement, lack of attractive and value added products and packages, inadequate market research, low level of literacy among the masses and high rate of poverty.
5. Lack Of Innovation
Lack of actuarial expertise in the insurance industry has led to the inability of the insurance companies to develop value added products that meets and completely satisfies the need and requirements of the consumers.
Also the rigorous process of obtaining necessary approval for products development also hampers innovation in Nigeria’s insurance industry.
6. Poor Patronage
Insurance in Nigeria has a poor public image and it is poorly received by the masses due to a number of reasons, one of which is lack of trust, which is the core of social and business relationship. Most people doubt the ability of the insurance companies to pay claimsClick here to see the latest Jobs opportunities in Nigeria.
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