Impact of Government Policies in Regulating the Activities of Nigeria Insurance Industry on Your Company

IMPACT OF GOVERNMENT POLICIES IN REGULATING THE ACTIVITIES OF NIGERIA INSURANCE INDUSTRY ON YOUR COMPANY

Industrialization is becoming a truly worldwide phenomenon within the framework and accompanied by the organization of independence within global independence. Insurance as one of the most important way of organizing security is at the crossroad of both phenomenon’s. Contrary to a conservative view of security, the development of insurance is a key feature in the modern world. It is a major risk management tools that Nigeria when it emerged as one of its economic activities. Marine insurance was the earliest form of insurance and it was generally agreed that it had its origin in Rome during 14^th – 15^th centuries AD. Italian merchant introduced marine insurance into Britain and other Western European countries from where the idea of insurance has spread to other parts of the world.

The concept of insurance in its modern form was introduced into Nigeria by the British. Thus and the fact that until quite recently, most of the leading insurance companies in Nigeria were either partly or wholly British owned. It the followed that the theory and practice of insurance in Nigeria has to large extent follow the British pattern.

However, long before the British arrived on the scene, there were a lot of organized trading activities in the country, but there was no organized insurance business as crude primitive forms of mutual and social insurance schemes. Apart from the extended family system, which is as by its very nature, a social insurance scheme, there were also age grade association and some Chan unions, which acted as mutual insurance societies to their members. The gage grade association maintained funds built up by individual contributions from members. The funds were collected periodically almost in the same way as industrial life insurance premium are collected.

Both extended family system and the Chan union still exist in Nigeria today but most of their insurance functions have been taken over by an organized insurance system. Similarly, the age grade system still pay an important role in some part of the country especially in matters relating to development.

2.2     THE DEVELOPMENT OF MODERN INSURANCE BUSINESS IN NIGERIA

Insurance business in Nigeria started very late compared to the development in the banking industry. Modern insurance  business kicked off as late as the 20^th century.

According to Onyeama (1988:12) the aims of introducing modern insurance by the British was to protect the interest of their client insured who had business establishes in Nigeria with the establishment of trading companies mostly in British.

According to Iruwku (1989:44) these trading companies were at first affecting their insurance market, till later some British insurers appointed agents were given the power of attorney to obtain insurance business, issue covers and service claims on behalf of their principals in London. Initially, the agents were mainly expatriate banks and traders but later Nigeria traders and merchants were appointed as agents.

Virtually, all British insurance companies in Nigeria developed in this way. That is, first a Nigerian company is formal with nationality but closely linked with the parent company in Britain. The first insurance company to have full branch office in Nigeria was the Royal Exchange Assurance established in 1921. Between 1924-1948 witnessed the existence of only one company operating in the industry. This was the overseas branch office operating from head office in the United Kingdom. This company monopolized the insurance business in Nigeria until 1949 when three other insurance companies were formed. They were the Norwich union first insurance company later known as Guinea insurance Company Ltd, the Tobacco insurance Company Ltd and the Legal and General Assurance Society Ltd. Since then, the number of insurance companies has risen. As at the end of 2011, there were about 47 companies operating in the country. The advents of insurance companies in the country have done a lot to the development of the Nigerian economy. Some of the remarkable attributes include:

1. Insurance companies being the second largest deposit in the country has helped in terms of investment and development.

2. Insurance company plays an important role in employment of labour.
3. It provides loans for building at times on the security of a life policy.
4. It encourages and promotes commercial enterprises through offering of financial security to businessmen.

2.3     THE INSURANCE MARKET AND INTERMEDIARIES

Ordinarily, market is a place where people buy and sell their commodities. The market consists of the buyers, sellers and possibly some kind of intermediaries such as middlemen who act for the buyers or the sellers.

Insurance is a service and not a material commodity like motorcar, a bag or beans or rice. The insurance market refers to the facilities that are available for their planning of insurance and the different kinds of professional risk bear available.

The insurance market is made up of the following:

1. The insuring public i.e. the buyer
2. The insurer i.e. The seller
3. The insurance intermediaries i.e. the middlemen.

2.4     THE SOCIO-ECONOMIC SIGNIFICANCE OF INSURANCE

The primary function is to spread the financial loses of insured members over the whole of the insuring community, by compensating the unfortunate few from the funds built up from the contributions of all besides, the practices of insurance has many secondary functions which contributed to the welfare of the individual or society. The socio-economic significance of insurance is universal and it will not be an exaggeration to say that an industrial concern without an insurance policy is like a car without shock absorbers. A father with a large family to support will have a peace of mind when he remembered that he is insured against death, that is how a businessman also benefits from insurance inspires. Insurance minimize the hindrance due to risks of various kinds and such modern trade, commerce and industry cannot function properly without insurance. In short important of insurance and its contributions to the social and economic development of the economy. The life insurance policy affords protection to individual widows and dependants to meet critical situation. Fire, marine and miscellaneous policies help the development of trade, commerce and industry hence the important of insurance from socio and economic point of view is immense.

