INSURANCE OF ASSETS AND PERSONNEL - LEGAL AND STATUTORY FRAMEWORK

7/30/2019 INSURANCE OF ASSETS AND PERSONNEL - LEGAL AND STATUTORY FRAMEWORK

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INDUSTRIAL TRAINING FUND

ISOLO AREA OFFICEMARINE AND SEAPORT SAFETY & SECURITY COURSE FOR

STAFF OF NIMASA26TH 30TH AUGUST 2012

LECTURE NOTES

ON

INSURANCE OF ASSETS AND PERSONNEL

LEGAL/STATUTORY FRAMEWORKBY

CHINEDU C. OKPALEKE

MANAGING CONSULTANT

PORRES + REGISLEGAL PRACTITIONERS, MEDIATORS & DEVELOPMENT LAW

CONSULTANTS;

74 ADENIYI JONES AVENUE,

IKEJA, LAGOS.

email: [email protected]
mailto:[email protected]:[email protected]


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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 anarrangement is also known as Insurance.

Technical Definition: Insurance is a form of Risk Management, primarily used tohedge or secure against the risk of a contingent, uncertain loss. It can be furtherdefined 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, oneparty undertakes to compensate to the other for loss relating to a particularsubject as a result of the occurrence of designated hazards.

The normal day to day business activities often carry the risk of enormousfinancial loss, injury, damage, loss of property or even death. Many persons aretherefore often willing to pay a small sum for protection or security against suchrisks in the form of insurance. When the insurance takes the form of a contract inan Insurance Policy, it is subject to requirements in statutes, regulations fromrelevant Administrative Agencies and sometimes court decisions and precedents.


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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.


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BRIEF HISTORY OF INSURANCE

In the modern sense (i.e. in the modern day economy), the Chinese andthe Babylonian traders from as long ago as the 3rd and 2nd Millennia BC,practiced some early methods of distributing risk whereby Chinesemerchants travelling treacherous river rapids, would re-distribute theirwares across many vessels to limit the loss, in the event of any singlevessels capsizing.

The Babylonians developed a system which was recorded in the famousCode of Hammurabi in the 1750 BC and practiced by early Mediterraneansailing merchants whereby, if a merchant received a loan to fund hisshipment, he would pay the lender an additional sum in exchange for thelenders guarantee to cancel the loan should the shipment be stolen orlost at sea.

Arhaemenian monarchs of Ancient Persia (modern day territories of Iran,Turkey, Central Asia, Pakistan, Iraq, Libya etc) were the first to insure theirpeople and they made it official by registering the insurance process ingovernment notary offices.


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The first examples of insurance related to MARINE activities. Inmany ancient societies, merchants and traders pledged their shipsand cargo as security for loans.

In post-medieval England, local groups of working people bandedtogether to create friendly societies, fore-runners of the modern

Insurance companies. Members of friendly societies made regularcontributions to a common fund which was to pay losses sufferedby members.

However, without a system to anticipate risks and potentialliabilities, many of the first friendly societies were unable to payclaims and many eventually. Thereafter, insurance came to be seen

as a matter best handled by a company in the business of providinginsurance.

Consequent to this, insurance companies began to operate forprofit in England in the 17th Century.


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The first insurance company in the

United States under-wrote a fire

insurance and was formed in CharlesTown (Charleston, South Carolina) in

1732.


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Origin & History of Insurance in Nigeria

Modern day insurance in Nigeria evolved from Nigeriasclose colonial ties with Britain. Before the introduction ofthe modern form of Insurance however, there alreadyexisted some rudimentary form of social insurance in the

Nigerian pre-colonial society. This was practiced throughthe existing extended family system, social groups suchas age grades, town/village unions etc. and helped intaking care of one another & keeping each member

secure. The Nigerian modern insurance practice has its origin

interwoven with the advent of the British tradingcompanies and increased international trade.


