History of insurance in Nigeria

The Concept of Insurance:

Insurance in Nigeria, which was influenced by British colonial history, emanated from traditional communal fund-pooling systems like “isusu” to modern practices rooted in the need for financial protection against losses. This need was pronounced among early marine traders in Nigeria, leading to the development of maritime insurance bonds like Bottomry and Respondent bonds which were both loans to mitigate voyage risks.

In defining explicitly the concept of insurance in Nigeria, the Insurers profit by collecting premiums and knowing and hoping not all insured losses will happen, while insured persons can invest more confidently, knowing insurance covers them against unpredictable events like fire or shipwreck.

History and Development of Insurance in Nigeria 

Insurance in Nigeria was known to begin with British colonial traders in 1879, seeking to protect their maritime trade which they cherished. Initially, insurance underwriting was done in London, with local agents in Lagos issuing cover notes. 

The insurance sector grew with the establishment of the first assurance company called the Royal Exchange Assurance in 1921. It was followed by others like the Northern Assurance Company in 1930, evolving into United Nigeria Insurance Company, and Norwich Union in 1949. 

The Life Insurance Society then set up an office in Lagos in the name of Tobacco Insurance Company Limited and later remained as Legal and General Assurance Limited. 

However, the first indigenous insurance company was The African Insurance Company Limited in 1950. Later the Nigerian General Insurance Company and the Lion of Africa Insurance Company were also established in 1950 and 1952 respectively. Victor Ike Okonkwo. (2002)

The privatization of insurance companies in Nigeria

Fast-forwarding to the early 90s, the African and Nigerian economies, under the pressure of the World Bank, drifted towards liberalization of the insurance market. Therefore, the ownership of insurance companies in Nigeria began to shift to private from public ownership. Also, during this time, many companies have risen and fallen due to varying competition in the market.

The Nigerian Insurance Decrees

The first  Nigerian government insurance decree was issued in 1968 under military rule, promoting the growth of insurance in Nigeria. Next was the establishment of the National Insurance Corporation of Nigeria in 1969 to develop the sector, insure federal assets, and take care of re-insurance. 

Subsequent decrees in 1976 and 1977 brought more regulations in the system and established the Nigeria Re-insurance Corporation to oversee re-insurance operations. The Nigeria Agricultural Insurance Corporation was also established in 1987 to cover agricultural and non-life insurances. 

Further decrees continued to shape the system, leading to greater and more growth in the number of insurance companies, brokers, loss-adjusters, and premium income we have today. Other regulations and supervisor methods were also introduced in the insurance sector in Nigeria. 

The 1976 Nigerian Insurance Act

The famed Insurance Act was signed in 1976, creating regulatory requirements for all insurers in the nation. From then till now, they have passed several amendments and new Insurance acts, one in 2003 and another in 2007. Today, insurers and reinsurers need to have a certain capital standard for a start as NIACOM no longer accepts borrowed funds from real estate or banks.

The Nature of Risks and Its Classification 

The term risk in general is essentially the uncertainty of loss in situations where the future is unknown. In insurance, it can refer to the insured property/item, the cause of loss, the financial value at stake, or any uncertain future occurrence. 

Risks are classified into three main categories: 

1. Fundamental and Particular Risks which fundamental are risks like earthquake, tornado, drought, social or political changes while particular risks are personal acts or risks that are traceable to individuals.
2. Pure and Speculative Risks, where pure risks are risks like accident, burglary, fire, theft and speculative risks are risks which have chances of loss, chances of gain and chances of no loss, no gain.
3. Dynamic and Static Risks where dynamic risks are risks that came as a result of human demands, innovation, economic systems, etc while static risks are risks linked to the actions of nature.

Forms of Complimentary Insurance in Nigeria 

The three forms of complimentary insurance in Nigeria are:

1. Traditional Insurance Practice:

In Nigeria, alongside the current modern insurance which is in existence, traditional and complementary practices are a form of complementary insurance that has long existed. It functioned as a community-based financial relief and age-grade association/union. 

2. Nigeria Social Insurance Trust Fund (NSITF)

Another form that is still in existence is the Nigerian Social Insurance Trust Fund (NSITF), established by Decree No 73 of 1993, succeeded by the National Provident Fund in 1961 was rendering financial benefits for retirement, unemployment, illness, or relocation outside Nigeria. 

Contributions for this come from both employers and employees, with eligibility extending to private enterprises with over five staff members and self-employed individuals under 65 years old.

3. The National Health Insurance Scheme (NHIS)

NHIS was established by the 1999 Decree, and aims to provide financial support for healthcare in Nigeria to insured persons and their dependents. It works through a governing organization overseeing implementation, certified healthcare providers, and both private and public health maintenance organizations, which must be insured by council-approved insurance companies.

The governing organization enters into agreement with the healthcare providers. They also have the responsibility of collecting from qualified employers, employees, and volunteers.

4. Contracts of Wagers

Unlike other forms of complimentary insurance, they lack enforceable legal standing due to no insurable interest, being mere games of chance. 

Advantages of Modern Insurance in Nigeria 

Modern insurance in Nigeria offers benefits such as:

• Indemnification for losses
• Contributing to GDP
• Job creation, and
• Fostering investment confidence.

Policy Rectification in Insurance 

Policy rectification involves amending a policy when it doesn’t meet the expectations of both parties, through mutual agreement or, if necessary, legal action. 

Documentation in Insurance 

Documents used in insurance are:

1. Cover Note

Cover notes in insurance are used as interim policies offering benefits like preparation time for the final policy, premium payment flexibility, and risk reassessment. People believe that their use in Nigeria is diminishing due to the “no premium no cover” policy. 

2. Endorsements 

Endorsements modify insurance policy documents by adding or deleting clauses. 

3. Certificate of Insurance

Certificates of insurance are issued as evidence of meeting all the legal requirements, especially in motor and marine insurance, detailing coverage, policyholder information, and motor specifics.

Conclusion

Although it has experienced significant growth since its inception, the presence of only a few top insurers has made the market currently narrow. This makes self-regulation through competition. However, professional associations still regulate these companies. The potential in Nigeria’s insurance sector is very huge, though we have to wait to see how well the industry grows.

Frequently Asked Questions

What is the oldest insurance company in Nigeria?

The oldest insurance company in Nigeria was established during the colonial era and was named the Royal Exchange Assurance Agency. Also, it was the first-ever insurance company in Nigeria. However, on an indigenous level, the oldest insurance company in Nigeria is the African Insurance Company Limited. It started operating in 1958.