Notable advantages of insurance in socio-economic development of the county are:

1. Insurance spread risk
2. Insurance build confidence
3. It is a means of saving
4. It helps in spreading education
5. Insurance reduce loss
6. It forms an important part of countries visible export. It is an accelerator and stabilizer of economic growth

7        And insurance encourage executive efficiency

2.5     STRUCTURE AND PERFORMANCE OF THE INSURANCE INDUSTRY

Nigeria insurance industry expanded margin all in 1992, while some companies in he industry diversified the activities form wholly life to join life and non-life. The study showed that the number of registered insurance companies during the 1992 period rose from 107-121 in 1992. Nigerians have total 103 while the joint with others have 18 companeis. Life insurance companies decrease in number from 3 in 1991 to 2 in 1992. the non-life insurance companies increases in number from 67 in 1991-87 in 1992 while also the non-life insurance companies decrease in number. The study showed that the life and non-life were 37 companies as at 1991 but were only 32 in the year 1992.

What is responsible for this is because there are more restriction to the life and non-life business through the condition operating a life insurance and the reverse ratio to the central bank which was increased also led to the decreases in number of companies because the restriction were tight and bent on the capitally based insurance companies for reliable prompt settlement in claims. Since the deregulation of the Nigeria economy and the continuous slide in the value of the Naira, the price of insurance properties have risen astronomically. Thus, rendering most insurance companies. The increase capital base requirement was designed to facilitate the emergence of solid and avoid insurance companies capable of meeting their obligation at all time.

ECONOMIC  EXPENDITURE:

The income insurance companies was given a boast following government approval of a rating commission recommendations to increase the premiums and rates chargeable for risk born in all classes of insurance cover on vehicle and employers liability.

• GOVERNMENT REGULATION OF INSURANCE COMPANIES

The general purpose of the regulation is to protect the public against insolvency treatment by insurance companies. According to Odika (2012) stated that government regulation was inevitable in Nigeria (1976) by the system of licensing insurers to transact insurance business applicants having to satisfy the supervisory authority as to their solvency and financial integrity, the government was ensuring the protection of public from incompetent and fraudulent operation of insurance companies. The flourishing of so many insurance companies in weedy fashion, unregulated created problems. Unscrupulous insurers operated with reckless abandon. Claims were at best unduly delayed or at worst avoided. Premiums rose without underwriting ethics. Public disillusionment was complete so much so that the insurance industry was viewed with suspicion and its practitioners classed into a fraternity of legally protected frauds. Heads offices disappear after premiums were collected from the insuring public.

However, the reasons for insurance regulation include:

a        Future performance

1. Complexity
2. Unknown future costs
3. Violation of public trust.

Government ahs commonly laid down rules governing the conduct of the business, in the case of insurance, however the government has actively and directly engaged itself in the business. In order to control the activities of insurance companies, the decree number of 59 of 1976 was promulgated and believes that it will bring sanity into practice and the activities of the company will be more effective.

According to Iruku (1989:42) the promulgation of the insurance decree number 59 of 1976 has been the most significant step under taken by federal government to ensure effective control of the insurance companies, their agencies and brokers. The purpose of the decree is to ensure that insurance companies conduct their business in the best interest of the degree provided among other things the condition for registration of insurers, capital and reserve requirement investment of insurance fund, settlement of claims licensing of insurance agents, registration of insurance brokers, review of premium, administration and enforcement and submission of annual reports.

The CBN decree of N0. 24 of 1991 mandated all insurance companies to render to the central bank  regular and timely return of their operation and other information’s from time to time such returns shall be in duplicate and shall be sent to the director of research.

However, government uses the national insurance commission (NAICOM) to regulate the insurance industry. It was established in 1997 by NAICOM Decree N0. 1 of 1997. prior to the establishment of NAICOM, the insurance business regulation and supervision were done by the insurance department of federal ministry of finance.

The national insurance supervision of insurance was done by the National insurance supervisory board (NISB) as was established in 1991 to take over the supervision of insurance from the Director of insurance. National insurance commission (NAICOM) is head by the commission for finance and administration and Deputy Director for insurance Technical.

NAICOM decree 1 of 1997 stated the functions of NICOM as follows:

1. To ensure the effective administration, supervision, regulation and control of insurance business in Nigeria.
2. Establish of standards for the conduct of insurance business in Nigeria.
3. Approve rate of commissions to be paid in respect of all classes off insurance business.
4. To ensure adequate protection of strategic government assets and other properties.
5. Regulation of transaction between insurers and re- insurance in Nigeria and those outside Nigeria.
6. To act as adviser to the federal governemtn on all insurance related matters.

7        Approve standards, conditions and warranties applicable to all classes of insurance business.

8. to protect insurance policy holders and beneficiaries and third parties to insurance contracts.

