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Published On: Wed, Dec 2nd, 2015

How insurance can reduce government’s financial burden in disasters

Developing insurance culture in Nigeria will not only save Nigerians from huge losses as a result of fire outbreaks and other mishaps but will also reduce the burden such development places on government by way of providing palliatives.

This is the position of operators in the Nigerian insurance sector in the light of wanton loss of lives and property the country is witnessing frequently, with the Nigerian economy being the ultimate loser as a large majority of the victims do not have insurance cover.

Industry chieftains who spoke to Business Hallmark lamented these losses, but regretted that the people are not taking advantage of the compulsory insurance policy to protect themselves against fire out-break and unexpected risks.

According to the risk managers, every outbreak of fire poses serious threat to the national economy, as it causes enormous material damage, injury to persons, disruption of economic and commercial activities of the people affected.

Industry chieftains believe the way forward is for Nigerians to buy insurance policy and transfer this burden to the insurers, who are the professional risk bearers. This, they say, would surely ease the burden of government in mitigating these losses, since insurance is a social device providing financial compensation to cushion the effect of unexpected misfortune, adding that where adequate fire insurance policy exists, property destroyed by fire can be reinstated with minimum delay.

President of Association of Registered Insurance Agents of Nigeria (ARIAN), Mr. Gbadebo Olamerun, who described insurance as the back door to wastages which cuts across all sectors of the economy noted that the various amounts of money given to victims of Iyana Ipaja and Idimu market fire outbreaks by the Lagos State government in July this year was unnecessary if those victims were insured.

“His Excellency, the governor of Lagos State of recent started giving all N100, 000, N150, 000, N500,000 to the victims of the Iyana Ipaja and Idimu market fire disasters,” he said.

“It was a very juicy package that he did but it was unnecessary if those houses, if those persons were insured the state government should have been left aside. So it’s an additional burden that is being placed on the state government. In fact, it is an unnecessary additional burden.”

On his part, president of the Nigerian Council of Registered Insurance Brokers (NCRIB), Ayodapo Shoderu, said, “The continuous loses of merchandise and properties in many commodity markets in the country to fire disasters, is a serious concern since such loses could be better prevented and mitigated if the victims had embraced insurance.”

According to him, the market fire had deprived means of livelihood and survival to several market men and women who expectedly were breadwinners of their families. “The NCRIB is pained by the loss and we seize this opportunity to underscore the need for adequate preventive measures against fire disasters”.

Shoderu said, “This is why the economy is not growing. Insurance is the last hope of any human kind. If a loss occurs and insurance has been purchased, it puts the individual in better stead as if no loss was incurred. But where no insurance has been purchased, it causes a reduction to wealth by the amount of value of those insurable assets.”

The Group Managing Director, Mutual Benefits Assurance Plc, Akin Ogunbiyi, in his remark said that compliance with the compulsory insurance products had over the years represented both opportunities and challenges to the entire insurance industry in Nigeria.

According to him, a large percentage of Nigerians are not aware of these insurances, the advantage and benefits that they will get from insuring their property.

He said, “What we need to do as an industry is to come up with products and services that will meet the needs of 170 million Nigerians. Besides, we need to take awareness campaign to the nooks and crannies of this country, the rural people need insurance and they will be ready to buy insurance to protect their lives and property.”

The Managing Director/CEO, Staco Insurance Plc, Sakiru Oyefeso, sympathized with victims of fire outbreaks in the country, but lamented that many of these properties gutted by fire, wind storm, flood, etc do not buy insurance to protect themselves. He attributed it to lack of awareness and general apathy for insurance generally.

According to him, any country that really wants to develop and grow must take insurance business seriously because it is the engine room for any economic progress.

He said, “What we need to do as an industry is to intensify awareness campaign in all the state governments, local government areas, the small scale businesses, market men and women to sensitize them on the existence of these compulsory insurances, the advantages and benefits to their businesses.

Insurers/traders conflict:

While the insurers are insisting that the traders have consistently refused to embrace insurance as a reliable risk transfer mechanism, the traders are accusing insurers of inserting frivolous clauses into insurance contracts which have made it entirely impossible for them to insure their businesses.

According to the Coalition of Markets and Traders Association in Lagos (CMTAL), the unwillingness of insurance firms to remove such clauses that prevent them from insuring is a major factor why losses incurred from fire disasters are always massive.

Chairman of the Association of Igbo in Commerce (AIC), a part of CMTAL, Mr. Nnamdi Nwigwe, said that the major reason why it appears that traders refuse insurance as a risk transfer mechanism is due to the fact that such clauses have not been favourable to traders.

Nwigwe said, “Some things which insurance companies demand that we put in place are beyond us, rather these are things which the government should provide for the people. For instance, some insurance companies require a fire service station to be located in the market before they can insure our businesses, but such things are things that only the government can provide.

