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THE ESSENTIALS OF INSURANCE LAW

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Boma Geoffrey Toby

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-his isa boo~ on:Th! E~sentials of inaurance , ~w in Nigeria. The book is
lirect~d at a Wide;auaience: !primarilV a Text boc ,( for students of Insurance
.aw. PractitiOriersoflnsuranoe and Law teachers will find it useful.
The book eonfain$ 9 chapters covering:

The HIstory otlnsurance * Classes of Insurance .'

.. Parties toan insuranoe Contract * PrinCipleof Insurable Interest
The Principle of Indemnity * Underwdting and Re-insurance
. Assignment of Insurance Policies * ~ovemrrent Cpntrol oflnsvral1ce
Claims and Settlement of Claims .

Berna Geoffrey Toby read Law at the jil'{ivers state

University of, Science & Technology,NkFJ~IU
Oroworukwo, PoI1Hareour1, RiversStat~ in?003enqWas
called to the N.igerian Bar in 2004.ln 2Q09 she obtained
herMaster's Degree in Lawat the Rivers Sta:te University
of Sdienqe & Te~hnOlog~ Nl<polu-Oraworukwo Port
HarcoIJrt,RlversState. An Associate member of the
ChartereQ Institute of""mitrators UKandNigeria.
She has about 10 years working eXFJerienqe with Oasis
Isuranoo Co Ltd., before joining the A.cademic Staffof the Faculty of Law, Rivors
t~!~e Urive~sityof Science & Technology Nkpolu-Oroworukwo,por1 Harcoul}, Rj:yer~
tatein2005,and lectures Insurance Law, Boma is married andblessed With qhi!<ilren,

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=========:::::::::::::::::The Essentials ofInsurance LiIIV ill N(~(',.i(/ ::::::::::::::;;:=========

.'
THE ESSENTIALS OF INSURANCE LAW FORWARD

~);7 @ Borna Geoffrey Toby Insurance is one subject that should be of interest to everyone because
we all face risks daily. As a result of the risk we face, it is important that
iBN 978-30380-20-213 we know the basic principles of insurance, that is, how it works, how we
I edition. can share and bear risks through the mechanism of insurance.

Ignorance of these basic principles and understanding of the worki ngs

ublislzed in Nigeria by: of insurance makes the subject uninteresting. An expose of this nature
oma Geoffrey Toby LLb(Hons)bl, ncmg, LLm, ACIArb. presented in simple terms therefore becomes a welcome development to
ssistant Lecturer
all.
epartrnent of Jurisprudence & International Law.

rculty of Law,
This book will assist students of insurance and the insuring public to
ivers State University of Science & Technology,
benefit from insurance.
Ikpolu-Oroworukwo, Port Harcourt, Rivers State.

Reading through Barr. Boma Geoffrey Toby's text, 1 think it serves as a

rintedby:
\ good introduction to insurance, this will assist students and fellow
colleagues to appreciate the way insurance works. She has brought to
lex O. Printers, 5 Timber Street, Mile II, Diobu, hear her knowledge of insurance through working in the insurance
lfti Harcourt Rivers State.
industry for about 10 years.
{0:8033129927,08037322097 .
The embodiment of certain contemporary issues in the book, the
1rights reserved. No part of this publishing may be reproduced, stored Insurance Act 2003 and some recent case law provisions on the subject
a retrieval system, or transmitted in any form or by any means, is welcomed.
:ctromc, mechanical, photocopying, recorded or otherwise, without
: prior written permission of the publisher. Applications should be I am pleased to contribute the forward and commend the sincere efforts

dressed to the author. of the author. I found the contents educating and have no doubt that the
hook will be of use to insurance students particularly and to fellow
colleagues.
It is my hope and desire that this will add to your knowledge of
Insurance.
I.

I MR. FABIAN IKEH, (LLb, B.l, LLm)

SENIOR LECTURER'

FACULTY OF LAW, RSUST, PH

... 1 . . ... 11 . .

----~_.. __ ----
.
 a=;=====::::::::::::::::: 11t( FSS{'/II It/Is oj 111:','/11"((1/('(> /.(1\1' /11 /'{ig('r;a ::::::::::...., ======

========="",,,, """"111e Essentials ()r'11S1I"(/IlC~ Law ill Nigeria ::::,,:::::::::::========= This hook will be useful to student of insurance law because It IS
designed w!th tl~e course requirement for insurance law in mind. All
PREFACE errors or detects ll1 the bOOk remain mine,

The aim ofthis book primarily is to assist students ofinsurance law. The Finally, I am grateful to thc publishers for a job well done. Abov,e all I
insuring Public and those who may want to acquire some knowledge on give My God, JEHOVAH, the praise for his mercies & WIsdom tor the
successful completion ofthis book.
the subject siay also benefit. The content of the book is tailored to the
course requirement on insurance law and by no means exhaustive.
Barr. Boma GeoffreyTOby
The book contains 9 chapters. Chapters 1-2 discuss the historical Assistant Lecturer
development of insurance and its relationship to the concept of risk, the Dept. ofJ.I.L
types of risks, the purpose and functions of insurance, how to carry out Faculty of Law
R.S.U.S.T, PH.
the of business of insurance and the various types of insurance.

Chapters 3-5 discuss some of the legal principles of insurance like

insurable interest, indemnity and subrogation. Chapters 5 and 6 deal
with parties to a valid contract of insurance, the Nigerian insurance
market and how pol ices ofinsurance may be assigned.

Underwriting and Reinsurance is given attention to in chapter 7 while 8

discuss what claims mean in insurance and how claims can be settled
including the various methods this can be achieved. Lastly, chapter 9
talks about insurance regulation in Nigeria.

This work will not have been attempted WITHOUT THE

encouragement of Mr. Ikeh Fabian, the senior lecturer on insurance. I
, am grateful to him. Their encouragement gave me the push to work and
challenged me to carry out this research.

Writing a book of whatever size is a strenuous task, but the strain can be
cased ifhelp is rendered in the process ofwriting..

I thank my typist Miss Gift Jacob immensely for her patience and
assistance in the typing ofthis book

It was difficult combining academics, legal practice and domestic

responsibilities. However I was privileged to receive help from my
family and friends. I also express my gratitude to all those who in one or
h other cncour.. !.<.:u me to publis]. this haole ;>"0 IV ~

,.1l>. C', , J1

... -r--~ - .........

