INDUSTRIAL TRAINING FUND ISOLO AREA OFFICE

MARINE AND SEAPORT SAFETY & SECURITY COURSE FOR STAFF OF NIMASA
26TH 30TH AUGUST 2012 LECTURE NOTES ON

INSURANCE OF ASSETS AND PERSONNEL LEGAL/STATUTORY FRAMEWORK

BY CHINEDU C. OKPALEKE MANAGING CONSULTANT PORRES + REGIS LEGAL PRACTITIONERS, MEDIATORS & DEVELOPMENT LAW CONSULTANTS; 74 ADENIYI JONES AVENUE, IKEJA, LAGOS. email: cokpaleke@yahoo.com

DEFINITION OF : INSURANCE:
General Definition: Insurance is a practice by which a company (known as the insurance company) provides a guarantee of compensation for specified loss, damage, illness or death, in return for payment. The business of such an arrangement is also known as Insurance. Technical Definition: Insurance is a form of Risk Management, primarily used to hedge or secure against the risk of a contingent, uncertain loss. It can be further defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. Legal Definition: Insurance is a contract whereby, for specified consideration, one party undertakes to compensate to the other for loss relating to a particular subject as a result of the occurrence of designated hazards. The normal day to day business activities often carry the risk of enormous financial loss, injury, damage, loss of property or even death. Many persons are therefore often willing to pay a small sum for protection or security against such risks in the form of insurance. When the insurance takes the form of a contract in an Insurance Policy, it is subject to requirements in statutes, regulations from relevant Administrative Agencies and sometimes court decisions and precedents.

 In an insurance contract, one party, The Insured pays a specific amount of money, called The Premium to another party, The Insurer who in turn agrees to compensate the insured for specific future losses. These losses are usually listed in the contract and this contract is called The Policy. The doctrine of UTMOST GOOD FAITH governs every insurance transaction. In other words, the insured and insurer are bound by a good faith bond of honesty and fairness. All material facts must be disclosed from the onset.

BRIEF HISTORY OF INSURANCE

In the modern sense (i.e. in the modern day economy), the Chinese and the Babylonian traders from as long ago as the 3rd and 2nd Millennia BC, practiced some early methods of distributing risk whereby Chinese merchants travelling treacherous river rapids, would re-distribute their wares across many vessels to limit the loss, in the event of any single vessels capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi in the 1750 BC and practiced by early Mediterranean sailing merchants whereby, if a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lenders guarantee to cancel the loan should the shipment be stolen or lost at sea. Arhaemenian monarchs of Ancient Persia (modern day territories of Iran, Turkey, Central Asia, Pakistan, Iraq, Libya etc) were the first to insure their people and they made it official by registering the insurance process in government notary offices.

 The first examples of insurance related to MARINE activities. In many ancient societies, merchants and traders pledged their ships and cargo as security for loans. In post-medieval England, local groups of working people banded together to create friendly societies, fore-runners of the modern Insurance companies. Members of friendly societies made regular contributions to a common fund which was to pay losses suffered by members. However, without a system to anticipate risks and potential liabilities, many of the first friendly societies were unable to pay claims and many eventually. Thereafter, insurance came to be seen as a matter best handled by a company in the business of providing insurance. Consequent to this, insurance companies began to operate for profit in England in the 17th Century.

 The first insurance company in the United States under-wrote a fire insurance and was formed in Charles Town (Charleston, South Carolina) in 1732.

Origin & History of Insurance in Nigeria

Modern day insurance in Nigeria evolved from Nigerias close colonial ties with Britain. Before the introduction of the modern form of Insurance however, there already existed some rudimentary form of social insurance in the Nigerian pre-colonial society. This was practiced through the existing extended family system, social groups such as age grades, town/village unions etc. and helped in taking care of one another & keeping each member secure. The Nigerian modern insurance practice has its origin interwoven with the advent of the British trading companies and increased international trade.

