Insurance And its Role in Economic Development – Definition of the concept: Man in an attempt to make life more comfortable and those discoveries brings about development to mankind. (Insurance) through which is our area of consideration has been expressed in different forms or ways by experts in the field but are aimed at the same conclusion.
Cockerel (1982) in his book INSURANCE defines insurance as the process in which the insured or assured transfers from his own shoulders the financial burden of some potential misfortunes to the broader shoulder of the insurer who in return for agreeing to assumed a potential risk or loss, receive a payment known as premium.
He further explained that the insurer by collecting a sufficient number of premiums rely on the probability that only some of those losses they insure against may occur within any given period and with profit. The insured on the other hand feels it is better to risk a small amount of his fund on insurance since he knows that certain precautions events that he cannot control such as fire, shipwrecks, and motor accidents, etc. will not hurt him to lose his investments.
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Olodi and Omowole (1999) property and pecuniary insurance define insurance as a device of sharing and transferring of risk from one party (the insured) to another party (the insurer). Due to an event called peril. The fundamental point to be noted here is that insurance is the inherent risk involved in having a property. Property has embraced all material things either movable or immovable material.
Heriod (1980) in his book A HISTORY OF BRITISH INSURANCE defines insurance as an operation that involves parties (usually two) and one party (the insured) obtained from the other (the insurer) the promise to be indemnified to any promise to be indemnified or any third party can be involved fortuitous occurrence.
From the above definitions, it can be said that insurance is a risk transfer mechanism whereby the insured transfers risk to the insurer based on the premium contributed by the insured and the level of the risk introduced.
Insurance in modern society is a vital part of a complex business system and it offers financial assistance to those who suffer the effect of risk in the world today, and particularly in Nigeria because insurance investors confidently invest in whatever business suits them without fear.
The National insurance cooperation of Nigeria popularly known as Nicon is an insurance company established through a military decree (22) in 1969.
The decree granted the company a virtual monopoly in the insurance of government assets and properties until the insurance act of 2003 repealed the monopoly. Through government legislation, Nicon was able to dominate the insurance business by acquiring all government insurance businesses and about 10% of the income or premium of other insurance firms in Nigeria. In 1974 as part of the economic nationalization policy, the government sorts the acquisition of 40-49% of all insurance companies operating in Nigeria through Nicon.
The company in its history has engaged in underwriting various classes of insurance including life aviation fire and oil and has between 48-52 branches across Nigeria. Nikon Insurance plc. provides insurance services in Nigeria. It offers travel insurance target savings insurance motor etc.
Organizations in Nigeria are likely to face one risk or the other in their attempt to achieve their laid down goals and objectives. for example
- Whether insurance companies in Nigeria have sufficient and necessary machinery materials in carrying out their operations or not.
- Whether or not they have qualified personnel and expertise needed and required for present-day insurance in the insurance industry in Nigeria.
- to what extent do the various government policies affect the operation of the insurance industry in Nigerian society.
- The problems faced by insurance with the response of the insurance industry in Nigeria to claim or loss settlement.
- If there is any improvement in the tiny print of the policy document and interpretations.
Insurance is an important device or instrument employed in every modern economy to assist not only business enterprises ( both old and new) but also individuals in minimizing risk(where it cannot be completely avoided) that face them.
Through insurance, a man is relieved of his thoughts that his family will lack should he die. Also, through insurance, investors know their factory will be faced with dangers should it be established. This is all because the burden of the risk can be transferred elsewhere i.e. the insurance company.
Because of the above, thus, this article will be valuable to businessmen and the student of accountancy insurance, banking, and finance, and even the entire populace as a risk mechanism as well as enlighten them of the importance of insurance.
Types of insurance
Over the decades and centuries as insurance has developed the various types of insurance have been grouped into general classes. These classifications have come about practice within insurance company offices and by the influence of legislation controlling the financial aspect of transacting insurance business.
We look at types of insurance in light of the insurance act 2003 which classifies insurance into two main clauses that are life assurance and general insurance.
a) Life assurance is further classified as follows
1-individual life assurance
2-group life assurance and pension
3-health care insurance
b) General insurance is also further classified as thus
1- Marine and aviation insurance
2-auto insurance
3-oil and gas insurance
4-credit insurance bond and suretyship
5-engineers insurance
6-accident insurance
7-property insurance
8-pecuniary insurance
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LIFE ASSURANCE: there are basically three types of life assurance, individual life assurance, group life assurance, and pension scheme, and health care assurance.
INDIVIDUAL LIFE ASSURANCE:-this is further classified as term assurance, who life assurance and endowment
A:-term assurance:-it is the most basic form of insurance. It is the cheapest and taking out of means of insuring against the probability of death between a specific period. Should the life assured survive the end of the period no money is payable.
