THE VALUE OF COMPULSORY INSURANCE - MARKETING COMMUNICATION AWAY FROM INDUSTRY INCOME/REVENUE TO PURPOSE AND VALUE PROPOSITION

Insurance and You…why compulsory?

Individual Wealth and the Value of Insurance

Everyman lives in expectation of the basic necessities of life – food, shelter, clothing, education and health. It is considered that anyone unable to meet any of these basic needs is in poverty/penury. The levels at which these needs are met depend on the earnings power and/disposable income of the individual. Therefore, what is important is that earnings power and disposable income is protected by purchasing financial asset that can secure these and also grant income post life of the earner of the income or financial asset holder. Why? Because life is uncertain and even that which is certain to happen, like death, is uncertainty as to time. We live in a world that continually changes and the future is not something that we know and whatever risks we anticipate may actually not materialize, or if it does, may not have disastrous impact depending on the time and stage of occurrence relative to income or acquired assets. The wise among us, therefore, accepts the risks and uncertainty in the future and strive to hedge their bets with practical protections. One of such practical protection is insurance, which itself evolved with society out of self-help. First, and in rural settlements, was mutual aid, then came the storehouse for grains, then came redistribution of resources, then came group/society loss sharing/spreading, then came guilds and societies of helpers, then came independent sale of promissory notes against uncertain future losses which eventually evolved as modern-day insurance contracts but sharing all the traditional attributes of other methods of warding off financial ruin – plurality, loss spread, promise and reserving for an uncertain future. In short, society found ways to cope with the outcome of losses, but only to the extent of physical ability and wherewithal.

Apart from directly securing one’s financial wellbeing due to uncertainties in the future, social interaction itself creates the uncertain risk of losing one’s financial wellbeing due to losses from our wrongful actions or inaction to one another.?Society deals with this under the rules of the social contract, which demands that the injurer must make amends either by delivering some compensation to the injured or be subject to group vengeance performed by an institution set up to try, hear and rule on matters that have been specifically defined as “crimes”, which, if not avenged by the group, may tear the fabric of society and foster chaos. Where compensation is required, such compensation may be effectively denied because of the uncertainty in the financial circumstances of the 'injurer' (whom, if of modest means, may also be left completely out of pocket after paying the compensation); equally the injured victim may also eventually become out of pocket in the event that his/her own funds have to be depended upon for restoration because of paltry compensation or in the absence of any compensation from an impecunious 'injurer'. It is for reasons of possible penury of the potential injurer or injured that some societies have deemed that those who operate businesses or assets or equipment that may cause harm must have some form of 'victim insurance" by making common third-party liability insurance compulsory, thus increasing the commonwealth of the nation by de-risking and sustaining individual wealth for the good of all. This way, insurance provides an intrinsic social welfare value, which governments, in different parts of the world, adopt. Apart from guaranteeing compensation, insurers also step into an institutional role of enforcing the duty of care that a person owes another by regulating, under contractual promise to pay, everyday interactive activities – driving, manufacturing, servicing and general communal living in order to promote the financial wellbeing of the citizenry.?????

Sustaining the Commonwealth by Compulsory Insurance

There are several ways by which compulsory insurances come about. As most people do not have enough information to decipher personal need for insurance, government may decide to provide insurance under a social security system, thus charging the populace in form of taxes, levies or contributions in order to pay a predetermined level of benefits to victims of loss whether through ownership of property, under contract of service or by simply being in the wrong place or the right place at the wrong time. In order to avoid the bureaucratic inefficiencies of state sponsored social security system, government may decide to allow private enterprise to be the provider of insurance under contract, which must be compulsorily purchased by individuals or a group for individuals from a company or from a mutual society. In Nigeria, compulsory insurances are purchased from private insurance companies, with the exception of the new Employee Compensation Act 2010, which intends to operate as a government sponsored contributory compensation scheme.

Compulsory Insurance Policies

The five compulsory/mandatory insurances under the law are:

A. Motoring Legal Liability under the Motor Vehicle (Third Party Insurance) Act 1945 (the foremost compulsory insurance legislation in Nigeria);

B. Group Life (Workers Life) Insurance in line with the Pension Reform Act 2004

C. Building Construction Insurance under Section 64 of the Insurance Act 2003

D. Occupiers Liability Insurance under Section 65 of the Insurance Act 2003

E. Motor Third Party Property Insurance under Section 68 of the Insurance Act 2003

F. Health Care Professional Indemnity Insurance under Section 45 of the National Health Insurance Scheme Act 1999

What is immediately apparent is that all these insurances seek to create a healthy socio-economic environment and underscores why government, in its wisdom, insists that they are made compulsory so that victims and persons concerned are protected against unexpected damage or loss from daily risks of human endeavour and human interaction.

As espoused by the great author and philosopher, Adams Smith, in his book “An Inquiry into the Nature and Causes of the Wealth of Nations”, individuals' roles and contribution to economic development is necessary?in achieving and sustaining a strong and vibrant socio-political economic system. To quote: “political economy, considered a branch of the science of a statesman or legislator, proposes two distinct objects; first, to provide plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.”

Thus, it is in the interest of Government to ensure that the asset value that each individual contributes be protected in order to sustain and build upon the commonwealth. As such, insurance contracts must be seen as “near money” in the hands of those who have purchased it. Any insurance policy equates to future money on conditional credit basis for potential losses/liabilities incurred by individuals in the normal course of business or human interaction.

The insurance industry in providing various risk purchasing services offer a risk market which engages in risk and fund management services whereby the benefit is not just to an individual in terms of monetary protection, but also to the economy at large by contribution to the country’s gross domestic product (GDP), and, concomitantly, improving its national income.

As noted by the Commissioner for Insurance, Mr. Fola Daniel, compulsory insurances, if fully implemented, is capable of increasing the country’s premium income to over a trillion Naira in the current year and N6 trillion by 2020. The impact of this is that the industry as mobiliser of long-term investible funds would be in better position to support other sectors of the economy, starting from development of the nation’s infrastructures, which are in dire need of long-term patient capital.

Given the pivotal role of insurance to the economy, the National Insurance Commission under its Market Development and Restructuring Initiative (MDRI) foresees immediate increase in employment by the creation of over 250,000 insurance agency jobs in marketing of compulsory insurance products and services?as part of the vision to increase insurance market penetration from just about 6% to a higher level of 30%.

Unlike discretionary insurances, compulsory insurances are backed by law and so are enforceable, thus creating immediate market demand and a ready market supply. However, the challenge of enforcement remains all over the federation and the insurance commission intends to collaborate with other state apparatuses to increase the level of enforcement and also with the insurance industry to increase the level of awareness as the paucity of insurance information has opened opportunities for fake insurers to offer insurance services in the name of genuine insurers. The danger of this illicit market is that unsuspecting public find themselves without financial protection in the event of any loss or liability, which in turn creates bad image and loss of confidence in the industry as a whole.

With a lot of resources and effort already channelled towards public enlightenment by NAICOM and industry operators, it is expected that consumers will embrace these insurances. It is also important to note that genuine insurance is obtainable only from NAICOM registered and licensed insurance companies. According to the Insurance Commissioner, a new regulatory regime on insurance would positively affect the citizens and corporate bodies and the commission would not fail to invoke the sanctions of fines and prison terms against any individual or organisation that fails to comply with the laws of the nation on compulsory insurance. The Commissioner further said that a lot of education and enlightenment would go on to sensitise the general public on the concepts of insurance so that consumers are not caught in ignorance when accosted by law?enforcement agencies such as the Police, the Federal Road Safety Officers, Fire Services officers and other enforcement taskforces that have now become more informed about insurance certification.