The intrinsic values of insurance have been extremely noted and appraised for millennia in both
academic forums and scholarly discussions as a leading pacesetter of
sustainable economic growth in most economies of the world .Infact,everywhere
its proven integrity and multiplier effect has been glaring or conspicuous in terms of
general productivity and
productivity payback respectively
,growing the standard of living ,
creation of employment and generating new sources of wealth for the citizenry and advocate of sustainable
economic development over the long haul .
However as economy grows ,ordinarily ,the possibility of
risk occurrence on a daily basis also increases and the organization of the
society ,incorporation and the economic system that supports modern life is
also bound to suffer damage ,incurs loss,injury and termination of life .Such
liability horizons bestow the need for insurance and becomes implicit to
explore the insurance market as economy inundated already with its inbuilt buffers pre-empts
its possibility and respond to perceived
changes in its immediate environment .
To understand its technical jargon,after definition of
insurance ,one needs to come to term with the meaning of risk ,risk coverage
and risk recovery as a fundamental concept of insurance .Risk implies
uncertainty of loss .As the inevitability of hardwork and ingenuity appreciates
in an unpredictable volatile terrain as vital ingredient for the mobilization
of business growth and sustenance of organizational progress ,it is assured
that an effective risk control is vital to salvage this reward and
insure the boon of human labour .This shows that the necessity of
insurance as a buffer against the risk
of loss can equally hedge against the potential outburst and likely
cases of eventuality should they occur in an unpredictable free market economy
.
According to Wikipedia ,insurance is the equitable transfer
of the risk of a loss ,from one entity to another in exchange for money .It is
a form of risk management ,primarily used to hedge against the risk of a
contingent uncertain loss ‘’.It also admits it requires three component agents
to market insurance such as the insurance carrier or the insurer or the
underwriter selling the insurance , ;the insured otherwise known as the policy
holder buying the insurance contract and also paying the premium popularly
known as the price or amount to be charged or paid for a specific form of an
insurance services or as a pledge from the insurer to compensate the insured as indemnity in case of personal and
financial loss.To receive the contracts often called insurance policy that
details conditions and regulations ,is a signatory to the adoption of the
policy contract by the insured .The last
two are agents and brokers respectively who act as intermediary between the
insured and insurer can be regarded as indirect selling agents or
intermediaries OR BOND MEDIATORS .
Insurance has become a prominent resource in the risk management
practice all over the world and cutting its teeth and carving a niche in the
general risk management professionalism in general.
In modern times ,its explosive growth and predominance cannot be overemphasized when juxtaposed with the rising rates of
uncertainty in modern age .Ordinarily , as the economy grows ,so do the volume
of insurable interest ,risk and insurance market respectively .A study group in
the United States traced the growth of insurance over a period of three decades
-1950-1980.When compared to economic growth in selected nations ,found out when
adjusted for inflation ,insurance activity exceeded growth in national GDP or
output in each of the three decades of the post war era. But the studies also
found out that in the period between 1980-83,real growth had leveled off or drastically reduced as world economy slow
down during the period.
Moreover,the share of North America that previously
controlled 88 percent of the world
market later declined to 55 percent between 1950 -1983 as the European and
Japanese economies grew exponentially .In 2001 ,the United States controls 56
percent of world life insurance market business being the largest single line
of insurance business worldwide in terms of premiums.Still , controls almost
half of the world non-life
insurance market and about 50
percent of global insurance market . .In the past , 40 years or so , the Asian
economies had ballooned tremendously and recorded landmark growth in the
insurance business worldwide ,most specifically the miracles of South East Asian including its
tigers that took the world by storm with the overwhelming growth impetus.Dramatic
growth in exports had fueled 6 percent growth per annum .Their share of world
export leapt from mere 9 percent to 21 percent between 1965 to 1990s.
The prevailing macroeconomic stability ,robust fiscal policy
,low inflation, low interest rates ,growth in the level of domestic savings and
technology ,stable export promotion strategy ,stable policies ,education
,consistent human capital investment ,robust institutional practices and
sustainable capacity building riding on the heels of periodical institutional
reforms had led to quatum leap,remarkable feat
and technological progress unprecedented in a world economy .
