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

CHAPTER ONE

1.1     BACKGROUND OF THE STUDY

“Risk is a phenomenon which has been in existence since the beginning of the world. Risk exists whenever the future is unknown” (Lemon 1989: 17). This means that the word implies some element of doubt about the future and the outcome may be worse than what it had been at the moment. This man in his daily operations could be viewed as a risk manager, in that man does his best possible to reduce, eliminate, avoid, retain or share risk where they are present.

Though there were some forms of risk management before the advent of insurance companies in Nigeria such as the extended family system, age grade association and others. Insurance in its modern form was introduced into Nigeria by British.

In 1921, the Royal Exchange Assurance Company was established and it was the first insurance company to open full branch in Nigeria. In 1949, three other companies emerged. In 1958, Africa insurance company. By 1965, the number of insurance companies rose to 70. In 1977, the Nigeria Re- insurance company was established as a federal government owned insurance company. Nigeria was however under the British colonial rule up to 1960 when she gained her political independence and as a developing country. From 1960 to date a lot of insurance companies came into operation. Insurance is a modern method of sharing loss or spreading risk lightly over a great number of people so that the few unfortunate ones or persons who sustain or suffer loss do not heavy financial loss as a result of their misfortune to the community. The insured pay premium into a common pool outcome of which the unfortunate few who suffer loss are compensated.

The secondary function of insurance companies includes:

1. Provision of loans for building on the security of a life policy.
2. Encourage and promote commercial enterprise men and industrialist
3. The accumulated sum of money by insurer reinvested to state approved securities and this helps to provide the state with a steady flow investment funds with which the state can provide development and promotions to the local industries which will be of benefit to the community.

Insurance is a contract whereby a person called the insurer or assurer agrees in consideration of money paid to him or her known as premium by another person called the insured or assured to indemnify him against loss resulting to him on the happening of certain events. However, it was known that risk exist whenever the future is unknown and therefore insurance exist primarily to combat the adverse effect of risk.

The purpose of insurance is to compensate or indemnify the victim for his financial loss. It should be noted here that the insurance neither eliminate the loss nor stops the disaster from happening, what insurance does is to soften the blow in a purely financial sence by offering monetary compensation to the victim whereby placing him in the same financial position after loss as he was before though within the terms of the policy.

Re- insurance is the transfer of insurance business from one insurance company to another. The original insurer who obtain the insurance contract from the insured or assured is called the direct insurer or the ceding company. Re- insurance arose form the need of the original insurer to spread the risk he has undertaken. Under re- insurance contract is between the ceding company policies. Therefore in the event of a loss, the insured cannot enforce the re- insurance contract.

However, the effect of re- insurance contract on the ceding company includes:

i        Re- insurance reduces the probability of the ceding company’s ruin by assuming his catastrophe risk.

ii       Re- insurance stabilizes the ceding company’s balance sheet by taking on apart of his risk of random fluctuation risk of change and risk error.

iii      Re- insurance increases the amount of capital effectively available to the ceding company by freeing equity that was tied up to cover risk.

iv      Re- insurance enlarges the ceding company’s underwriting capacity by accepting a proportional share of risks and by providing part of the necessary reserves.

The insurance sector is made up of a large number of companies with varying sizes, among which the NAICOM was established. The government uses this commission to regulate the insurance industry. The government uses this commission to regulate the insurance industry. It was established in 1997 by NAICOM decree N0. 1 of 1997. Prior to the establishment of National insurance commission, the insurance business regulation and supervision were done by the insurance department of the Ministry of finance.

The national insurance supervisory board (NISB) was established in 1991 to take over the supervision of insurance from the director of insurance. National Insurance Commission (NAICOM) is the head by the commission finance and administration and deputy director for insurance technical.

NAICOM Decree 1 of 1997 stated the functions of NAICOM as follows:

1. To ensure the effective administration, supervision regulation and control of insurance business in Nigeria.

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