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With the increase in trade and commerce within WestAfrica and between the two nations, shipping andbanking activities equally increased and there arose aneed for some of these foreign companies to manage

or secure some of these risks locally.

These trading companies applied for and were grantedinsurance agency licenses by foreign insurancecompanies.

With these agency licenses, such firms were then ableto issue insurance covers and assist in claimssupervision.


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The first of these insurance agencies, the Royal Exchange AssuranceAgency, was licensed and came into being in 1918, through the efforts ofthe 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 CompanyLtd was established in 1958.

Formal Regulation of insurance in Nigeria first commenced in 1961, withthe enactment of the Insurance Companies Act sequel to the ObadanCommission. The Act created the office of the Registrar of Insurance.

By Nigerias independence in 1960, only 4 (four) out of the then existing25 (twenty five) insurance companies were indigenous, but by 1976, thenumber of indigenous companies in Nigeria had far exceeded that of theforeign companies, as out of the 70 (seventy) companies in existence,only 14 (fourteen) were foreign owned. 10 (ten) were owned by severalstate governments while 46 (forty six) were owned by private/corporateindigenes.


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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 covertypes/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:


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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 againstrisks 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.


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COMPULSORY INSURANCE POLICIES IN NIGERIA

The National Insurance Commission which is thesupervisory body for insurance companies andpractitioners in Nigeria, pursuant to the NigerianInsurance Act 2004 and in furtherance of its effortsat reinvigorating insurance use, practice andregulations, recently commenced implementationof statutorily compulsory insurance policies in thecountry.

In furtherance to this, the following are thecategories/types of insurance cover, which are,under the statutes, compulsory in Nigeria:


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(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.


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(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: Thisis compulsorily required for all healthcare

professionals, by S.45 of the National Health

Insurance Act,1999.


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(A Few Details)

Under the Employees Compensation Insurancescheme, every employer is required within the first 2years of the commencement of the Employees

Compensation Act, to make a minimum monthlycontribution of 1% of the employers totalemployees monthly payroll, to the EmployeesCompensation Fund. This Fund is created to payadequate compensation to employees or their

dependants for any injury, disease or disabilityarising from or in the course of the employees

employment.


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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.


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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 oflife or damage to property.


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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 forthe coverage of a risk on property or asset insured. The amount of insurancepremium charged is usually calculated in the underwriting department of aninsurance company, using statistics and mathematical calculations whichdetermine 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 isworth 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 cansubstitute in the market. But in some cases, the personal value can bemuch higher than the market value, especially for those assets to which

the owner attaches unique attributes often sentimental in nature. These sortof assets could be termed as irreplaceable


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An example is could be an artwork purchased for =N=20,000.00last year. Yet many people who bought an original similar work ofthe same artist say 10 years ago in 2002, would most likely notwant 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 insureirreplaceable assets against loss, damage or any other peril.

The insured amount of such worthy assets would not be basedsolely on their market value, but also on their higher, personalvalue, their value as new, their manual value and future lifeexpectancy etc.

In calculating the amount an insurance company needs to collectto offset a potential claim (i.e. the pure premium rate ),


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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 andother peculiarities which may be relevant etc.


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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 andinclude 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 agenciesor in the formal and informal sectors of the

economy.


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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 ofspeaking, the most valuable assets of an

organization.

Different types of Insurance coverage are required

by Nigerian statutes for employees and theseinclude the following, some of which have earlier

been mentioned:


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1. The Group Life Insurance Cover (under the PensionsReforms Act, 2004): This Act requires every employer tomaintain a life insurance policy for every employee in itsservice, to the extent of a minimum of 3 times the annualtotal emolument or pay of the said employee. Where an

employee dies, his entitlements under S.9 of the Act arepaid into his retirement savings account.

