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 18thcentury .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-33rdin 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