Chukwulozie:2002;ibikunle:2012].Now we are back to the cradle and origin of
insurance.
THE CRADLE AND EVOLUTION OF INSURANCE
Insurance as a modern innovation of course originated from
west mainly Europe, and the United
States but there were earlier unpolished
version .As far back as the 3rd and
2nd millennia B.C. respectively ,the practice of insurance in
its shallowed risk distribution and risk transference methods was prevalent
across the world endorsed b y the chinese and the Babylonians .One of the most
popular practices as recorded in the famous code of Hammurabi,C.1750 B.C.
developed by the Babylonians It was also applied by the sailing merchants of
the early Mediterranean region .This practice goes by its variant :’’If a
merchant received a loan to fund his shipment,he would pay the lender ,an
additional sum in exchange for the lender’s guarantee to cancel the loan should
the good or shipment be stolen or lost at sea”.Over the course of times ,this
practice has been heavily polished and
reformed to pioneer modern insurance industry.
The Rhodes inhabitants in the 1st millennium B.C.
formulated the ‘’general average ‘’
which allowed groups’ merchants to pay for goods insurance when
collectively ferried at sea Should there be loss in case of
storms at sea ,or goods jettisoned during transport or sinkage ,the
collected premiums would now be used to compensate for loss by reimbursement of
the concerned merchants.
Insurance policies not bundled together known as separate
insurance contracts were invented in
Genoa as the first successful attempt came in 1347 .In the following
century , Marine insurance evolved rapidly with the ability to intuitively vary
markedly premiums with ancillary risk.Loyd Coffee house became the first known
marine insurance company in the world .With the dawn of the enlightenment era
,modern insurance grew sophisticated and advanced with varieties of practices
and norms.When the great fire of London devoured 13,000 houses in 1666,property
insurance as we know it today first emerged .Given the magnitude of the inferno
, it was infused with new methods of risk distribution ,growing competencies of
convenience into exigencies of necessity .Similarly , when in 1667 ,Sir
Christopher Wren included a site for the construction of an insurance office in
his novel plan for the city during the period ,this rapture of convenience had
given way indeed to insurance as a
matter of necessity .This was after a couple of the failure of previous fire
insurance schemes ,according to economist
Nicholas Bourbon and the eleven associates in 1681 came together to form the first fire
insurance company called ‘’the insurance office
for houses ‘’ located at the back
of royal exchange and was saddled with expertise to insure brick homes and frame homes .It
insured the first five thousands people by this office . However this period
concided with the time which witnessed the first insurance scheme associated
with the underwriting of business ventures
.
With the exit of seventh century ,demand for marine
insurance escalated tremendously .Obviously ,the gigantic leap in that sector
was catalyzed by immense stature of London as a rapidly growing center of world
trade and investment. Consequently , the Coffee house which became the melting
point for all firms or the entire shipping industry in particular ,the cargo
and shipping insurance ,underwriting of related ventures was opened by Edward
Lord in late 1680s to testify to the surging pre-eminence of the new
scheme.Such related factors led to the establishment of Loyd’s of London –the
oldest insurance group or corporation in
the world ,in addition to several shipping businesses were founded to create a
competitive framework for modern insurance society .
Similarly,when Amicable Society for perpetual Assurance
Office was born in 1706 in London ,it pioneered a new form of practice in the
explosive insurance sector.It was
initiated by Sir Thomas Tilen and
William Talbot as the world first generation of life insurer of the early 18th
century .In 1762 ,Edward Rowe Mores founded the society for Equitable
Assurrance On Lives and Survivorship This laid a fundamental framework for the
emergence of age based premium linked to mortality and related insurance
practices .It became a foundation for modern life assurance upon which all life
assurance schemes were based .
Like Benjamin Franklin 225 years ago once noted “:………..in
this world ,nothing is certain but death and taxes and so few people ,have had
to contend with that submission in the same way in which life insurance
companies have had to believe only risk and death is nothing but certain and predictable
.Although Franklin principles guide insurance ethics ,still no one can predict
,when a policy holder will die but it is proven ,risk is certain or certainty
of risk cannot be denied and hence the in-trends value of insurance and the
appreciation of insurable interest is interred in this hiatus.But with findings
that can estimate quite accurately from prior statistics on mortality the
verifiable number of people and policyholder
that can die every year .Consequently ,insurance expert know with certainty
,the size or quantum of what total benefit can be as time of death –an
individual uncertainty aggregate is undeniable and thus becomes an insurance
company certainty aggregate.