B:-whole life assurance:- a whole life policy is a policy which pays out a sum out assured does. It is a permanent policy not limited to an expiry date as in term assurance because it is certain that death must occur, premium is usually more expensive than that of term assurance. Whole life policy as substantive policies and can be used as security for loans. Furthermore, whole life assurance can be limited or unlimited premium means premium seizes at a specific age eg at 80 or 85 and under limited premium means the premium is paid throughout a lifetime.
C:-endowment policy:- this sum assured is payable on a fixed date(the maturity date) of the assured earlier death. It is a mixture of investment and life cover over a specific period and payment is certainly made at some stage. Endowment assurance has sustentative and has cash–in (surrender) values and can be used for securities for loans.
ii. GROUP LIFE:- group insurance is still life assurance, but with a different method of packaging, administration, and underwriting. Group insurance is a method of providing life assurance coverage to a group of people under contract. The group may consist of people on the same employment or some of the common interest such as association, social club, trade groups, age grades, etc.
iii HEALTH INSURANCE:- the policy covers the health of the assured. Premium is made on regular basis usually monthly. The insurer ensures the wellbeing of the insured should he fall short of an individual in a motor accident or any evidence that may cause harm to the health of the insured.
GENERAL INSURANCE:- the insurance act 2003 further classified general insurance which is earlier listed above
I. Marin and Aviation Insurance:- According to Gordon (1976) “Principles of insurance” marine insurance provides compensation for property loss and injury or damage to the third party caused by penile of the sea (such as solving or theft) and by fire, jettison and other scholars penile. Aviation insurance, on the other hand, can be arranged to cover the hill, cargo rugs, fraught, and liability to aircraft operators and manufacturers as well as airport authorities. Aviation liability insurance can be obtained to cover certain specific liabilities such as Liabilities of aircraft owners and operators.
II. Auto insurance: – this is also known as motor insurance according to the insurance Act 2003, which is probably the most common form of insurance and many occur both legal liability claims against the driver and loss or damage to the vehicle itself.
III. Credit insurance bond and surely:- it is a policy that covers advance payment bonds or credit bonds performance bond counter-guarantee bonds, customs bonds, bid bonds, etc.
IV. Engineering Insurance: – engineering insurance policy covers the creation of all risks, contractors. All risks, plant all risk, machinery breakdown and electronic equipment’s.
V. Accident insurance:- the term accident is used by insurance as a collective term for an assortment of different types of insurance organized under the umbrella of the accident department. Accident insurance is an unforeseen event resulting in “injury or loss” and is not designed by the insured or policyholders.
VI. Property insurance: – “insurance institute of Nigeria” “element of insurance” in most commercial policies, the insured will require cover for the buildings, machinery and plants, and stocks. These are the three main headings under which property is insured.
VII. Pecuniary insurance: – these include fidelity guarantee, money insurance, consequential loss, and professional indemnity.
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FUNCTIONS OF INSURANCE
According to Dickson(1984) “ element of insurance”, insurance performs various functions, some of which are the following:
a. stimulate business: the main stimulus to business enterprises is the release of funds for investment in the productive side of a business which requires to be held in easily accessible reserve if the firm had not transferred the risk to an insurer.
b. loss prevention:- fire surveyors are trained to identify sources of potential risk in the production process, storage of materials and the use of electricity, etc. they make recommendations such will limit the incident of loss from this source to mom mum. The theft surveyors on their part advise on the protection of property against theft and the installation of burglary alarms and other devices. Liability surveyor’s advice on possible cause’s employee, product, or public liability loss such as those caused by bad working practice or poor quality control.
c. loss control:- even when a loss has occurred through the surveyor, insurance will frequently handle negotiation with injured third party members or the public or employees, and advice on the best way to reduce is to be aware that he cannot prevent the determination criminal from entering a building. He can make it difficult in time-consuming, and noisy processes so that the number of materials stolen may be limited.
d. Security: – Policyholders gave a reduced uncertainty which enables them to plan their effectors better. Therefore, they can concentrate on the production and trading of risk without the worry that the objectives of this field may not be achieved due to other insurable risks. International trade is stimulated also and a marine cargo policy is one of the documents which along with a letter of credit, bill of landing. Bill of exchange and export invoice is essential to enable the sellers of goods to ask his bank to discount the bill of exchange to obtain funds immediately. Instead of having funds tied up in cargo under the sea.
e: – Social benefit: – the fact that a factory owner has adequate fire insurance cover means that he has the capital to reinstate his factory and so create jobs for his workers who might otherwise be unemployed for a considerable time. The aid which insurance provides in the monetary industry in an area stabilizes the economy through the continued source of rates and taxes.
f:- Stimulate Savings:- insurance also enables the society to cultivate the habit of saving for future contingencies the most frequent use of this contract is on saving, a lump sum for retirement in conjunction with the house purchase, mortgage, or for children education.
g: – Instrument of Fund:- the money collected in the form of the premium is not left in the bank for any purpose. Bank usually gives out those funds as short term loans to its investors.