The Esscntiuls ol lnsurance /,1111' in Niger;{/"'''''''''''''''========= . . .======="::,,::,, ::::"nll' Essentials ol lnsurunce Luiv ill Nigeria ",,::: :::::::::=========

TABLE OF CONTENT

1. Understanding Insurance
Historical Development of Insurance
Early Rome
London
Summer and Babylon
t" Lebanon

Greece

~
The Nigerian Perspective

Insurance as a business of Risk

The concept of Risk

Dedicated: Classes of Risk

Assessment of Risk

Policy Term

To my beloved children Claims/Benefit

Sapphire, Ruby and David Purpose of insurance

Nature and Functions of Insurance

Insurance Business in Nigeria

2. Types of Insurance 29
Fire Insurance
Motor Insurance
Marine and Aviation
Oil and Gas business
Engineering Insurance cover
Bonds Credit Guarantee and Suretyship
General Adverting insurance
Life Assurance policy
Group life and pension

3. Legal Principles of Insurance 42

Introduction
Definition of insurable interest

. , v ~ ... VI ~
 ~-":":::":"::"Th(' l':',ICllliil /.1' "nnSIII'IIIlCe Lcnv ill .Vlgeria :::::::,,::::::::========= ::Ih r !'.ls('lIlia!s O/IIISIIIWlce Law ill Nigeria ::,,:::::::::::,,========= I
Characteristics of insurable; interest
Co-luxurnucc
Examples of insurable interest
Function & Purpose of Reinsurance
Elements of insurable interest

Insurable interest in classes of insurance

8. Claims and settlement of claim - 110
Procedure for claim settlement
4.
Principles of Indemnity - - 56 Reasons for non-settlement of claim
~ethods of providing Indemnity under the various class of Methods of Resolution of Insurance claims dispute
Insurance
Sllbrog::J1ion 9. Insurance Regulation - - - - 121
Introduction
5.
i i Partie:. to an Insurance contract 71 Brief History of Insurance Regulation in Nigeria
Introduction Why Govt. Regulation of Insurance
fh e Nigerian Insurance Market
Approaches to Government Control of Business
Sellers
Goals of Insurance Regulation
Bllyers
Method of government Control of Insurance
fhird partics/intcnncdinncs
Regulation by the Legislature Branch
ltlsurance brokers
Regulation by the Executive Branch
Regulation by the judicial Branch
6.
Assignment of Insurance Policies 89 Benefits/Economic Contribution of Insurance to society
Introduction
Assignment of proceeds and policy Bibliography 163
Assignment under the various classes of insurance
Consequences of assignment The Insurance Act 2003 166

7.
I

Underwriting and Reinsurance _ _ 96

I I
Underwriting guide for various classes of insurance
~otor Insurance
Pire Insurance

I I
.tvIarine Insurance

I I

I 1'heft/Burglary Insurance

life and personal Accident insurance

Rating of Premium

I
Reinsurance

I
I
I' ''J'~>:':> Vl1 '~:.P *"" Vlll ~
I
 ========:::::::::::::::::Tlze Essentials ofInsurance LI/w ill Nigeria :::::::::::::::::======== az :::::::::::::::::7],,, Essentials O!llfSIIl'(/IlC(' 1"(/\\' in Nisicria ::::::::::::..... ======
CHAPTER ONE
'--' . merchants are exposed including the risk of losing cargoes, ships
Ind life and limb, which may be occasioned by natural phenomenon
.uch as piracy, disasters, turbulent seas. It was the realization of
these marine hazards that was instrumental to the emergence of the
insurance business. Merchants thus undertook to bear (share) the
UNDERSTANDIN "'1./
nnancial burden of their counterparts who suffered losses at sea
collectively. This may account for the attempt at seeking protection
INSURANCE
trom the danger posed at sea. Since people of earliest times had a
t'Dscination for sea travel.

However, before the commencement of any voyage the merchants

1.1 Historical Development of Insurance
Igreed amongst them to contribute certain sums of money to a
". '. common fund and out of that common fund, compensations were
The origin of insurance is lost in antiquity and so it is quiet difficut
paid to the merchant whose good are lost at sea by those merchants
to point with confidence at any particular time in history when tht'
concept of insurance came into existence. However, the origin ot. Whose goods arrived safely at port.
insurance can be traced from records of event having insurance-likf
practices. Indeed, insurance forms part of many ancien\' London
This insurance habit spread to other countries like London in the 1(/'
civilizations, as almost any economic history contains references t~
century where, like in Rome, group of merchants agreed amongst
practices, which can be likened as the forerunner of modern
them to bear risks inherent in maritime trade The very first
insurance techniques.
registration on marine insurance was made in Northern Italy,
Ocnoa. During the l.ist quarter of the 14\h Century, the statute laid
Historians have uncovered evidence suggesting that some sharing
th down conditions for the validity of a marine insurance contract.
of losses existed among sea fearers as early as the 9 BC.\ other text
The marine insurance became the oldest form of insurance. Down
writers believe that the concept of insurance however got started
into the 1t ' Century, insurance of ships and cargoes was often
before the year 200 B. C. It is believed that insurance existed in early
undcrwritkn by merchants who were willing to carry part ofthe risk
Rome, and that when Romans gathered together in burial societies,
efu voyage in return for part ofthe premium. Commerce of various
they contributed to a fund and the members ofthat fund or pool had
types was transacted among merchants who met each other at
their burial costs met by the society. Italian merchants adopted this
various coffee houses around the city of London, one of such coffee
practice in connection with their maritime trade.
houses was that owned by Edward Lloyd, situated near the River
Thumes and was frequented by merchants, ship owners and others
This underlies the potential risks inherent in maritime trade to which
having an interest in maritime ventures. Lloyds probably became
.", 1 ~ ~ 2 <$
. !
 ... - I'll" 1'.,1',1,'1111"/.1'01 Ills a 1'1111 c" 1,(/11' III Sig"ria :'::':: :::::::::=========
. ":l!1i' l.sscntiuls O!'IIISlIl'mlCe LIJ1\'in Nigeria :::::::::::::::::=========

Ilo\\'l" .-t , t [imcs, due to rapid economic and industrial

III I n'L'1l
the most famous insurance market in the world, being the centre for
l!l'()\vth :Illli sophistication in technology, this has resulted in the
the world's marine insurance and shipping intelligence. About that
uppllr:ltllll\ and extension of insurance doctrines to all forms of
period of 1688, Lloyd encouraged the merchants to sign their names

1\1'l'llklllS .uid contingencies.