Truly speaking , setting premium now becomes the central
obligation of the insurance company to enable it cover these actual predictable
risks.While policyholder who die prematurely
do get insurance at bargain rate ,for those who live longer ,had to pay
insurance part cost of the unlucky ones .Therefore ,the group breaks even
,provided the assumptions about mortality are quite correct .Vast amounts of
policy reserves are therefore accumulated by life insurance companies in the
process in an attempt to provide death benefits.They therefore charge premiums
that exceed the costs of benefit payments during early evolutionary years of a
policy .Not until the benefits fall due do they need these reserves which are
invested and the accruable income is channeled to reduce net cost of premium
payable by a given policyholder .The earnings on reserves back of insured
policy is similar to interest on savings and investment
returns.Policyholder enjoy cumulative savings from different degree of reserve accumulation
based on diverse class of policy inclusiveness .
Therefore to a larger extent ,it can not be disputed that
the growth of insurance is dependent on
how workable polices and institutional reforms are put in place and effectively
implemented in such beneficial climes .In such climate, man viewed as the
creator of wealth as promoter of technology and productivity can embrace proven
growth impetus with the multiplier effect on the economy at large . To a large
extent also,the size of the economy is equiproportional to the growth of the
insurance and the nature of policy and
legal framework put in place to actualize its goals ,vision and ideals
.Insurance here in Nigeria despite the tupsy-turvy has come of age and how is
it ?What challenges has it faced and
roles?How has it fared better now than in the pre-independence,and post
independence eras?What strategic impact has it made and played in the
development of the nation’s economy ?This answer can easily be provided as we
navigate thro
The checkered antecedence of the Nigerian insurance industry
provides a lot insight to tackle its tumultuous challenges in an economy or
industry which has come of age with inbuilt capability to face and surmount
these challenges to further and successfully live up to its enviable status as
one of the biggest in Africa.Like every sector and subsector of the Nigerian
economy ,I repeat-the rise and fall of
Nigerian insurance industry corresponds with the rise and fall of the Nigerian
economy .We briefly explore its checkered antecedence or through the pages f history below
The Early Insurance Market
In the pre independence era ,the
budding insurance At independence ,there are about 23 to 25
insurance companies operating in the country and the insurance premiums been
paid were remitted overseas. Out of this lot ,only four were owned by Nigerians
and with premiums remitted abroad put so much pressure on the nation’s balance
of payments account.This was changed by 1976 indigenisation decree which after
promulgation later streamlined industry
activities for improved local retention capacity playing a critical role in the
sustainable development of the Nigerian economy .Moreover between
1970 and 1979 19 new insurance companies were founded in the country and
the Nigerian enterprises promotion Decree 1972 was promulgated as fall out of
the 2nd national Development plan .According to this Decree
government decided to participate in all insurance companies ,and Banks with
foreign interest to the tune of 49 percent .The Decree was abolished by the
1995 budget and consequently stimulated
further national drive towards private sector led economy .
The main objective of
the new Insurance Decree that came in December 1976 in an attempt to
ensure effective supervision and control of insurance business,brokers and
agents in the country was to basically
protect the investing and general public . So, the Decree also insurance
coverage of all imports to be effected by local insurers only and by 1977 ,the
Nigerian Re-insurance Corporation was established .Its main function is to
transact all classes of re-insurance business both in the country and abroad
and take over from NICON all mandatory re-insurance business by registered insurers .Three other privately owned re-insurance
companies came later .Between 1980-1986 during the period , about 22 new
insurance companies came on board and by 1991 the new Decree No.58 of 1991
jerked up the capital base of insurance companies to 5 million naira and
10million naira respectively for both specialist and composite insurance
companies . Consequently ,the number of
registered insurance companies in the country rose to 137 firms by
April,20,1994,stood at 140 insurance in addition to 429 brokers ,5 reinsurance
companies and loss adjusting companies operating in the country by December ,1994 .In 1995, while the number
of underwriters ,brokers and loss adjusters stood at 133;412; and 37
respectively ,the number of reinsurance still remained 5 companies .By 2001
according Nigerian insurers association-NIA ,the figure stood as follows
:120;353;33;5 respectively .
