SOLD BY: THE RELEVANCE OF INSURANCE BUSINESS IN NIGERIA
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Insurance
is a form of risk management primarily used to hedge against the risk
of a contingent uncertain loss. According to Adebisi, (2006) Insurance
is an intricate economic and social device for the handling of risks of
life and property. It is social in nature because it represents the
cooperation of various individuals for mutual benefits by combining
together to reduce the consequence of similar risks. As new area of
risks emerges with every passing day a new insurance package is
introduced to take care of risks associated with it.
Agbaje (2005) defined insurance as the business
of pooling resources together to pay compensations to the insured or
assured (i.e. the policy holder) on the happening of a specified event
in return for a periodic consideration known as premium. An insurance
contract is usually evidenced by a document called the insurance policy
which is usually signed at the foot by the insurer or assurer or his
agent. Gollier (2003) argued that insurance involved the transfer of
risk from an individual to a group sharing losses on an equitable basis
by all members of the group. By the end of the 19th Century by European trading companies mostly British.
These
companies started effecting their insurance with established
insurers in the London Insurance market. As time went on, some
British insurers appointed Nigeria Agents to represents their interest
in the country.
These
agents later metamorphosed into full branch offices of their parent
companies in Britain. Osun Kunle (2002) opined that the first branch
office in Nigeria was the Royal Exchange Assurance in 1921, later
followed by other British companies, indigenous Nigeria Insurers and
re-insurers later followed such as National Insurance Corporation of
Nigeria (NICON) Established in 1969 and Nigeria reinsurance companies
operating in Nigeria today.
Lynch
(1992) Opined that insurance companies have continued to be on the
increase since early sixties. This has been due to liberal financial
legal requirements. With the increase in insurance business in Nigeria,
it is anticipated that it should be able to contribute to the growth of
the economy. More so, as insurance provides a hedge against loss, it is
supposed to increase enterprise, thereby increasing national
productivity.
1.2 STATEMENT OF THE PROBLEM
There
is no doubt that insurance industry have developed from stage to
another and have contributed immensely to the economic development of
Nigeria but not without problems with which it have and is contending
with. Among this problems are:
i Ignorance:
The problem of ignorance as regards the benefit of insurance products.
Many do not know what insurance is all about even the educated ones.
ii Unskilled Insurance Practitioners:
The presence of unqualified staff and firm have created a great
problems as some dubious practitioners goes around collecting premium
without remitting same to the appropriate quarters.
iii Lack favourable Government Policy: Over
the time past there has been little or no effort by the government to
enact favourable policies and enabling environment for insurance
business to strive.
iv Political challenges: with a more proactive and visible industry approach to public policy than previously
In
view of the above problems it is becomes important to research into the
contribution of insurance business to the Nigeria economy, so as
proffer possible recommendations that could remedy the challenges facing
the sector.
1.3 OBJECTIVE OF THE STUDY
i To examine the relevance of insurance business in Nigeria
ii To assess the extent of insurance service provided to client in Nigeria
iii To evaluate the contribution of insurance business to economic development in Nigeria.
iv To identify the challenges facing the insurance business in Nigeria.
v To make policy recommendation.
1.4 RESEARCH QUESTION
a. What are the roles of insurance industry in the Nigeria economy.
b. To what extent has the insurance services been made available in Nigeria
c. To what extent has insurance business contributed to the economic development of Nigeria?
d. What are the likely challenges facing insurance business in Nigeria?
1.5 RESEARCH HYPOTHESIS
H0: The Insurance industry does not play any vital roles in Nigeria economy.
H1: The Insurance industry plays a vital role in Nigeria economy.
1.6 SCOPE OF THE STUDY
The
scope of the study is confined to the role of insurance industry in the
Nigeria Economy with particular interest to NICON Insurance Abuja.
2005-2013 and the data used for the study are data and time series
based.
1.7 SIGNIFICANCE OF THE STUDY
The study is important because the result and findings of the study will be useful to the following class of users:
a. Policy makers: They shall consider this research work as basis for making economic policies.
b. Academia: The
research work is also significant to lecturers and students as an
addition to existing literally works, thereby serving as a resource
material to all who wish to further the study of the subject matter.
c. Other researchers: The research work is significant because other researchers of related subject matter will make use of it as a resource material.
1.8 LIMITATION OF THE STUDY
The challenges encountered by the researcher in the course of the study range from:
a. Accessibility to relevant data: it was no easy to get relevant data that will help researcher to develop more idea on the topic.
b. Time constraint: this is another problems, the time limit is not much for a researcher to carry out more study on the work.
c. Financial challenge:
is also the most important problem that the researcher encountered
during researching which involve traveling to relevant organizations and
companies to get relevant data and information so limitation in data
correcting went a long way in affecting this research work.
