MANAGEMENT AND INVESTMENT OF NON-LIFE INSURANCE FUND IN NIGERIAN INSURANCE INDUSTRY
1.1 BACKGROUND OF THE STUDY
As the clamour for Nigerians to become more insurance managers and investors to increase productivity in the industry, there comes the need for effective management and investment of non-life insurance fund. Funds from (motor insurance, property insurance, marine and aviation, goods-on-transit fire insurance etc.) for efficiency of insurance business in the country.
The new economic order in the country has done more harm than good in the insurance industry. These orders (austerity measures, economic stabilization scheme and structural adjustment programs and also government regulations) have made insurance managers and investors to invest where they should not invest. This leads to decline in economic development.
A faster rate of economic growth and development can occur if less developed countries (like Nigeria) can increase their rate of investment and therefore the rate of industrializations.
The efficient management of these funds will optimize investment. The evolution of funds and efficient management of their funds enhances optimal investment decision.
Government regulations in the insurance industry did not give room for the management to direct funds where they will yield higher interest, knowing fully well that insurance companies accumulate huge sums of money on behalf of their shareholders and policy holders. It is expected that every prudent company should employ fund in the most useful and competent manner, taking into consideration the high probability of drawing the fund to settle claims.
Due to the regulations, insurance companies investment policies were based on the security of capital. For this reasons, small portion of fund were held in really convertible securities, while much large funds were invested in securities, which were not readily convertible. This posture accounted for what may be described as the static approach by insurance companies in the investment of their funds as these were largely in government stock and treasury investment.
Insurance practice in Nigeria is based on foreign model especially the British. The type of insurance business that exist today does not exist before the arrival of the British rather what exist was traditional insurance, such as age grade association and clan unions. These groups acted as mutual insurance societies to the members.
Insurance business was already introduced by 1950 in Europe. The modern insurance was introduced into Nigeria by the British. Hence the theory and practice of insurance in Nigeria followed the British pattern. Until 1960, there was no wholly indigenous insurance company in Nigeria, the business of insurance was controlled by branch offices of European insurance companies will headquarters in Europe. In 1921, Royal exchange insurance opened its branch office in Nigeria. In 1949, three other companies were registered. The Norwish union five insurance society (now functioning as a part of Guinea insurance company limited), the Tobacco insurance company limited and the legal and General Assurance society limited.
This show that during the colonial era many foreign insurance companies established branch offices in Nigeria. These offices later developed into big companies of their own.
As the insurance concept has grown so has the amount of money needed to pay out claims, and to do these successfully, there comes the need for effective management and investment of non-life insurance funds for profitability within a healthy economic environment forms the bane of the study.
1.2 STATEMENT OF PROBLEMS
The patterns of management and investment of non-life insurance fund as its primary problems are highlighted. The problem associated with management and investment of non-life insurance fund can be classified as follows:
- The effect of inflation on the investment of non-life insurance fund.
- Mismanagement of non-life insurance fund.
- Government regulated on investment
- Unqualified personnel in the industry.
As it is generally accepted that insurance companies are trustee for the policy holders’ funds, government is therefore naturally concerned about these funds and some efforts are being made to control the investment behaviours of the insurance companies in order to protect policy holders interest and entrusted to them.
Besides, the problem on the effect of inflation on the investment of non-life insurance fund should be carefully examined. Also the problem of government regulation on the funds should also be looked into in order to achieve the insurance companies objectives.
1.3 OBJECTIVES OF THE STUDY
The purpose of this study is to attempt at providing a valuable information on the effective management and investment of non-life insurance funds.
Therefore, deriving from this broad purpose of this study, the following objective can be subsumed.
- To examine the possibility of diversifying investment to other high yielding areas or ventures other than government securities.
- To examine the various methods of investing non-life insurance fund.
- To identify the factors responsible for low investment yields of non-life funds and factors affecting poor management of the fund.
- To determine the problems encountered in the management and investment of the funds.
- Torecommend solutions for the effective and efficient investment and management of non-life insurance fund.
1.4 SIGNIFICANCE OF THE STUDY
The significance has to highlight on how decide on the management and investment objectives as well as determining means to achieve it.
These goods may be set by the Board of Directors on management or left to the managers within certain guideline to determine.
To know how much the company has been expanded on each type of investment, the returns realized, the spread of investment and how to manage the funds realized from non-life businesses.
This study stresses the importance of insurance companies to have investment department with investment manager to manage the non-life insurance fund.
It is also intend to enlighten the insurance companies on the need to calculated the effect of inflation when deciding where to invest.
Finally, by the end of this study, the public in general will be aware of the importance of insurance in development of the economy.
1.5 SCOPE AND LIMITATION OF THE STUDY
Research work carried out in under-developed country like Nigeria is difficult. Institution and instrument and under-developed co-operation is inefficient and virtually every sector of the economy is still in its developing stage. The data base in this country is very weak. This is because current and reliable data does not exist and procedures involved in collecting the existing ones are frustrating.
Most secondary data available are outdated. Most officials in a position to lend co-operation are reluctant to do so. The very few officials who agree to lend co-operation by granting interviews would place a condition that neither their names nor their companies’ name will be associated with the deductions from the study.
Again, finding a research of this kind solely from the little allowance given by any parents is inadequate especially at this time when inflationary trend is becoming unbearable.
This research work is limited due to some time constraint. For this reasons the researcher concentrated with few insurance companies with headquarters at Enugu, with particular reference to universal insurance company Plc.
1.6 RESEARCH QUESTIONS
Among the questions to be answered in a research work include.
- What are the various methods of investing non-life insurance funds?
- What are the factors responsible for low invest-yield of non-life funds and factors affecting poor management of the funds?
- How can the problem encountered in the management and investment of the fund be determined?
- What are the solution for the effective and efficient investment and management of non-life insurance fund?
1.7 DEFINITION OF TERMS
- Claims – A request of payment of compensation. A right to demand assistance
- Laissez-faize – the philosophy or practice of avoiding planning especially in economic affairs (carefree)
- Perils – Risk of serious injuries, destruction, disaster, etc.
- Hull – means boat or ship.
- Cargo – means the merchandise curial
- Freight – Relates to cost of aeroplane.
- Act only – This derives from the Road Traffic Act of 1945, which became operative in 1950. This stipulates legal liability for death of injury to any person arising from the use of motor vehicle.
- Third party liability only – stipulates in addition to the Act only, legal liability for damages to the third party property.
- Aviation – to relates to various types of aircraft aeroplanes, guides, helicopters, etc.
- Marine – Insurance hat concern with sea.
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