Prior to consolidation in the Nigerian insurance
industry,there were 100 registered insurance companies,providing diverse form
of services from motor insurance to general accident .Following the federal
government divestment of interest from the insurance companies .The gross
market premium stood at 44.5billion naira;50.2billion naira;and 76.3billion
naira in 2002;2003 and 2005 respectively .The Nigerian insurance market was rated
the fastest growing and the biggest in Africa and no.65 in the whole world
,according to world insurance ranking .Though the growth of the skilled
proffessionals in the industry is disproportionate to the giant explosion of
the insurance industry as a whole needing a self-corrective action .According
to Mrs Funmi Babinton -Ashaye ,CEO of Risk Analyst insurance brokers ,hear her
..Incidentally ,the number of professionals in the industry ,which is germane
to its efficient performance ,is not growing at a proportionate rate thereby
creating a managerial gap that calls for urgent action of all stakeholders.
In the industry performance review reported several years ago ,or in 2005 as noted in the
FSS vision 2010 document ,to make the industry ‘’…the first choice in Africa
noted for high level capacity ,transparency ,efficiency and safety and attain
15 th position in world insurance premium generation by the year 2020’’ showed
the following:Contribute 0.71percent to the Nigerian GDP;Insurance density
,premium per capital-4.3 dollar ;Life insurance premium income -17 percent of
total industry premium income ;Non-life premium income-82.12 percent of total
premium income ;No.65 in world insurance ranking ;No.6 out of leading 8
insurance markets in Africa.
Compared to other climes,well, it was considered by industry
professionals a grim picture given in the fact that in the same report ,some
countries were ranked ahead of Nigeria
like China-11th ;India-19th ;and even Malaysia-33rd
in the world insurance ranking .Also in terms of contribution to the GDP ,their
contribution stood as follows –China-3.5percent and Malaysia-5.6 percent .In
view of this horrendous scenario and the need to redress the bleak picture
,waves of consolidation during the period swept like a tidal wave the entire
insurance industry beginning from the
Banking industry as it attempted to play the catch up fever .As part of the
reform programme ,NAICOM the regulatory agency set the directive and jerked up
capital base for all classes of insurance business in the country .This in line
with classes of business ,they undertake and set compliance dates at February
2007 .The directive which was issued on September 6,2005 stipulated the minimum
paid up capital requirements at 2billion naira for life insurance business
from previous 150 million naira ;3billion naira for
non-life insurance business or general insurance from previous 200million naira
;6billion naira for composite and then jerked up from 350 million naira to
10billion naira for reinsurance business.
Though its market was tardier prior to recapitalization but
that has changed anyway as investors became interested in fundamentals like
earning and profitability .Infact ,it is one the of fastest growing stocks and
for instance an investors who taken position in stocks especially in early 2007
and sold them late in the year had not regretted in making a harvest through
capital appreciation.These are some of the gains over the years and still not yet uhuru for speculators but
it is known fact that the insurance market in the country is still small
.According to Godfrey Obioma-an insurance expert , over 70 percent of its
premium distributed between marine , general accident and motor insurance
policies.Similarly ,Afrinvest West Africa study unveiled the fact that the
gross premium grew by only 17.5 percent between 1996 and 2005 but it grew
rapidly by 15.3 between 2003 and 2007 period with estimated size of 844million
dollars or 98.8billion naira –an
indication that the compliance year was more or less a turn around year for the
industry .
