- Fundamental risks, Particular risks, Speculation risks, pure risk, etc
Types of Insurance
- a) General Insurance
- a) Fire Insurance:Building due to fire.
b) Contents Insurance:Contents
c) Comprehensive Fire Insurance: Building, Contents, Riots, Floods and Earthquakes.
d) Consequential Loss Insurance: Loss of profit while rebuilding is going on.
- b) Motor Insurance
- a) Minimum Legal Cover:Injuries to third party on public roads only.
b) Third Party Cover:Includes injuries and damage to properties of third parties.
c) Third Party, fire and theft: Third Party plus, damage to car by theft or fire.
d) Comprehensive: As in C) plus damage to vehicle, personal injuries to driver and loss or damage of personal possessions while in car.
- c) Accidental Insurance
- a) Care Insurance: Theft, Accident and 3rd Party. b) Medical Policy Insurance:
c) Cash in Transit Insurance: Covers against loss due to robbery of cash in transit.
d) Workman compensation Insurance: Compulsory for employers to insure their employees against any accident during working hours.
- d) Liability Insurance
- a) Employer Liability: For accidents at work owing to employers negligence.
b) Public Liability: To cover claims made by the public as a result of damage to their property or life.
c) Professional Liabilities: Taken by lawyers, doctors, architects and engineers to cover against claims due to their personal negligence.
d) Insurance of Interest/ Fidelity bond: Guarantee by to cover embezzlement of employs.
- e) Life Assurance
- a) Whole Life policy: Lump sum payable at death.
b) Endowment policies: Agree sum payable at the end of a number of years on the maturity of the
policy, death which ever is sooner.
c) Family income protection policy: Paid on death of insured in series of regular payment.
d) Mortgage payment Insurance: On the death of legal mortgager, company pays.
e) Group Insurance: Taken by small employer for employees in place of pension scheme for employees
- f) Marine Insurance
- a) Ship and installation
d) Port and installation
g) Public Liability
- g) Aviation Insurance
- a) Planes
d) Port Installation
e) Public Liability
- h) Nuclear Insurance
TYPES OF RISK
There are different types of risk. The most important types of risk include:
(i) Pure Risk
(ii) Speculative Risk
(iii) Particular Risk
(iv) Fundamental Risk
(v) Static Risk
(vi) Dynamic Risk.
Pure risk is a situation that holds out only the possibility of loss or no loss or no loss. For example, if you buy a new textbook, you face the prospect of the book being stolen or not being stolen. The possible outcomes are loss or no loss. Also, if you leave your house in the morning and ride to school on your motorcycle you cannot be sure whether or not you will be involved in an accident, that is, you are running a risk. There is the uncertainty of loss. Your motorcycle may be damaged or you may damage another person’s property or injured another person. If you are involved in any one of these situations, you will suffer loss. But if you come back home safely without any incident, then you will suffer no loss. So in pure risk, there is only the prospect of loss or no loss. There is no prospect of gain or profit under pure risk. You derive no gain from the fact that your house is not burnt down. If there is no fire incident, the status quo would be maintained, no gain no loss, or a break-even situation. Therefore, it is only the pure risks that are insurable.
Speculative risk is a situation that holds out the prospects of loss, gain, or no loss no gain (break-even situation). Speculative risks are very common in business undertakings. For example, if you establish a new business, you would make a profit if the business is successful and sustain loss if the business fails.
If you buy shares in a company you would make a gain if the price of the shares rises in the stock market, and you would sustain a loss if the price of the shares falls in the market. If the price of the shares remains unchanged, then, you would not make a profit or sustain a loss. You break-even. Gambling is a good example of speculative risk. Gambling involves deliberate creation of risk in the expectation of making a gain. There is also the possibility of sustaining a loss. A person betting $500 on the outcome of the next weekend English Premier League Match faces both the possibility of loss and of gain and of no loss, no gain. Most speculative risks one dynamic risk with the exception of gambling situations.
Other examples of speculative risk include taking parts in a football pool, exporting to a new market, betting on horse race or motor race.
Speculative risks are no subject of insurance, and then are therefore not normally insurable. They are voluntarily accepted because of their two-dimensional nature of gain or loss.
Most people in the society face liability risk. The law imposes on us a duty of care to our neighbour and to ensure that we do not inflict bodily injury on them. If anyone breaches this duty of care, the law would punish him accordingly. For example, if you injure your neighbour or damage his property, the law would impose fines on you and you may have to pay heavy damages.