 With the increase in trade and commerce within West Africa and between the two nations, shipping and banking activities equally increased and there arose a need for some of these foreign companies to manage or secure some of these risks locally. These trading companies applied for and were granted insurance agency licenses by foreign insurance companies. With these agency licenses, such firms were then able to issue insurance covers and assist in claims supervision.

 The first of these insurance agencies, the Royal Exchange Assurance Agency, was licensed and came into being in 1918, through the efforts of the Africa & East Trading Companies. Other agencies soon followed and included Patterson Zachonis (PZ), BEWACs Legal & General Insurance, The Law, Union & Rock etc. The first indigenous insurance company, The African Insurance Company Ltd was established in 1958. Formal Regulation of insurance in Nigeria first commenced in 1961, with the enactment of the Insurance Companies Act sequel to the Obadan Commission. The Act created the office of the Registrar of Insurance. By Nigerias independence in 1960, only 4 (four) out of the then existing 25 (twenty five) insurance companies were indigenous, but by 1976, the number of indigenous companies in Nigeria had far exceeded that of the foreign companies, as out of the 70 (seventy) companies in existence, only 14 (fourteen) were foreign owned. 10 (ten) were owned by several state governments while 46 (forty six) were owned by private/corporate indigenes.

TYPES/CATEGORIES OF INSURANCE
Insurance policies are usually grouped according to their FOCUS, in order to provide a measure of uniformity. There are numerous categories or types of insurance and a list of same in this lecture would not be exhaustive coupled with the fact that sometimes there is an over-lap in the insurance cover types/categories in one policy. For example, a vehicle insurance would cover typically both the property risk (theft of or damage to the vehicle) as well as the liability risk (legal claims rising from the accident). A home insurance policy, on the other hand, would cover damage to the home, the owners belongings, certain legal claims which may arise against the owner. Apart from the types of insurance referenced above, the following types/categories, among several others also exist:

 Health Insurance, Life Insurance, Property Insurance, Aviation Insurance, Marine Insurance, Fidelity Bond Insurance, Surety Insurance, etc. to mention just a few. PROPERTY INSURANCE: Property Insurance provides insurance cover or protection against risks to property, such as fire, theft, weather damage and other unexpected perils. It may include other types of specialized insurance, such as home insurance, inland marine insurance or home owners insurance etc. The term property insurance may, like Casualty Insurance, be used as a broad category of various sub-types of insurance.

COMPULSORY INSURANCE POLICIES IN NIGERIA

The National Insurance Commission which is the supervisory body for insurance companies and practitioners in Nigeria, pursuant to the Nigerian Insurance Act 2004 and in furtherance of its efforts at reinvigorating insurance use, practice and regulations, recently commenced implementation of statutorily compulsory insurance policies in the country. In furtherance to this, the following are the categories/types of insurance cover, which are, under the statutes, compulsory in Nigeria:

COMPULSORY INSURANCE POLICIES IN NIGERIA (Contd)

1. Statutory Group Life Insurance : This policy is compulsory under S.9(3) of the Pension Reform Act, 2004. 2. Employees Compensation Scheme/Insurance: This replaced the Workmens Compensation is compulsorily required by S.33 of the Employers Compensation Act. 3. Occupiers Liability Insurance: This insurance cover is a statutory compulsory requirement of S. 65 of the Insurance Act, 2004. 4. Motor Third-Party Insurance is required as a statutorily mandatory insurance policy, under S. 68 of the Insurance Act, 2004.

COMPULSORY INSURANCE POLICIES IN NIGERIA (Contd)

5. Builders Liability Insurance: Required as a mandatory insurance for all Builders under the S.64 of the Insurance Act. 6. Health Care Professional Indemnity Insurance: This is compulsorily required for all healthcare professionals, by S.45 of the National Health Insurance Act,1999.

COMPULSORY INSURANCE POLICIES IN NIGERIA (A Few Details)

Under the Employees Compensation Insurance scheme, every employer is required within the first 2 years of the commencement of the Employees Compensation Act, to make a minimum monthly contribution of 1% of the employers total employees monthly payroll, to the Employees Compensation Fund. This Fund is created to pay adequate compensation to employees or their dependants for any injury, disease or disability arising from or in the course of the employees employment.