9        To publish for sale and distribution to the public, annual reports and statistics on the re-insurance industry.

10. To liaise with and advise federal ministries extra ministerial departments, statutory bodies and other government agencies on all matters relating to insurance contain in any technical agreement to which Nigeria is a signatory.
11. To contribute to the educational program of the chartered institute of Nigeria and West African insurance institute.
12. To carry out such other activities connected or incidental to other functions under this decrees.

The power shall have power to:

1. Establish bureau to which complaints against any insurer insurance broker or loss-adjuster (in this decree referred to as “insurance institution) may be submitted by member of the public.
2. Request or call for information from federal ministries, extra ministerial departments, statutory bodies and other government agencies on matters relating to insurance.
3. Borrow such sum of money as the commission may from time to time require for performing its functions under this decree.
4. Acquire offices and other premises for the use of the commission.
5. Establish such zonal and other offices of the commission it may deem necessary for the proper performance of its functions under this decree and
6. Do such other things that are necessary for the successful performance of its functions under this decree.

The board shall have power:

1. To mange and supervise the affairs of the commission
2. For over all policy and general administration of this commission and act in the name of the commission.
3. To recommend to the minister from time to time, the rate of contributions to be made by insurance institutions to the funds of their commission and
4. To do such other things and enter into such transaction which in its opinion are necessary to ensure the efficient performance of its functions under this decree or any other enactment.

However, the Insurance Supervisory agency includes:

• The Nigerian insurer association (NIA)
• The Nigerian cooperation of insurance brokers (NCIB)
• The institute of loss adjusters of Nigeria (ILAN)
• The professional re-insurers association of Nigeria (PRAN)
• The faculty of risk Management (FRM)
• The chartered insurance institute of Nigeria (CIIN)

IN REGULATING THE INSURANCE INDUSTRY, THERE ARE TWO METHODS OF REGULATING THE INDUSTRY AND IT INCLUDE:

1. Ex post Regulation:

This method of regulation calls for government intervention into the market, only after an offence has occurred. Any redress is remedial after the fact. Setting the rates is an example of post regulation.

1. Ex ante Regulation

This method seek to prevent any offensive activity form occurring by proscribing or regulating it before the fact. Example of ex ante regulatory includes premium and policy wording which are subject to regulatory approval before insurers can use them. Also insurers must secure a license before they can sell insurance. Several normative and positive theories attempt to explain why regulation exits.

1. Public interest theory of Regulation

Under the narrative public interest theory of regulation, regulation exits to serve the public interest. The objective is to maximize economic efficiency including preventing or making right significant consumer harm that results from market failure.

1. Private Interest Theories of Regulation

Under private interest theories of regulation, regulation exits to promote the interest of private parties. It was suggested that self-interested regulators engage in regulatory activities consistent with maximizing their political support. Under the theory, regulators might exhibit pro-industry biases to gain industry finical and other backing.

1. Political Theories of Regulation

It was asserted by an eminent economist that regulation will be shaped by a type of bargaining that occurs between different private interest groups within the existing political and administrative structure. Interest groups include consumers, the regulators, political elites (courts and legislative body) and the regulated industry.

The classes of government intervention into insurance markets:

*        Economic Regulation:

Economic Regulation in insurance addresses concerns of market power generally and economies of scale specifically insurers or certain lines of insurance are treated like public utilities on some markets where profit and products standards may be strictly regulated.

Health – safety environment Regulation:

Health-safety environment type of regulation is prominent insurance, primarily because of potentially severe information problem. Elaborate market access rules exits in every major national markets and government justify them on grounds of consumer ignorance about insurer solvency.

2.7      THE IMPACT OF STRUCTURAL ADJUSTMENT PROGRAMMES ON INSURANCE COMPANIES OPERATING IN NIGERIA

Although insurance does not engage in the manufacturing of products distributive trade, agriculture and other areas of our national economy with the S.A.P was designed to correct. Never the less, the fact that industry has been affected by SAP goes to show that there is hardly any aspect of our national life which SAP has not affected.

The structural adjustment programme was introduced by the federal ministry government of General Ibrahim Badamasi Babangida in 1986. SAP was purposely directed towards achieving a balance aggregate domestic expenditure and production.

The objective of structural adjustment program includes:

1. To restructure and diversify the product sector of the economy to reduce the country dependence on oil sector and import goods.
2. To achieve fiscal balance of payment surplus by the end of the adjustment period.
3. To dismantle the large unproductive public sector and apply government resources to stimulate economic activities on general basis.

According to Fayomi (1993:80) the insurance industry has its own share of the impact of SAP in various degrees and its own share of the impact of SAP in various degrees and in many aspect of insurance business. The introduction of structural adjustment programme has given rise to agitation by the insurers for upward view of the premium rate in view of the high cost of the insured property.  The insured are not satisfied by the money paid as compensation while the insurer is not satisfied by the premium paid by the policy holders.

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