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SS2 Commerce Lesson Note on Insurance

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TOPIC: INSURANCE

CONTENT: (a) Definition of insurance.

(b) History of insurance

(c) Basic principle of insurance

Sub-topic 1: Definition of insurance

Insurance can be defined as a method of protecting a person, a business or some other form of organization against financial loss resulting from damage to theft of personal and business assets(general insurance) and against injury and death(accident and life insurance)

Insurance can also be defined as a legal contract in which one party undertakes to indemnify another party against damage, loss or liability, resulting from the occurrence of uncontrollable events. It is one of the aids to trade that relieves businesses of some risk of being in business and releases capital in case of emergency.

There are man-made risks and natural risks. Some risks are insurable while others are not insurable. Insurance works on the principle of pooling risks. The premium (contributions) of many clients is pooled together and the losses of few clients are compensated from the pool.

Difference between insurance and assurance: At one time ‘insurance’ and ‘assurance’ had different meaning but today this difference is less important but the word ‘assurance’ is still often used in relation to life policies. Insurance is used in terms of risk that might or might not happen, while assurance is concerned with events that are inevitable

Evaluation

1a. Define the term insurance

1b. Why is insurance said to be ‘an aid to trade’?

Sub- topic 2 History of insurance

Insurance started formally in Nigeria in 1921 but before then, there existed in many communities within Nigeria some form of organised social aid insurance scheme like extended family systems, age-grade group and cultural affiliations. These groups collectively pooled fund together from members and gave to the members who were in need especially those who lost a family member or property. These social clubs still exist today. However, in 1921, insurance started in Nigeria as a formal business when a branch of the Royal Exchange Assurance Company Limited was opened. In 1949, three other British owned insurance companies started operation in Nigeria. At independence the number of operating insurance companies in Nigeria increased to 25. They became 88 by 1984.In 2005, government decided to consolidate the insurance industry by imposing recapitalization on the insurance company operating in Nigeria. Prior to the to the recapitalization plan, Nigeria had 105 insurance companies but after the recapitalization in 2007, the number dropped to 71.

The first major step of Nigeria in regulating the activities of insurance business was after the report of J.C. Obande Commission of 1961.The report brought about the establishment of the Department of Insurance in the Federal Ministry of Trade but later transferred to the Ministry of Finance. The report also led to the enactment of the insurance Act of 1961, which came into effect on May 4^th 1967.In 1968, the Insurance Company Regulations were put in place to facilitate the implementation of Act No 58 of 1961.

The first all embracing law for the regulation and supervision of insurance in Nigeria was the Insurance Decree No 59 of 1976.Decree No 58 of 1991 improved on the provision of Decree No58 of 1979 and No 40 of 1988.In 1992, the Insurance Special Supervision Fund Decree No 62 was enacted, establishing a body known as National Insurance Supervisory Board, bringing out insurance supervision from core civil service supervision. The name of the Insurance Supervisory Board was changed to National Insurance Commission when Decree No 1 and 2 of 1997 was enacted.

EVALUATION