 Builders Liability Insurance: S. 65 of the Insurance Act requires that all public buildings should be insured against various hazards such as building collapse, fire, earthquake, storm and flood. The Insurance Act describes public buildings to include any tenement house, hostel, a building occupied by a tenant, Lodger or a licensee or any building used for the purposes of educational, medical or recreational services or for the transaction of any business.

 All Builders of real property which have more than two floors, must compulsorily register and insure such buildings against all construction risks resulting from the builders negligence or the negligence of the builders servants, agents or consultants, which negligence may result in bodily injury, loss of life or damage to property.

ASSETS (RELATIONSHIP BETWEEN VALUE & PREMIUM)

Asset, for the purposes of this lecture, refers to the property insured An Insurance Premium is the money charged by an insurance company for the coverage of a risk on property or asset insured. The amount of insurance premium charged is usually calculated in the underwriting department of an insurance company, using statistics and mathematical calculations which determine the premium sum. Every property, asset, possession or insurable interest has certain value, which is attached to it. There is the personal value (i.e. how much it is worth to the owner) and also a market value, if it is a tangible asset (i.e. the price it would fetch in a sale transaction if it were to be put up for sale). These two values are usually equal, for those assets which the owner can substitute in the market. But in some cases, the personal value can be much higher than the market value, especially for those assets to which the owner attaches unique attributes often sentimental in nature. These sort of assets could be termed as irreplaceable

 An example is could be an artwork purchased for =N=20,000.00 last year. Yet many people who bought an original similar work of the same artist say 10 years ago in 2002, would most likely not want to sell theirs for any price less than perhaps =N=50,000.00. Another example is an inherited asset or bequest. For any worthy asset, risk-averse individuals would want to insure irreplaceable assets against loss, damage or any other peril. The insured amount of such worthy assets would not be based solely on their market value, but also on their higher, personal value, their value as new, their manual value and future life expectancy etc. In calculating the amount an insurance company needs to collect to offset a potential claim (i.e. the pure premium rate ),

On an insurance policy, the higher the amount of coverage purchased by the insured, the higher the premium. The type of insurance package or policy chosen (whether comprehensive, standard etc.) will also affect the cost of the insurance as well as the other variables peculiar to the type of asset being insured, its type of use, its value, antecedents and other peculiarities which may be relevant etc.

PERSONNEL
Personnel or employees are persons employed by an employer under oral or written contract of employment, whether on a continuous, part-time, temporary, apprenticeship or casual basis and include a domestic servant, who is not a member of the family of the employer, including any persons engaged in the Federal, State and local Governments or in any of the government agencies or in the formal and informal sectors of the economy.

 The question of Personnel or employees, who constitute the human capital of an organization or establishment, being insured comes to the fore, because staff or employees are in a manner of speaking, the most valuable assets of an organization. Different types of Insurance coverage are required by Nigerian statutes for employees and these include the following, some of which have earlier been mentioned:

1. The Group Life Insurance Cover (under the Pensions

Reforms Act, 2004): This Act requires every employer to maintain a life insurance policy for every employee in its service, to the extent of a minimum of 3 times the annual total emolument or pay of the said employee. Where an employee dies, his entitlements under S.9 of the Act are paid into his retirement savings account. 2. S.5(2) of the Act states that the Pension Fund Administrator shall apply the amount paid under S.5(1) in favour of the beneficiary under a will or the spouse and children or in the absence of a spouse and child to the recorded next-ofkin. In the face of this provision it is essential that employees endeavor to tidy their affairs and prepare a will to take care of their beneficiaries interests and welfare.

3. The Employees Compensation Scheme which is

administered under the Employees Compensation Act, 2010 (and earlier discussed here in detail) , is managed by the Nigeria Social Insurance Trust Fund (NSITF), in line with the Pensions Reform Act, 2004 and the NSITF Act, 1993 which empowers NSITF to manage all social security insurance schemes other than pension. 4. The National Health Insurance Scheme whose Act requires that an employer with a minimum of 10 employees must register them to contribute to the scheme. It is a policy prescribed by the government and must be followed by all employers that it applies to.