1.9 DEFINITION OF TERM
Insurance:
This is a contract in which the insurer, for a consideration or for a
sum of money which is called premium, agrees to pay to the insured a sum
of money or its equivalent whenever the event that was insured occurs.
Reinsurance:
This is particularly important in any modem economy. It is simply a
secondary insurance or the process by which an insurance company places a
proportion of its insured risks which it cannot bear with another
insurance or reinsurance company
Premiums: This is the amount paid by the insured to the insurer for the insurance cover provided in the policy.
Indemnity:
The maximum amount pays able by an insurer to beneficiary of loss. The
principle of indemnity implies that the claimant does not profit from
the loss.
Insurable Interest:
The pecuniary interest a person has in a possible subject matter of
insurance such as car, property or life, such that he might suffer a
financial loss as a result of the happening of the event insured
against.
Insurer:
The insurance company that has undertaken to provide an indemnity,
pecuniary benefits or render services. The word insurer is sometimes
synonymous to the word ‘Assurer; Assurance or assurer’ are however more
applicable in life business. In view of the certainty of happening of
the event assured, benefit could be paid on the death of the life
assured or on the maturity of the policy.
Contribution:
This is a doctrine, which enables an insurer to call upon another
insurers similarly (but not necessarily equally) liable to the same
insured to share the cost of an indemnity. It arises when there is more
than one policy in respect of the same loss and each policy is covering
the interest of the same insured.
Claims:
A demand made by an insured or the insured’s beneficiary for payment of
benefits or indemnity following a loss in accordance with the terms of
an insurance contact.
Cover:
A contract of insurance, to effect insurance, that is to ‘cover’ and
insured for example, motor insurance with effect from a given time.
Cover Note: A document which signifies temporary acceptance of issuance of the policy document.
Excess:
The portion of a loss which an insured is expected to bear while the
insurer will be responsible for any amount of the insured loss over the
portion. This is mainly applicable to motor insurance.
Pool (insurance):
An agreement between a group of insurance and reinsurance companies to
cede a percentage of some defined classes of business to a common source
from where premiums, losses and expenses are shared in agreed
proportion amongst them. Pools are usually formed to cater for volatile
classes of business as well as to increase local retention capacity as
in the case with most developing insurance markets.
Broker:
A broker is an independent operator whose main duty is to bring parties
to an insurance transaction together for a commission. The broker
conducts his business for all and sundry and does not represent any
particular insurer to the exclusion of others. The broker is
professionally liable to the insured in view of his professed expertise
in insurance.
Agent:
One who solicits, negotiate and effects contract of insurance on behalf
of insurer(s) within a defined limit of authority and subject to
statutory and common laws. An agent may be a full time sales employee of
an insurer or appointed on a part-time basis.
CHAPTER TWO
LITERATURE REVIEW
2.1 INSURANCE BUSINESS CONCEPTUAL ISSUES
This
section deals with conceptual issues relating to the margin estimate
through the cost of capital approach. The main points that emerge are
briefly summarized here under.
Either
an indirect approach based on observable insurance equity price and
shareholders expected rate of return or a direct approach based on
insurance contract characteristics are both consistent with financial
economics and are perfectly equivalent theoretically. However, only by
using a direct approach does the risk margin estimations seen
practically implementable.
The solvency II specification of the methodology is also consistent with financial economics.
However, the theoretical frame work required (a frictionless and
normally distributed world) is too far-fetched to be acceptable. In
addition, even if these conditions were satisfied, a variable unitary
cost of capital would be needed.
BIBLIOGRAPHY
Alborn Timothy Regulated Lives: Life Insurance and British Society, 1800 – 1914 (U of Toronto Press, 2009)
Akintoye,
A.S &Macleod, M. J. (1997) Risk analysis and management in
construction, international journal of project management, vol, 15, no,
pp.31-38
Sogress M.S (2001), The role of Insurance company in National Growth and Development
Charles E.D (1969), Accounting for life Assurance Company
Ogurinde P.S (1990), Agricultural Insurance Theory and practices
Akindele (2012), Nigerian Vanguard
Prudential Insurance Company America ed The Documentary History of Insurance, 1000BC – 1875 A.D (1915).
Wikipedia 2007, insurance, retrieved March, 23, 2007
Williams, C.A. &Helms, Rm (1989) Risk management and insurance.
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