at the foot of the insurance contract, because it brought extra

business to his coffee house. He supplied shipping information and

made publication in 1769, the insurance market transferred its SUllwr nnd Babylonia:
[listorinns also believed that insurance first developed in Surner and
business centre to the "New Lloyds coffee House" in Pope's Head
Uuhylllilia (both in what is now Iraq) beginning in about 3000 Be.
Alley, and in 1771 a committee was formed tp seek larger premises,
'lhc 11lClCI\ants and traders of these societies transferred and pooled
with their membership subscriptions, premises were established in
Ihl'1I money to protect themselves from losses of cargo to thieves
II 1774 in the Royal Exchange, the running ofthe Lloyd left the hands

ofthe coffee shop owners t~ that ofthe insurance fraternity. unt! pirates,

'" 111 tile IXlii Century B.C, Babylonian King Hammurabi developed LI
The modern corporation of Lloyds was formed in 1871 with its
t'o<!r I'Iuw, known as code of Hammurabi, which codified many
present premises centered in Lime Street London.' Other forms of
Il\wl:i fie rules governing the practices of early risk sharing activities.
insurance subsequently developed. Fire insurance also developed.
Fur example the code dictated that traders had to pay merchants who
It originated in Germany, It got momentum i11 England after the
flnnuccd trading voyages unless thieves stole goods in transit, in

,':

\ , great fire of 1666, which raged, through London for five days at
which tremendous losses were recorded as a result of the fire out
! whil'1l cases debts would be cancelled.
break. About 85 percent ofhouses were burnt to ashes and property tf

worth thousands ofmoney was comp letely burnt off. Phlll'llicia

I
',,.In uhulit 1200 B.C, seagoing merchant from Phoenicia (now in
The failure of several insurance schemes in this period to salvage ',. IUIHIIIlI present day Leban~n) began using a system of insurance
the situation led to increased desire by the public for stronger
,.: known as bottomry 111 this system, backers loaned money to
insurance plan. The fire insurance office was established in 1961 in t~l
l ml.'l'CIl:lllts to finance voyages. Merchants offered their ships (the
1 England with the colonial development of England, the fire
! hull W:IS known as the ships bottom) as collateral for such loans.
B i' Whl'l~ the trip succeeded, the merchant would pay the trips backer
insurance spreadall over the world in its present form. So did life,
,the uru.."illal sum plus interest, which is the equivalent ora premium,
personal accident and Health insurance. This form took its start as
i LolftIH..' ship went down its voyage, the trip's backers would cancel the
we commented earlier from the existence of burial societies in the
~.lTIerl'hillltls loan. Forms of insurance resembling bottomry had
ancient world, though they did not take into account the dependants
.J')feud 10 other parts of Asia and the Mediterranean by the year 400
who were left, nor did they provide any compensation to person
a
who was injured, but not fatally injured . II",

~4~
.,.,3~
 =========" ::: .:: ..::: llil' I:'sSl'lIti"ls oj insurance /.,/1,. ill ,Vi.~L'ri,, .... :,,"'-""~"'""'=~: ..._~--
liiliiIi.-=====:::::::::::::::::711(' Essentiols otlnsuranc l.av: ill .\igerw: ::.:::..... :::::========..

Greece
approach and with the growth in population, cines and
In the last several centuries before Christ. the societies of Greece
I
I
industrialization, people started moving from the rural areas to the
I and Rome developed some of the earliest system oflife insurance..
Urbllll cities in search of greater opportunities thereby abandoning
Greek and Roman Citizens formed benevolent societies, in which
the established traditional tribe or family pattern of life and
members went towards paying for the burial expenses of their
~bracing western countries.With these came modern Insurance in
I members who died. Sometimes these societies pay for expenses of
I.
Ni~ena.
deceased member's families. To this end, all other forms of
insurances emerged as we have it today.
Culonial Nigeria besides its struggle for self-rule was equally
lontcnding with fast pervading western cultures in all its
The Nigerian Perspective:
I I
rami fications. As they embrace these cultures, they also took along
In primitive traditional Nigerian society, and indeed Africa
I
"~I advanced business practices; these copiously followed the
generally any loss or misfortune suffered by ,,~w person was
Irilish pattern even as seen today. By the late 19'11 century the
regarded as a less or misfortune to the entire family of the person
'ritish merchants had established trading posts on the West Coast of
concerned. If death occurred, funeral expenses vven: borne by the
.thca where they arranged insurance covers for their trading
relatives of the deceased whether or not the deceased left any issue
,ollcerns on the London market. As time went by, there was need to
surviving him, the deceased minors (children) are shared amongst
Appoint agents to represent their interest due to the consequence of
relative's for upbringing while the widow could be allotted as a wife
lengthy and unreliable communication from these posts to London.
to another male member of the family so as to ensure continuation of
I
Appointments ofmerchants/agent ofreasonable status to act in their
1

matrimonial obligations. Iffire damaged property, members of the

I'
Iteml with Powers ofAttorney to secure insurance businesses, issue
: I family and the entire community had a duty to resettle the victims.
( 1 oover notes and service claims on behalf of their principals in
There were also various traditional types of insurance (mutual
London were made. Initially these agents were mainly expatriate
I insurance associations) practiced which included age grade, social
banks and traders, but it later gave way to Nigerian traders and
~
I
,
I clubs, extended family systems, isusu etc. For belonging to these
lfIerchants. With the passage oftime these agencies gave way to full
ii' associations, a person benefited from provisions of cash, food,
fledged branch offices. Parent companies and later Nigerian
\ II!! water, free-labour, in times of disaster or difficulty, to meeting
fl. companies were formed.
funeral expenses, as the case may be. To be individually secured
I; :
1

I

meant belonging to these associations. This led to the early form of
About the year 1919 the Royal Exchange Assurance Company had
the principle of spreading the loss of the few over the many, as we
In agency office in Nigeria, which gave way to a branch office in
shall consider later.
1

I
J921 in Lagos. The UAC (the then Royal Nigerian Company)
Iltnblished a chief agency with Northern Assurance in 1930, which
I I,.
By the turn of the 20'1' century however, the increased socio
later developed into what is known today as United Nigerian
economic and political charges started degenerating the traditional
I
! Insurance Company (UNIC Insurance Co Limited).
~5~
I .",6~

III
 =========:::::::::::::::::Th~Essentials olInsurance l.av. ill ,\i.~'T!li .:::::::::: :::::==_<O.~ --,-, f,J' .....
~= =====:::::::::::: ::::{),e Esscntutl of Insurance
.
l.usv ill ,..Vi!.!:el'l{/ :::::::::;::::