2. S.5(2) of the Act states that the Pension Fund Administratorshall apply the amount paid under S.5(1) in favour of thebeneficiary under a will or the spouse and children or in

the absence of a spouse and child to the recorded next-of-kin. In the face of this provision it is essential thatemployees endeavor to tidy their affairs and prepare a willto take care of their beneficiaries interests and welfare.


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3. The Employees Compensation Scheme which isadministered under the Employees Compensation Act,2010 (and earlier discussed here in detail) , is managedby the Nigeria Social Insurance Trust Fund (NSITF), in

line with the Pensions Reform Act, 2004 and the NSITFAct, 1993 which empowers NSITF to manage all socialsecurity insurance schemes other than pension.

4. The National Health Insurance Scheme whose Act

requires that an employer with a minimum of 10employees must register them to contribute to thescheme. It is a policy prescribed by the government andmust be followed by all employers that it applies to.


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RISKS TO ASSETS AND EMPLOYEES

Risks to assets and the management of such risks relate tothreats to property or assets and the assessment andmanagement/amelioration of the said risks.

Risks to the personnel or employees refer to threats to theperson 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 ofthe risks, the circumstances under which such risks mayarise, 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.


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Passing of risks involves both parties to the insurancecontract.

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 thepotential for loss, is too high or where the insurance isconsidered illegal, criminal or prohibited by public policy e.g. aperson, employee or personnel could be considered anuninsurable risk if his or her medical examination or otherevidence suggests that the potential for loss is extremely high.

If the medical evidence indicates that thepatient/personnel/employee is terminally ill, a life insurancecompany will likely decide that the person is an uninsurablerisk.


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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 suchproperties 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 uninsurablerisks or at best high risk insurable if there is any

such terminology.


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Additionally, insurance companies do not

cover illegal acts or activities, which are

prohibited by public policy e.g Insurance

companies do not issue policies coveringlosses related to illegal drug manufacturing

business, robbery or piracy adventures.


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CLAIMS

An insurance claim is a beneficial interest in an insurance policy orcover.

A claim or loss handling is the materialized utility of insurance, inthe 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 ofrecord management and data entry clerks, undertakes aninvestigation 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 theclaim, after which he , the adjuster, authorizes payment to theinsured.


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CONCLUSION

The practice of modern day insurance business in Nigeriasince its inception in 1918 and the enactment in 1961 ofthe first insurance regulatory statute, the InsuranceCompanies Act, has grown in leaps and bounds.

The supervisory body of insurance in Nigeria the NationalInsurance Commission (NAICOM), supported by otherancillary agencies in the sector, has been unrelenting in itscontinued advocacy and its bid at continuous reinvigorationof the sector through advocacy for statutory backing fornecessary, compulsory insurance policies covering

properties, assets and persons, in addition to efforts atstrengthening the sector through recapitalization of thecompanies, training of personnel, proactiveconceptualization and implementation of annual guidelines


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Which have helped in no small way in improvingtransparency and accountability in operations, corporategovernance, reduction in malpractices, as well asbroadening the capacity and scope of the insurancespractice in Nigeria and strengthening operational

standards in general. Insurance practice in Nigeria still has huge untapped

potentials. The culture of apathy towards insurance bybusiness owners, private individuals and a largepercentage of the populace, in terms of insuring their

businesses, persons and/or assets does not augur well foreither side, in view of the huge impact of unquantifiablelosses suffered almost daily (especially in these days ofextreme insecurity and strife, environmental


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hazards, social breakdown etc.). These tell a anunfortunate tale of an under-insured, under-protected populace, content to live with fear ofthe unknown and leave their fate to the whims

and caprices of unreliable risks, ups and downsof daily life, occupational and business pursuits.

It is hoped that a culture of awareness of thebenefits of adequate insurance for all aspects of

life and endeavor will be imbibed and utilized byall Nigerian entities in order to gain the benefitsand protection it offers.

INSURANCE OF ASSETS AND PERSONNEL - LEGAL AND STATUTORY FRAMEWORK

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