“The fact that traders are not insuring is partly the fault of insurers and the government because some facilities that should have been provided by government so that insurance can come in are not there. So where such facilities are lacking, insurers have abandoned us to our fate rather than designing products that will suit our peculiar needs.”

Reacting to the position of the traders, Managing Director of Linkage Assurance Plc and Chairman of Nigerian Insurers Association, NIA, Mr. Godwin Wiggle, said that market traders jettisoned insurance by refusing to pay premium because they see the premium as too expensive.

Wiggle said, “The market traders have refused to pay premium because they say that the premium is too expensive. But if you compare what they lost to the Balogun inferno, it is no way near what they would have paid as premium if they had insured their businesses. The traders should know that what they lost as a result of the inferno is also a huge loss to the economy. So it will be better for them to embrace insurance going forward.”

Statistics from the Lagos State Fire and Safety Services show that in 2013, a total of 1,774 fire outbreaks occurred. The fire service acknowledged there were massive losses to fire in the year, claiming the losses were difficult to quantify.

In 2014, the value of goods lost to fire in the state was put at N14.99 billion in about 1,499 fire cases recorded between January and November.

Except accurate measures are put in place, there are indications that more losses are likely to occur in 2015 going by the number of fire outbreaks already recorded in the state.

Among the affected areas are the Balogun Market on Lagos Island, Oko Baba Sawmill in Ebute Meta and of course the more recent cases at Iyana Ipaja and Idimu in which victims are still counting their losses despite the relief from the state government.

Government’s position:

Early this year, immediate past minister of finance, Dr Ngozi Okonjo-Iweala, advised Nigerians at all levels to embrace insurance and not to see money paid as insurance premium as a waste.

According to her, the primary role of insurance is to restore the policyholder back to business whenever the risk insured crystallises. On relevance of insurance to business men and women, the minister said: “In fact, insurance is the confidence entrepreneurs need to embark on any significant venture. Natural catastrophes affect all sectors of business, both directly and indirectly. Disasters can cause operational and supply chain disruptions through the physical damage to property and/or loss of critical resources and infrastructure, which can cripple an entire operation.”

She expressed regret that despite this all important nature of insurance, some people have negative thought about insurance.

“Yet, there is this erroneous belief by some entrepreneurs that perceive insurance as a cost. This, indeed, is an error. In reality, insurance is probably one of the biggest value additions to any business. We have experienced devastating events such as natural disasters without any prior warning. Insurance is the only effective mechanism to minimise the loss caused by these unforeseen events, which in some instances can mean saving an entity from having to close shop.”

Continuing, she said: “There had been incidences in the country of fire disasters, collapsed buildings, flooding and storms and fatal accidents. Without insurance cover for these losses, individual is immediately reduced to poverty while victims are left without compensations. The recent flood disasters in the country washed off so many homes and businesses including fish ponds’’, she stated.

Also in February, former governor of Lagos State, Mr. Babatunde Fashola, urged traders to embrace the practice of insuring their investments and properties against such unforeseen incidents. Fashola, who stressed the value of insurance in business and daily life, said apart from taking simple safety measures like not storing inflammable materials in business premises and in homes, it was also important that citizens embraced the practice of insuring their goods and properties against unforeseen disasters.

Recalling that he had on some occasions appealed to the leadership of the various traders’ unions to meet and educate their members on the value of insurance, Fashola pointed out that since the premium for such insurance are often meagre, the traders should be able to afford it.

While pledging to work with the unions to help create such insurance, if necessary, in partnership with some of the insurance companies, Fashola said some of the companies offer special packages that address the levels of people who do not have big businesses, but need to secure their investments without necessarily dipping, in any significant way, into their profits.

He appealed to insurance companies to increase their insurance awareness campaign to market places and carve out a special product for market men and women against fire outbreak.

“I think it is good also for that sub-sector of the financial industry to revitalise the insurance business if there is this kind of demand. This will also create employment in that sector of the economy other than banking.

“I hope that they will reclaim their lost presence if that is the right word and I know that about 18 years ago or so, there used to be insurance brokers coming into the office to come and sell endowment, life policies and all of that,” he noted.

On its part the National Emergency Management Agency (NEMA) asked the Federal Government to enact a law that would compel Nigerian traders to insure their goods against disasters.

South East Zonal Director of the agency, Major James Eze, said that the compulsory insurance policy for traders would reduce the burden on the government when disasters occur.

He also advised traders to ensure that their goods are insured, noting that the government might not have the financial muscle to take care of all disaster victims in the country.

“Government should enact an edict that traders in markets should insure their goods so that when disasters occur, they will be compensated,” Eze said.

BY EMEKA EJERE

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