In 1949, the Norwich Union Fire Insurarcc Society established its
office in Lagos. Tobacco Insurance Company Li rrited later
followed these and the Legal and General Assurance came through
I"
the British Bank of West Africa (now First Bank of Nigeria) etc.
With the passing of time, many insurance companies were
II
established both indigenous and foreign. Indigenous participation
in insurance business in Nigeria witnessed the involvement of
Federal and State/regional governments and private individuals.
The first Nigerian owned Insurance Company was the African
Insurance Company formed in 1950 by Dr. K.O. Mbadiwe; the
Nigerian General Insurance Company, was established in 1960 by
the defunct Western Regional Government, the Universal Insurance
Company Limited in 1961, formed by the former Eastern Regional
Government etc. The Federal Government ;:lsl) established the
,i
, National Insurance Corporation of Nigeria UH CON) in 1969 and
the Nigerian Reinsurance Corporation in 1977 (]\I igcj-ian Rc).
II ,
III
I
.lnSlIl'lInce is a Icga,l contract that protects pc?ple from the fin~ll1cial
. costs that result from loss of life, loss ot heath, laws SUItS, 01"
.!
I; property damage. It provides a means for individuals and society to
C(ll1L' with some ofthe risks faced in everyday life. People purchase
cuntracts of insurance called policies, from a variety of insurance
organ izations.
AIJIlllSt everyone living in modern industrialized society buy
h [nsurancc, for example, most States require people who own cars to
buv insurance before driving it on public roads, lenders requires any
(l11l' who finances a home or certificate with borrowed money to
Insure that property. Business partners take out life insurance
pnlicics on each other to make sure their business succeeds even if
Olle ofthe partners dies.
lnsurance makes up part of the broader financial services industry.
111 the late 1990's in U.S alone, more than 5500 insurance companies
ullcrcd a wide range of policies and services. Presently, in Nigeria,

1.2 Insurance as a Business of Risk about l l S insurance companies offer variety of insurance services
,: I
Ilnd sell virtually every type of insurance available in the market
I,
Business generally speaking may be defined to include transactions
on goods and services between seller and buyer which may also place.
h,
DI
include their intermediaries or more parties such as principal and ,. Definition of Insurance:

agent or master and servant as the case may be. Insurance too is a
II business transaction. Many authors have defined the term insurance; as a result no one

[I'
~ I I
definition of insurance is sufficient. It is therefore only feasible for

~ II
US to attempt a description or explanation ofthe concept.

..'.
I
The word "Insurance" means protection or security against the
'I ! I
I effects of certain future losses or misfortune. From an individual
I
1'1
II!
I
view point, insurance is an economic device whereby the individual l!l By way of description insurance can be said to be an agreement by
wh ich one party assumes a risk faced by another party in return for a

t.:"
I I
substitutes an amount or certain cost (the premium) for a large
.. premium payment, and undertakes to pay money or do something of
financial loss (the contingency insured against) that would exist if it
were not for the insurance. " " value on the occurrence of the risk. In an insurance contract the
:I' '. Iorty who pays the sum of money called premium is the insured
)1'
. .",S,,"*
~. 7 ~

- - ...........---------
========:",,,,,:,,::,,"The Essentials oilnsurance Law ill Nigeria """,,,::::,,,,========
while the party who indemnifIes or compensates the insured, or
pays benefit, in the event insured against (lOSS) occurs is the insurer
or insurance company. This is explained in the classical case of
Lucena V. Craufurd (1806) 2 Bos, & PNR At 301: 127ER at 642
per Lawrence J.
"Insurance is a contract by which the one party in
consideration ofa price paid to him adequate to the
risk becomes security to the other that he shall not
sufler loss, damage, or prejudice by the happening of
the perils specified to certain things which may be
exposed to them"
It can therefore be said that insurance is a contingent financial
security instrument often referred to as policy or certificate.
Contingent because the event insured against is likely to happen but
not certain, an unforeseeable even or circumstance. Insurance may
be termed a business of risk. Risk is the bedrock of insurance,
without risk the existence of insurance would be superfluous hence
the need for its proper study to unravel the relevance of risk in
Insurance.
Apart from the above case law definition, in the book "Elements of
Insurance" by R. O. Oluoma, insurance is defined as:
"a device for the reduction of uncertainty of one
party, called the insured through the transfer of
particular risk to another party, called the insurer
who suffers a restoration, at least in part, of the
economic losses suffered by the insured".
Professor U.J. Osimiri, in his book, Fundamental Principles of
Insurance Law in Nigeria defined insurance contract as a
relationship existing between two parties called the
...,9"",*
IF ,"" ""''''',:Thc Essentials IJ{In.I'liriIlICC 1.1111 ill ,\'igerill ''''''','' ",,:'=========
?;r!i;'
:IoIUI'L'r/company and the insured whereby the insurer agrees to
~~vidc, pay money or indemnify the insured on the occurrence of
happening of certain events by the insured in return for an agreed
nsidcration in money or monies worth called premium.
111this additional definition, we can simply say that insurance
LUIS security or protection against the effects of certain future
Ill\es or misfortune. It is described as an agreement between two
ics by which one party called the insurance company/insurer
')llIull1es a risk faced by the other party (called insured) in return for
'il l lllll of money called premium, and undertakes or promises to pay
"'~lIlcy or do something of value on the occurrence ofthe risk or on
.rtain date(s). See the case of Liberty Insurance Company
Limited V. John (1966) 1 NWLR Pt.423 192 (it! 194 where
lftdell1nity relates to payment of money to the insured, and the court
held that the insurer was legally bound to pay the money or provide
the equivalent pecuniary compensation to the insured. Also in the
11111.: ofWuraola V. Northern Assurance Co. Ltd. (1969) 6 NeLR
'(1112; (1969) NSCC 22@27Itwas held that the insurer was liable
Indemnify the assured against judgment debt and costs.
polley:
The terms of an Insurance agreement are embodied in a document
Whieh is called the policy. When the insured sutlers a loss that is
lovered under the policy, the loss is reported to the insurance
tompany within the time frame provided by the Iusurer. Thcrca ftcr
the insurance company investigates the claim, and ifsatisfied of its
..nuineness, pays same. The insured under this relationship
l\ererore is referred to as the policyholder. But where the
IIIvcstigation reveals that there is a breach of terms and condition of
the policy, then the party who will stand to benefit, that is, the
"urcr must prove the breach. This was the view of the court. Per
~ 10 ""'*
 ,~

=========":::",,::,,::,,71,,, Essentials otInsurancc Law in Nrger, ::":",,,,::::::========= 5= ":::::::::::::::Thc Essclllials oflnsurance Law ill iV/gcna ":::::::::::::::========0=

Coker .TSC in Northern Ass. Co Ltd. Wuraola (1969) 6 N"SCC
22@29
I
The effect of an insurance policy is to bind parties to the terms and
I
conditions of the policy. In .TIA Enterprises V. British Common
1,1',I Wealth insurance (1965) NMLR 147 at 152 753, Per Lambo,.T.
'!II said that the in ability of the plaintiffs to comply with the
requirement of preserving their books, invoices etc. in a fire proof
'~"""".cl'~on filing
safe rather than a metal cabinet amounted to a clear breach of the
'Inuncdiately' in an insurance policy. This process is called a claim.
~:'ln'Hll'aIlCe contracts usually contain a condition that the insured
must provide a proof ofloss in other to be indemnified at such times,
, Once i1 c.aim is filed and the necessary evidence is provided, the
'tnsurance company's claims representative, known as a claim
:~4'dJlIS[Cr is called in to reviews it. These persons verify that claimant
. 'cl'IllCS that:
claim) is entitled to the payment requested. He
':. (11) The claimant actually purchased an insurance policy

policy of insurance and accord to the judge "there can 1:Je no possible .fi(b) Paid were premiums

11
1'1 excuse for it"
II II
lI(c) That the cause ofaccident is covered.