The challenges of low penetration with the lowest level of
market depth especially in life insurance product.Afrinivest research in 2008,
also shows that of the formal sector and informal sector workforce ,only
1million people hold personal insurance policy .Given the fact that the
potential policy holders in the country are employed youths unfortunately 80
percent of them are unemployed .Also when compared to other sectors such as
banking ,securities market and asset management business,the insurance sector
when adjusted for population between the 1993 to 2008 recorded low growth
.Little wonder,in an attempt to correct this lapses ,the recapitalization
program was proposed changing its stausquo completely into the next level
.Following the consolidation,the insurance companies have grown their shareholders funds and as at 2008
paraded growth in the following –Leadway Assurance-9.4billion naira;WAPIC
International-9.3billion naira;AIICO-5.9billion naira ;Niger
insurance-5.5billion naira;Goldlink-5.4billion naira;and Mutual
Benefit-4billion naira respectively-Obioma-2008].
In the 2011 annual report of the BusinessWorld top 100
biggest companies in the country,dominated by Banks which towered with almost 16
trillion naira worth ,followed by the
manufacturing sector,the insurance still recorded sterling performance with
about 12 companies ranked in the report came fourth with over 121billion
naira-about 0.67 percent of the total .AIICO dominated the market as one of the
oldest insurance companies in the country made giant strides and reenacted its
winning streaks .In 2010 ,it emerged as the largest insurance company in
Nigeria with total asset base of 29.22billion ,beating Custodian and Alliance
Insurance plc with total asset of 15.77billion naira to the second place and
Guaranty trust assurance plc. –a subsidiary of Guaranty Trust Bank to the third
position with 14.79billion naira worth total assets. Others include
Cornerstone-10.5billion naira;Unity Kapital capital Assurance-8.88billion
naira;
Despite the dissatisfaction of the industry critics
,compliance was achieved to basically
enhance the capacity of the industry in delivering optimal value and
defend public interest. There are several factors hindering the industry
progress and some of them include poor public perception, poor skilled labour
,poor technology investment and deployment and above all,poor capital base
.Given the need to realize its immense potentials ,consolidation became a
timely pill and eventually only 49 insurance companies made the compliance list
about 47 percent out of 104 insurance mushroom companies that hibernated the
industry hemisphere prior to recapitalization exercise. Aggregate amount realized was put at over 200billion naira
compared to a precapitalization base of 30bilion naira and its success was
linked to its fast growing appeal.
The Nigerian insurance industry plays a vital role in
deposit moibilisation and utilization of the investible resources in our
domestic economy ,the biggest in Africa and a major contributing force to
sustainable economic development as members are afforded the rare opportunities
of undertaking all forms of insurance ,for its clients .Insurance can be done
directly through the insurance company or indirectly through brokers ,agents
and other intermediaries working closely together with insuring public
to obtain the best judgement .The market as free environment promotes healthy
competition and participation between
local and foreign companies and investors.
The structure of an industry our insurance market includes
the sellers that is the underwriters –the insurance companies and reinsurance
companies ;the intermediaries such as brokers and agents ;the buying clients
–the insurable public;actuarial science;market association such as the
chartered insurance institute of Nigeria,the Nigerian corporation of insurance
brokers ,institute of loss adjusters of Nigeria;National insurance commission
–NAICOM.With this structure ,the
maintenance of ethical standard remains the principal goal of the industry regulation and the regulatory regime is
poised towards sustaining also the confidence in the insurance market .
The National Insurance Commission-NAICOM
The mandate of National insurance commission when it was set up by Decree No.1 of 1997 was to
ensure the effective administration ,supervision ,regulation and control of
insurance industry in the country.The former Decree No.62 of 1992 that
established the National Insurance Supervisory Board –NISB was replaced by the
new Decree .
The primary functions of insurance as included in section 7
of the Insurance act 1997 which empowers NAICOM to supervise , administer
,regulate and control insurance business in the country as vested in the
commission is saddled with the responsibility
include the following-:
---Establish standards for the insurance practices and
business in the country ;
---Set rates of commissions premiums payable in all aspect
of the business of insurance classes in
the country;
----Make sure strategic government assets and a host of
other properties are adequately protected ;
-----Regulates deals between insurer and reinsurer in the
country and diaspora ;
-----On all insurance matters ,to act as federal government
adviser ;
------Approve standards ,conditions and warranties
applicable to the industry and to protect policy holders ,beneficiaries and
third party to the contracts;
------Carry out sale and distribution publication to the
public ,preparation of annual reports
and statistics to the industry ;
To be contd
