Insurance and the types of Insurance plans

Insurance is a contract by which one party undertakes to indemnify (restore) another party against loss ,damages or liabilities  arising from an unknown event.

It is a system of providing financial compensation for the effects of loss, the payment being made from accumulated contributions of all parties involved in the scheme.

Insurance is another of commerce, it is basically based on the principle of pooling of risk. The insured i.e the person insuring life or property contributes funds called premium to the insurer i.e the party who indemnify,the accumulated premium is then use to compensate the insured when the needs arise.

Assurance on the other hand is the cover on event that will surely occur at some time in the future,it is based on possibilities .Example is the death of a person. Insurable risk :These are the risk whereby the insurer is ready to take cover for because it is possible to collect, calculate and estimate the likely future loss.Example is motor vehicle insurance, fire insurance, life assurance etc.

Importance of Insurance

1. It helps in motivating workers
2. It facilitates international trade
3. It encourages investment
4. It ensures security of goods
5. It serves as an employment opportunities
6. It leads to risk reduction
7. it provides a means of savings
8. It serves as collateral security
9. It is for savings

History of Insurance

To understand how insurance operates in Nigeria, it is important to know the history of insurance in Nigeria. The birth of modern insurance in Nigeria is closely associated with the arrival of British Trading Companies. These companies facilitated inter-regional trade in the country. These foreign companies, therefore, needed to deal with some of their risks at a local level. This changed the shape of the insurance sector in Nigeria.

These trading companies were given insurance agency licenses by their foreign authorities from abroad. The licenses allowed the firms to facilitate claims supervision and issue covers.

In 1918, Africa and East trade companies inaugurated the Royal Exchange Assurance Agency. This was the first insurance company in the history of insurance in Nigeria. Other agencies included:

• BEWAC’s Legal and General Assurance
• Patterson Zochonis (PZ) Liverpool
• Law Union and Rock

Due to the tragic effects of the Second World War, trade and commerce suffered both in the United Kingdom and in Nigeria. The initial years of Nigerian insurance companies witnessed slow growth between the 1920s and 1940s. Once the war got over, the insurance industry in Nigeria picked up its pace and made progress that would be embedded forever in the history of insurance in Nigeria.

The first insurance company indigenous to Nigeria was the African Insurance Company Limited. This was established in 1958. On October 1, 1960, the country gained Independence from the British. At the time of Independence there were twenty five insurance companies in Nigeria. Only four of these were owned by Nigerians. In 1961 the J.C. Obande Commission report, a milestone in the history of insurance in Nigeria, was released. This led to the formation of the Nigerian Department of Insurance as part of the Federal Ministry of Trade. This department was later transferred to the Ministry of Finance. The Insurance Companies Act of 1961 made it necessary for insurance businesses to be grouped into various classes for registration. According to provisions of the Act, the office of the Registrar of Insurance was created. The purpose was to manage insurance practice in the country. Minimum capital requirement and other regulations for registration, monitoring, and control of insurance operations- these are some other provisions that fall under the other provisions of the Act.

In 1976, an Insurance Decree was released. This gave authorization to insurers, transfers, modes of operation, administrative, enforcement guidelines and penalties. By this time, the number of indigenous companies had outnumbered the foreign insurance companies.

In 1997, the National Insurance Commission was established. It was given the duty of overseeing and organizing insurance in Nigeria. This body is functioning as the main insurance regulator in Nigeria. An Insurance Special Supervisory Fund was set up in 1989, which made it compulsory for insurance companies to give in 1 percent of their gross earnings to the fund. This also strengthened the Insurance Supervisory Board.

The insurance industry in Nigeria has been steadily growing ever since.

Insurable and Non-insurable Risk

Non insurable risk: These  are the risk whereby the insurer cannot take cover for because the likely future losses cannot be calculated and estimated. Example is loss of profit, risk due to war, poor location of business etc.

Insurable risk: An insurable risk is a risk that meets the ideal criteria for efficient insurance. The concept of insurable risk underlies nearly all insurance decisions. … In other words, the risk cannot be catastrophic, or so large that no insurer could hope to pay for the loss.

Basic Principles of Insurance

1. Insurable interest :This principle states that a person can insure properties that will bring loss to himself alone and not other person.e.g a person cannot insure the building of his neighbor
2. Contribution: This principle states that in a situation where a person has insured his property in more than one insurance company he cannot claim compensation from all the insurance company i.e if he has been settle by one of the insurance company he is not entitled to receive compensation from other insurance firm.
3. Proximate cause :This principle states that there must be a close connection between the loss actually suffered and the risk for which insurance has been taken out. Example is if Mr Ade insured his house against fire accident but the house collapse ,the insurance company will not pay compensation because the risk cover is fire accident and not collapsing.
4. Subrogation :This principle states that once the insurer has given indemnity for a loss the insurance company can take over the property insured and the right relating to it. Example is if Olefin’s car had an accident and she have been compensated for it, the insurance company can take over the scrap of the car and sell it, the car no longer belongs to Mrs.  Olofin but to the insurance company.
5. Abandonment : This principle states that a property can be abandoned if the cost of repairing is more than the actual value or if its actual loss is unavoidable
6. Indemnity : This principle states that the insured should be indemnified to the limit of the amount covered by the policy .it provides that the insured should be adequately compensated.
7. Utmost Good Faith (uberimae Fides) :This principle states that all relevant information about the property or object must be disclose to the insurance company, this will help the insurer to determine weather to cover the risk or not.