III

I Assessment of Risk
I' I'~ i 'Prt.mium
Insurance Companies employ or retain underwriters to assess
n Premium means the consideration or sum of money paid to the
insurance risks posed by the public and defines these into classes
Insurer to purchase a policy and to keep it in force for the period
based on similar risk profiles. Higher risk attracts higher premium.
IIfwci fied under the cover. Section 50 Insurance Act 2003 provides
} Section 2 of the Insurance Act 2003 provides for the various classes
thut premium payment is a condition precedent to a valid contract of
/~ of insurance an insurer may choose from.
, Insurance and there shall be no cover unless premium is paid. In
P
T: Irukwu V. I.M I. B. (1997) 12 NWLR (pt 153) 113 at 134. Pats
Policy Terms:
I AchoIonu, .TCA held that,
These ranges from 6 months to 1 year period, after which buyers and
i\.ji "Ifan offer is made and accepted hili
sellers may agree to renew the policy. Life or Whole Life Insurance on the condition that the insurer will
Tl!,
JI', ,
policies does not specify a definite term. Insurance polices also not be indemnifyino the assured until
specify an amount at which coverage ends otherwise known as the premium is paid within a specified
hl:;1
~I policy limits. For example in property insurance, the policy limit time a contract ofsome time sort mal'
may not exceed the value ofthe property. have been entered but the insurer wi II
escape liability [I' the premium is 1101
)//
Claims/Benefits paid. "
When a motor accident occurs or the risk insured against occurs, the
I' Insured victims who have suffered losses and wish to receive Purl ics in the absence ofthe above statutory may agree on condition
payments as indemnity or claims proceeds to notify the insurer when premium becomes payable if they however agree that their
will he no indemnity until premium is paid, the insurer will escape
about the accident immediately. See Onuh V. United Nigeria
:: dchilily ifpremium is unpaid.
Insurance Co Ltd(1974) 3 ALR Comm 15 for the meaning of
..." 11 ~ ~ 12 4