RISKS TO ASSETS AND EMPLOYEES

Risks to assets and the management of such risks relate to threats to property or assets and the assessment and management/amelioration of the said risks. Risks to the personnel or employees refer to threats to the person of the employee which may cause an eventuality of injury, disability, death etc. Identifying potential risks is an essential component of risk management, just as is assessing the extent and nature of the risks, the circumstances under which such risks may arise, their causes and contributing factors to the realization of other risks. In respect of most organizations most risks are generally related to workers compensation, assets and inventories, public liability and indemnities.

 Passing of risks involves both parties to the insurance contract. The following are some examples of insurable risks: Fire, Storm, damage and theft, money-in-transit, fidelity bond etc. An uninsurable risk on the other hand, is a risk where the potential for loss, is too high or where the insurance is considered illegal, criminal or prohibited by public policy e.g. a person, employee or personnel could be considered an uninsurable risk if his or her medical examination or other evidence suggests that the potential for loss is extremely high. If the medical evidence indicates that the patient/personnel/employee is terminally ill, a life insurance company will likely decide that the person is an uninsurable risk.

 Another example of an uninsurable risk is a waterfront property on some beach areas which have lately become prone to destructive, dangerous and unpredictable ocean surges. Owners of such properties in these locations are not very likely to successfully obtain home insurance cover for their properties for floods and other similar perils as the said properties may likely be regarded as uninsurable risks or at best high risk insurable if there is any such terminology.

 Additionally, insurance companies do not cover illegal acts or activities, which are prohibited by public policy e.g Insurance companies do not issue policies covering losses related to illegal drug manufacturing business, robbery or piracy adventures.

CLAIMS
An insurance claim is a beneficial interest in an insurance policy or cover. A claim or loss handling is the materialized utility of insurance, in the sense that it is the actual product paid for by the insured. A claim may be filed directly by the insured with the insurer or through brokers or agents. When a claim is filed by or on behalf of an insured, an insurance Loss Adjuster, employed by the insurer, along with a staff of record management and data entry clerks, undertakes an investigation of the claim, in close cooperation with the insured, to determine if coverage is available, under the terms of the insurance contract and if so, the reasonable monetary value of the claim, after which he , the adjuster, authorizes payment to the insured.

CONCLUSION
The practice of modern day insurance business in Nigeria since its inception in 1918 and the enactment in 1961 of the first insurance regulatory statute, the Insurance Companies Act, has grown in leaps and bounds. The supervisory body of insurance in Nigeria the National Insurance Commission (NAICOM), supported by other ancillary agencies in the sector, has been unrelenting in its continued advocacy and its bid at continuous reinvigoration of the sector through advocacy for statutory backing for necessary, compulsory insurance policies covering properties, assets and persons, in addition to efforts at strengthening the sector through recapitalization of the companies, training of personnel, proactive conceptualization and implementation of annual guidelines

Which have helped in no small way in improving transparency and accountability in operations, corporate governance, reduction in malpractices, as well as broadening the capacity and scope of the insurances practice in Nigeria and strengthening operational standards in general. Insurance practice in Nigeria still has huge untapped potentials. The culture of apathy towards insurance by business owners, private individuals and a large percentage of the populace, in terms of insuring their businesses, persons and/or assets does not augur well for either side, in view of the huge impact of unquantifiable losses suffered almost daily (especially in these days of extreme insecurity and strife, environmental

hazards, social breakdown etc.). These tell a an unfortunate tale of an under-insured, underprotected populace, content to live with fear of the unknown and leave their fate to the whims and caprices of unreliable risks, ups and downs of daily life, occupational and business pursuits. It is hoped that a culture of awareness of the benefits of adequate insurance for all aspects of life and endeavor will be imbibed and utilized by all Nigerian entities in order to gain the benefits and protection it offers.