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PROBLEMS OF INSURANCE INDUSTRY IN NIGERIA
Insurance is a specialized form of the service industry and does not market tangible goods. What is been market is a promise of indemnity against the payment of a premium, thus an insured does not derive an immediate benefit for the money paid until a future date when a loss occurs. This form of the basis of the insurance problem in Nigeria.
According to Inikwu( 1980) despite the important role played by insurance in the economic development of Nigeria and its numerous functions, insurance companies are still faced with numerous problems amount which is;-
a) Lack of appreciation: – Most people only take out an insurance policy when they are compulsory. E.g., compulsory third-party insurance, workmen compensating, employers liability, They do not own their own bother about the non – compulsory policy.
b) Claim Settlements:- claim settlement in terms of insurance is treated with suspicion here in Nigeria by both parties ( i.e the insured and the insurer) the insured fearing or suspecting that the insurer will cut down some of his claims, while the insurer fears that5 he might present exorbitant claims.
c) Insurance offers promises for the future so these benefits cannot be immediately displayed.
d) During the scaling process, too many questions are asked some of which are personal and therefore could be displeasing and embarrassing to the proposed i.e the insured.
e) Adequate professional trained and experienced personnel are lacking in some of our insurance industries in Nigeria, thereby making insurance practice be seen from another view by some policyholders.
f) Shallow market and lack of expansion into international markets.
EFFECT OF RECAPITALIZATION ON THE NIGERIAN INDUSTRIAL SECTOR
Government reforms in the insurance industry through the current process of recapitalization and consolidation are to restore the confidence of the public in the market and enhance the international competitiveness of local operators.
Consequently, the principal objective of the reform is to have the emergence of bigger and stronger players in the industry with enhanced capacity. The Nigerian insurers in time past had operated on a marginal scale and that accounted for only why the market had not benefited much, especially in the oil and energy business.
The country is much more likely to experience sustained growth if its insurance market develops properly.
Insurance market development is related to improved financial sector performance and insurance markets do not develop adequately without both private and public sector development in their infrastructure.
The vision of 2020 has this to say about the Nigerian insurance sector, the vision emerging markets, noted for high market capacity, transparency, efficiency, and safety, to attain the position of one of the 20 largest insurance markets in the world by the year 2020. For this reason, the reform is to develop an insurance sector that drives and protects the economy through an effective and efficient market structure. Considering the effect of recapitalization in the insurance industry, we’re on the 5th of September 2005, the pronouncement was made and 18 months given to the compliance, of course, Nicon is still driving the reform process. The principal objective of the reform is to have the emergence of bigger and stronger players with enhanced capacity, restoration of confidence of the public to enhance the international competitiveness of the local operators.
Furthermore, to meet some of the challenges faced by the insurance companies in Nigeria Nicon is intensifying its sensitization of the industry and the insurance public which has yielded positive results. So far, the initiate lukewarm attitude of the industry towards the reform may have been tackled and overcome through sensitization and awareness creations.
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The future of the insurance business is bright in Nigeria, especially with government enforcement of 45% local content policy of the oil and gas industry which will significantly boost insurance income over $400 million is expected to be generated as insurance premium by the industry in the next two years. This transformation will not just increase the fortune of the insurance business but will also throw up new scenarios and opportunities.
The core concept of insurance could be rightly said to have experienced substantial growth over the past years, the growth could be attributed to the financial changes in Nigeria’s economic development.
However, the article later elaborated on the various options and statement of account, the tiny policy is aimed at enlightening the general population of the importance of taking an insurance policy and the important service services rendered by the insurance industries in Nigeria such as loss prevention, loss control, etc. it could be said that insurance industry is worth recognition in the Nigerian economy. Insurance, therefore, became the only antidote to some people that befalls man and organization including the government and the nation as a whole.
Risk has been seen to be at the center of life and that life itself is full of risk, that tells us that man cannot absolutely absolute himself from one risk or the other, and since insurance is aimed at bearing the insurable risk (i.e. pure and particular risk) while the others risk such as fundamental risk are taken care of by the government.
It will not be out of place to say that insurance is of great importance to the Nigerian economy in been compensated by the insurance companies thus, relieving the insured from financial burden.
The premium received as consideration for bearing risk is only used for claims settlement of the bulk of it is invested and serves as investment funds for investors. The company country also benefits from the taxes paid by the insurance industry and as well insurance companies influence the location where they are cited in the sense that they contributed meaningfully to the economic development of such country in terms of offering employment ranging agents, brokers to professionals and experts in the field of insurance, their contributions to the social development of the nation.
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