The Essell/iuls of lnsurance Lull' ill Nigeria :::::::::::::::::========
Payment of premium ;" made by the assured or insured as soon as
the contract is agreed but where he fails to pay it, it will not absolve
the insurance from the liabilitv which has been undertaken under the
contract unless there is provision in the contract to this effect i.e. that
if premium is not paid, cover will not be effected or the failure to
pay the premium amounts in the circumstances to a repudiation of
the contract. In the event therefore of a loss happening before
payment, the insurers must pay the amount due under the contract
unless the contract otherwise provides - Wooding
Momontshire Mutual Indemnity Socy Ltd. (1939) 4 all ER of
581, 592 694, 162 L.T at 104, 109, see also per Kassim J. In
Jammel Transport V. African Ins. Co. Ltd. (1971) 2 NCLR 145
@d62.
Note: Premium payment may be paid at anytime within the period
or days of grace usually allowed under a policy. The conditions is
that if premium is paid during the period of grace, it shall be treated
as if it had been paid on the due date. This is the view expressed by
Taylor C. J. in Akanni & Anor V. American life Insurance Co. Inco
(1973) 3 U.l.L.R. 233 at236.
Can premium be returned to the insured once a risk has commenced
to run under a valid policy? With reference to the learned authors on
1h
MacGi livray book on "Insurance Law", 5 Edition Vol. 11 par. 2143
, they considered the rule governing the return of premium as
follows: 'No risk no premium', The general rule applicable to claims
for the return of premium is that if the insurers have never been on
the risk they have not earned the premium, and ought to return it
thus, if a contract of insurance is set aside on the ground of
I',
misrepresentation of mistake, offor some other reason the policy is
III held to have been void abinitio, or to have been avoided before the
risk begun to run the insured is, in the absence of any express
"II
1'1
condition to the contrary, entitled to claim repayment of any
premiums which he may have paid. This is an equitable provision
for "Equity" according to Justice Marsfiled implies a condition that
..",13",.
'0" :::::::::::::::::The Essentials ofInsurance Law ill Nigeria :::::::::::::::::========
' . ' Insurer shall not receive the price of running a risk if he runs
'4J'onc.
'The learned authors went on to point out that once the risk has
tommenced to run under a valid Policy, the whole of the premium
An
that risk is immediately earned, and even though the insurer
.1:
Ilhould shortly afterwards be relieved ofthe risk for the remainder of
term the insured is not entitled to a return of any part of the
*fl'emium. See Stone V. Marine Insurance (1876) 1 Ex. D.v 81.
V.
Chus, ifthe day after a risk has attached there is a breach ofwarranty
.tr the interest of the insured ceases, the whole premium is earned,
and there can be no return. See the view of Fatayi Williams, JSC in
.truilader Insur. Co. (Nig.) Ltd V.Annuike (1975) 9. NSCC 82 at
1788;(1975)NCLR33at41.
JJ Concept ofRisk
There is no universally accepted definition of risk. The reason is
because the term risk is a multidisciplinary phenomenon. It could
be defined from various angles depending on what a person's
perception is. Risk has been defined by writers particularly in the
t.1SAas the;
The possibility ofan unfortunate occurrence
A combination ofhazards
As unpredictable loss the tendency that actually results may
differ from predicted results
Uncertainty ofloss
The possibility ofloss
Chance ofloss or mishap
In this book, we will look at risk simply as uncertainty of loss, that
there is certainty about the outcome that it will be unfavorable imply
lack of knowledge about the future and the possibility of some
adverse consequences. To illustrate, imagine that you see a
. , 14 ~
=========:;::::::::::::;;:The Essentials oj'Jllslll'illice Law ill Nigeria ::;:::;::::::::==========
mangled metal of two cars that have collided on a high way. A
building in your neighborhood burns or you see an ambulance
racing to the hospital, raw materials and a factory burns down, the
building, machinery and equipment finished products, destroyed,
workers or even customers injured or dies. These tragic events
arouse your interest and emotions. After the noise and excitement
have died down, you are grateful that the loss did not happen to you
and you may even feel sorry for whoever suffered the loss. But you
are glad that it was not you. Losses like these happen to some
people, while others go along happily, free from misfortune. The
September 11 2001 terrorist attacks on the World Trade Centre in
the United States ofAmerica, the January 27, 2002 bomb explosion
in Ikeja Military Cantonment in Nigeria and the very recent crash of
the Kenyan Airways plane a being 737-800 carrying 114 people
from at least 23 countries, including 6 Nigerians, which took off
from Doula enroute to Kenya Capital, Nairobi. According to BBC
(British Broadcasting Corporation) report on Monday May 7 2007,
rescue workers in Cameroon said there were no signs of any
survivors from the Kenyan airways plane that crashed and was
found in the Mangrove swamp. This and many other occurrences
across the world. The fact that these losses or similar events could
happen to you, and the fact that you cannot tell for sure whether or
not they will, is a condition we call risk, a pervasive condition of
human existence.
However, apart from this simple notion of risk as presented above,
there have been various theories and definition of risks by
Economists, statisticians, Decision theorists and Insurance
theorists. No one definition has been accepted by these group of
persons. And because insurance is still in its infancy as a body of
theory, there is bound to be contrary definitions of risk as we
mentioned above. Insurance theorist define this term as it is used in
.", 15 ~ .", 16
_======:::::::::::::::::The Essentials ofInsurance Lilli' ill Nigerta ::::::: :::::::::========
ether fields, a detailed discussion of these definitions will not be
mudc here.
Risk is used by people in the insurance business to mean either a
peril insured against e.g. fire is a risk to which property are exposed
to or a person protected by insurance, for example, many insurance
eompanies feel that young drivers are not good risk. This further
compounds the problem ofwhat risk mean.
But suffice it to say, that in whatever way this concept is defined,
there are common elements in all the definitions. Firstly there is the
underlying idea of uncertainty or indeterminate outcome i.e. doubt
about the future. The word uncertainty here is sometimes
interchangeably used with risk. Secondly, there are different
lewis of risk. This is because all risks are not likely to occur, some
may be less or more risky than others. For example consider a
house by the side of a river which is known for a tendency to
uvcrflow its banks, we may not describe it as risky, but there is doubt
about the outcome, there is uncertainty about whether or not the
river will flood and caused damage to the house. The fact that the
river is known for flooding has heightened the prospect that damage
will occur. Now imagine a second house, which is far from the bank
on a slight hill. The second house will be described as being in a less
risky situation. The prospect of the river flooding its banks has not
Altered in any way, but the possibility of damage being caused to the
/ house as a result is much lower.
.,However, ourjudgment may alter by considering the value, which is
., It risk. Lets say the first house is valued at N20,000 and in a poor
,
.,.tale of repairs while the second is valued at N50,000 and a luxury
house. We might want to modify our view about which house
;l~prcscnts the higher risk, in view ofthe higher potential severity. To
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========"::::":::""::The Essentials a/Insurance Law in Nigeria ,,:::::::::::::::========
help evaluate this risk an Insurer or an actuary comes handy. He is a
hrrdll.C;l' otthis the:/ are more suited to treatment by insurance than
statistician who estimates risks and possibilities particularly in
by d V11:1I1l ic risks.
insurance, predict some specified number and amount oflosses and
charges a premium based on this expectation. This amount
Fundamental and Particular Risks
predicted is the desired outcome that is expected by insurers.
P'lIll(LI.nental risk involves risks that are impersonal in origin and
Classes of Risk
,,~lrhl' control ofthe individuals who suffers the losses and since they
Risk is classified as follows;
"arc not the ~a~lt ofanyone in pa~i~ular, it is held that society rather
1. Financial and non-financial Risks
2. Static and Dynamic Risks
3. Fundamental and Particular Risks
4. Pure and speculative Risks
Financial and Non-financial Risks
In all human endeavors, there is some element ofrisk. Thus the idea
ofrisk includes all situations in which there is exposure to adversity.
Sometimes this adversity involves financial losses, while in others it
does not and many of these risks have no financial consequences.
But in this context, we are looking at financial loss.
Static and Dynamic Risks
Dynamic risks are those resulting from changes in the price level,
consumer tastes, income and output and technology. This may
I
cause financial loss to members of the economy and may affect a
large number of individuals, but they are generally considered less
predictable than static risks which involve those losses that would
occur even if there were no changes in the economy even when
income, consumer taste, price level and income and output can be
held constant. Some individuals would still suffer loss. Those
losses arise other than by the changes in the economy such as perils
of nature, dishonesty of other individuals, human failures etc .. It is
not a source of gain to society. Static risks can be predicted and
~ 17 ",.
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=---~: ;.;:::::::::: :]1/ c 1:\StJllf(d/S 0/ f"SIII"(/f!CC L(/~\' in :\'i.~('ri(/ :....
ioonseqllence. They are caused by conditions more or less beyond
i '!hUll the individual has a responsibility to deal with them. Although,
'J 'some fundamental risks are dealt with through private ins urance for
eXilmple, employment, there are group risks caused for most part by
ecollomic social and political phenomena, although they may result
(rom physical occurrences. They affect large segments or even all
the population.
011 the other hand particular risks involve risks that arise out of
pnrticular events and are felt by individuals rather than by the entire
jl'OlIIJ Particular risks may be static or dynamic. Unemployment,
Will'S,inflation, earthquakes and floods are all fundamental risk.
The burning of a house and the robbery of a ban k arc particular risk.
In the final analysis, whether risk is fundarnental or particular
depends on current r: ublic opinion concerning the responsibility for
the causes and consequences of the risk. For example in the
aftermath of the terrorist attack on the World Trade Center on
September 11, 2001, U.S congress and the insurance companies
debated the que'stion of whether terrorist attacks are a fundamental
or particular risk.
Particular risks therefore are considered to be the individual's own
responsibility, an inappropriate subject for action by society as a
Whole. They are dealt with by the individual through the use of
insurance, loss prevention or some other techniq ues.
si'!>Y) 18 0'4
 =========:::::::::::::::::The Essentials a/Insurance Law in Nigeria :".:::::::::::::::=:::========
I
I
Pure and Speculative Risk
Speculative risk is one that describes a situation in which there is a