Unfortunately, one can be found liable for breach of duty of care in different ways and the best security seems to be the purchase of liability insurance cover.
Property owners face the risk of having their property stolen, damaged or destroyed by various causes. A property may suffer direct loss, indirect loss, losses arising from extra expenses of maintaining the property or losses brought about by natural disasters.
Natural disasters such as flood, earthquake, storm, fire etc can bring about enormous property losses as well as taking several human lives. The occurrence of any of these disasters can seriously undermine the financial security of the affected individual, particularly if such properties are not unsecured.
A fundamental risk is a risk which is non-discriminatory in its attack and effect. It is impersonal both in origin and consequence. It is essentially, a group risk caused by such phenomena like bad economy, inflation unemployment, war, political instability, changing customs, flood, draught, earthquake, weather (e.g. harmattan) typhoon, tidal waves etc. They affect large proportion of the population and in some cases they can affect the whole population e.g. weather (harmattan for example). The losses that flow from fundamental risks are usually not caused by a particular individual and the impact of their effects falls generally on a wide range of people or on everybody. Fundamental risk arise from the nature of the society we live in or from some natural occurrences which are beyond the control of man.
A particular risk is a risk that affects only an individual and not everybody in the community. The incidence of a particular risk falls on the particular individual affected. Particular risk has its origin in individual events and its impact is localized (felt locally). For example, if your textbook is stolen, the full impact of the loss of the book is felt by you alone and not by the entire members of the class. You bear the full incidence of the loss. The theft of the book therefore is a particular risk.
If your shoes are stolen, the incidence of the loss falls on you and not on any other person. Particular risks are the individual’s own responsibility, and not that of that society or community as a whole. The best way to handle particular risk by the individual is the purchase of insurance cover.
Static risks are risks that involve losses brought about by irregular action of nature or by dishonest misdeeds and mistakes of man. Static losses are present in an economy that is not changing (static economy) and as such, static risks are associated with losses that would occur in an unchanging economy. For example, if all economic variables remain constant, some people with fraudulent tendencies would still go out steal, embezzle funds and abuse their positions. So some people would still suffer financial losses. These losses are brought about by causes other than changes in the economy. Such as perils of nature, and the dishonesty of other people.
Static losses involve destruction of assets or change in their possession as a result of dishonesty. Static losses seem to appear periodically and as a result of these they are generally predictable. Because of their relative predictability, static risks are more easily taken care of, by insurance cover then are dynamic risks. Example of static risk include theft, arson assassination and bad weather. Static risks are pure risks.
Dynamic risk is risks brought about by changes in the economy. Changes in price level, income, tastes of consumers, technology etc (which is examples of dynamic risk) can bring about financial losses to members of the economy. Generally dynamic risks are the result of adjustments to misallocation of resources. In the long run, dynamic risks are beneficial to the society. For example, technological change, which brings about a more efficient way of mass producing a higher quality of article at a cheaper price to consumers than was previously the case, has obviously benefited the society.
Dynamic risk normally affects a large number of individuals, but because they do not occur regularly, they are more difficult to predict than static risk.
Underwriting is the process of agreeing to bear the financial risk inherent in an insurance contract. The insurance underwriters assess the risk that is being insured, for instance, fire damage to a house. The underwriters receive the insurance premium from the homeowner and in return, the underwriters agree to provide compensation for damages that result from a fire.
Nigeria Reinsurance Corporation
Nigeria Reinsurance Corporation was established under the Nigeria Reinsurance Corporation Act No. 49 of 1977. It commenced operations on January 1st, 1978 as Nigeria’s flag reinsurer, wholly owned by the Government of the Federal Republic of Nigeria.
The purpose for the establishment of the Corporation was to stem the outflow of funds in form of reinsurance premiums, by accepting legal cession of all local insurance policies and writing inward international reinsurance businesses.
From the N1, 500,000 take off capital granted the Corporation by the Federal Government of Nigeria, it has today an authorized share capital of N4,500,000,000 at 50k each with an issued and fully paid up capital of N2,258,605,000 at 50k.
In line with the privatization policy of the Federal Government of Nigeria, the Corporation’s 51% equity was acquired in December 2002, by Reinsurance Acquisition Group – the Management buy out vehicle, while the Government retained 49% interest. The former stake was later taken over by Barr. (Dr) Jimoh Ibrahim (OFR) who has since become the core investor.
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