possibility of loss, but also a responsibility of gain. Gambling is a
good example. In speculative risk, risk is delibera.ely created in the
hope of gain; the entrepreneur faces speculative risk in the quest for
profit. The investment may be lost ifthe product is not accepted by
the market at a price sufficient to cover cost. But this risk is borne in
return for the possibility of profit, investing money in shares, which
is used to designate a chance of loss or no loss. Again, a person who
buys an automobile immediately faces the possibility that
something may happen to damage or destroy the automobile. The
possible outcome is loss or no loss. Pure risks do not necessarily
result in losses and they never really result in gain. Normally only
pure risks are insurable, though not all. Further, pure risks have
been further subdivided into the following categories:
I. Personal risks
2. Property risks
3. Liability risks
4. Risk arising from failure ofothers
Personal Risks result from loss of ability to earn income possibly
due to dependent old age, sickness or disability, premature death.
'::1,
Property Risk is simply faced by property owners due to the
possibility of destruction in the future by fire or thieves. The loss
II"
here may be 'direct loss' and 'indirect or consequentiall ass.' Direct
I~I ! loss occurs as a result of an owners losing the property for example
I if the property is a house, he losses the value of the building itself,
faces the problem of nowhere to live, cost of rebuilding. While
indirect or consequential loss has to do with the additional expenses
, 1"1
1
ofliving elsewhere while property is rebuilt. This loss of use ofthe
.
II destroyed asset is an indirect or consequential loss.
,II
~ 19 ~ .", 20
\'.1
'I,II
1/,
~~_======::::::::::::'::::TileEssentials ofInsurance Law in Nigcri :::::::::::::::::=========
~ LhlhiJity Risks - the basic part in liability risk IS the unintentional
.7 tnjury of other persons or damage to their property through
.egligence or carelessness, however, liability may also result from
Intentional damage or injuries and damage assessed in form based
'on possibility of loss of present assets or future income out of other
intentional or unintentional torts, or invasion ofthe rights ofothers.
Lastly, Risks Arising From Failure of Others - when another
\lndertakes or agrees to perform service for you and he or she
ndcrtakes an obligation that you hope will be met. When the
person fails to meet this obligation, it would result in yuur financial
"loss, risks exist. For example, failure of a contractor tu complete a
CUllstruction project as agreed or scheduled, or failure of debtors to
,)nuke payments as expected. New risks relating to failure of others
'ltc,' emerging under this head with the development of the Internet
and the rapid evolution ofe-cornmerce.
,t;
I'tegardless of how we look at uncertainty or risks, the greatest
burden in connection with risk is that some losses will actually
.'eccm. These losses are the primary burden of risk and the very
husoll why individuals attempt to avoid risk or alleviate its impact
lind due to its uncertainty, individuals need prudence to prepare for
ttfl pI lssible occurrence. Insurance is one way to achieve this.
Another way this can be done in the absence of insurance is by the
'acculIlulation of a reserve fund in a liquid state. This is necessary
because the uncertainty connected with risks usually produces a
\ftelillg of frustration and mental unrest and while many may hope
- Itt 110 misfortune occurs, people are nevertheless likely to WOITY
Ibout possible mishaps. Worry which induces a feeling of
-tninishcd well being is an additional burden ofrisk.
~
 =========::::",,: "":::1/,,, Essentials ofInsurance Law ill Nigeria :::::::::::::::::=========
:i i
1.4 Purpose ofInsurance
The question is why do people need insurance? People no doubt
need insurance because at all times they are faced with and exposed
to lots of risks in the course of their daily activities: be it business,
domestic, sports or traveling. Thus from the dawn of civilization,
humans have learned to anticipate and prepare for adversity both
collectively and individually because they are faced with the
possibility of risks. Our ancestors confronted an environment
characterized by perils and hazards. The earliest were those of
nature and even humans as well and in other to protect them, they
built shelters and saved for the future.
Today too people face perils and seek for ways to minimize or avoid
these, daily accidents cause injury to people or properties are
c'amaged. For example, when a factory or company is destroyed by
fire, the building, machinery and equipment, raw material and
finished products are destroyed; workers or even customers may be
injured. The result is that work will stop; workers will be sent home
and might not be paid. On the other hand, imagine the damage to
personal effects and loss of lives that occur daily in our
environment. Also recall the September 11,200 1terrorist attacks on
the World Trade Centre in U. S., the 2005 Sosoliso air crash with
school children on board from Abuja to Port Harcourt in Rivers
i:/II
State and uncountable number of road traffic accidents that happen
.il, daily, the 2006 car bomb at Bori Camp in Port Harcourt to mention
'I just a few, are all unforeseen events for which insurance is required
to protect or reduce.
Or suppose a person buys a new car for N100, 000. That person
faces the possibility that, at some point, the car will suffer damage.
The owner could budget in advance for a loss of unknown cost, the
cost to repair or replace the car in the event of an accident. What if
II
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.iiIEi~-====:"::::::::::::::TheEssentials ofInsurance Law in Nigeria:::::::::::::::::=====--
accident injures someone else, the cost of medical care could be
h higher. Through the mechanism of insurance, however, car
. 'ers can share the risk based on statistics. An expert known as
ry can accurately predict the losses of a large population, even
. out knowing when or how any individual experience loss. Such
and uncertain events, mishaps or hazards when they occur may
e people to lose money, property, become disabled, or die. At
r times money in the form ofdamages are paid to others.
"pIe therefore need insurance to protect themselves and others,
'ir dependents, their properties, businesses and estates against the
ncial consequences ofaccidents, misfortunes, disasters, fire and
th or to at least to cushion the effects of these problems. Thus
n they purchase insurance, they in effect purchase financial
rity, transferring the risk they may face to insurance companies
o bear the undesirable effects ofsuch losses, which may arise.
Nature and Functions oflnsurance:
nature, insurance is characterized as a transfer mechanism for
liftingrisk from one individual to a group. The individual have as
identified earlier, is the insured while the group represents the
bearer, the insurance company. Insurance has to do with
ing of losses on some equitable basis by all members of the
up.
illustrate how insurance works, let us assume that there are 10
eIling houses in mile 3 Diobu, a community in Port Harcourt and
t the value of each house is NlO, 000.00. Each owner face the
k that his or her house may catch on fire ifa fire occurs, a financial
I of lip to NI 0,000.00 could result. Some houses will no doubt
Ibut the possibility that all will bum is remote. Now let's say
the owners of these houses enter an agreement to share the cost
.., 22 ~
 ========:::::::::::::::::The Essentials a/Insurance Law III Nigeria :::::::::::::::::======="'=
oflosses as they occur, so that no single individual will be forced to
bear an entire loss ofN 10,000. Whenever a house bums, each of the
10 house owners contributes his proportionate share of the amount
ofthe loss. lfthe house is a total loss, each ofthe 10 owners will pay
Nl,OOO and the owners of the destroyed house will be indemnified
for the Nl 0,000 loss. Those who suffer losses are indemnified by
those who do not. Those who escape loss are willing to pay those
who do not because by so doing, they help to eliminate the
possibility that they themselves might suffer aNI 0,000 loss
Through the agreement to share the losses, the economic burdens 01
the individuals are spread throughout the group. This is essentially
the way insurance works.
.To ensure that this plan works, members are required to pay in
advance for the losses that might take place. Such payments arc
based on valuation of the risk, calculated based on past expectation
of more loss and incidental expenses all these may be more
prediction and are not entirely correct, to enable insurers arrive at
the amount payable the premium.
Payment is made only at the contingency or risk insured against. If
it occurs payments is made. For example because life insurance
business is a contract of certainty because the contingency, death or
the expiry term, will certainly occur, the payment is certain. But in
other fOnTIS of insurance, the contingency e.g fire mayor may not
occur, payment is not made unless it occurs. Additionally, the
ll''I'
ill number of person insuring as we tried to illustrate above is
l
III important to enable a wide spread of the loss by pooling the
II: resources ofmany.
II
I
The insurance business serves directly to increase the productivity
II
;\1
of the community by eliminating worry and increasing initiative.
II
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----:::::::::::::::::The Essentials 0/ Insurance Law in Nigeriuv: :::::::::::::=========
I The uncertainty is changed into certainty by insuring property and
. life because the insurer promises to pay a definite sum at damage or
.Ji!,penth. Granted that the owner of a house or property may practice
lOme form of self-insurance, this may not give him absolute
erlainty. Failure of insurance therefore amounts to gambling
,.cause the uncertainty ofloss is always looming.
gambling, by bidding, the person exposes himself to risk of loss.
hile in the insurance, the insured is always opposed to risk, and
ill suffer loss ifhe is not insured. By getting his life and property
nsured, he protects himself against the risk of loss. In fact, if he
~ncs not get his property or life insured he is gambling with his life
r property. Hawkins 1. described wagering or gambling as "one by
hich two persons professing to hold opposite views touching the
IHlIC for a future uncertain event, mutually agree that dependent
.j
upon the determination of that event one shall win from the other
And that other shall payor hand overto him a sum ofmoney or other
take, neither of the contracting parties having any other interest in
c contract (or event) then the sum or stake he wi II win or lose thus
caring no other real consideration for making of such contract by
tither of the parties. A game of chance for winning in money or
Imoney's worth," .
Thcprimmyfunctions of insurance include the following:
I, It creates the counterpart of risk, which is security.
Insurance does not decrease the uncertainty. for the.
individual as to whether the event will occur nor does iralter
the probability of occurrence, but it does reduce the
probability of financial loss connected with event. Froman
individual point of view, the purchaser of an adequate
amount of insurance on a house eliminates the uncertainty
regarding a financial loss in the event that should the house
bum down.
w> 24 ...
 :::;;;:::::::::::The Essentials ofInsurance Law ill Sigerii/ ::::::;::::::::::=====""'_ _~
========::::::::::::::::::The Essentials ofInsurance Law in Nigeria :::::::::::::::::========

2. This elimination of uncertainty regarding a financial loss
provides for freedom from the burden of uncertainty. Thus
even if a loss is not sustained during the policy terms the
insured has received something for the premium: that is
promise of indemnification if a loss had occurred and so for
those who believe that they have some how wasted their
money in purchasing insurance if a loss does not occur and
)1 indemnity is not received, merely constitute the essence of
I'
I
ignorance of the principles and workings of insurance. And
,I
Insurance facilitates, international trade, through marl Ill'
and aviation eargo insurance, and thus a source of foreign
exchange earnings.
Insurance relieves people from the burdens of worries and
gives peace of mind to policyholders and in turn enables
them concentrate on other productive activities. And those
in business feel safe to make business decisions and to delve
into some ambitious business risks, leading to continuous

i;, for those who may feel that the premium should be returned business growth and development. In summary, insurance is
because a loss does not occur, they must appreciate the fact a source ofcomfort and as well as compensation.
I'
that the operation of the insurance principle is based on the
contributions of the many paying the losses of the Insurance amongst others guarantees children's education
unfortunate few. If the premium were returned to the many and training since it encourages savings for the rainy day.
who do not have loss, there would be no funds available to
pay for the losses of the few who did. Basically then the Insurance also plays a very important role in risk promotion
insurance device is a method of loss distribution. What and reduction and loss minimization. These are achieved
would be a devastating loss to an individual is spread in an through free technical advice to insurance buyers and they
equitable manner to all members of the group, and it is on help to reduce the cost ofinsurance etc.
i
this basis the insurance can exist.
3. In addition, to eliminating risk at the level of the individual And so many others.
through transfer, the insurance mechanisms reduce risk and
the uncertainty related to risk) for society as a whole. 6 Insurance Business in Nigeria
4. Insurance accumulates a large pool of long-term investible ving looked at the brief historical development of insurance,
fund, which it channels into the money and capital markets 'hat insurance stands to represent, we shall now consider the
for manufacturing, industrialization and other development uirement for setting up and operating an insurance company in
projects. leria under the law. This will be done in the light of the recent
5. It inculcates the culture of discipline and thrifts in the lslation on insurance - the Insurance Act 2003.
individual and the larger society for example once a life
policy is taken, the assured has automatically created some National assembly of the Federal Republic of Nigeria enacted
,I!
wealth, up to the value ofthe sum assured or capital benefit. Insurance Act 2003 with its commencement date as 27 1h May
,,111,
1 3. Its purpose is to provide for a new insurance, which repealed
I ... 26 .".
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 =========:::::::::::::::::Th~Essentials ofInsurance Law in Nigeria ::::::::::::::::: A

~ :::::::::::::::::The Essentials ofInsurance Law in Nigeria:::::::::::::::::========

the insurance Decree No.2 of 1997. ThisAct is divided into sections
and parts, it is the current legislation guiding the conduct 01
insurance business in Nigeria. The act introduces revolutionary
changes aimed at strengthening the financial ba.e and to build ;1
virile and robust economy in the insurance industry. The impact 01
the Act is seen in many areas as we shall see.
Under section 2, the Act classified insurance business into Life and
!
I General business. Section 2 (2) subdivides life into 3 categories
namely; (a) mdividuallife insurance business, (b) group life and
pensions business and (c) health insurance business. While genera I
I
business is also subdivided.
I
urer or re-insurer. The commission from time to time may
rease this share capital. Under section 10, a proportion ofthe paid
share capital of the company is to be deposited with the central
of Nigeria otherwise referred to as a statutory deposit, 80
ent of this statutory deposit shall be returned to the company
:th interest not later that 60days after registration. Failure to make
statutory deposit shall constitute a ground for cancellation ofthe
ificate of registration as provided under section 1O( 6) of the
urance Actznnj.

il
For an individual or group of persons to carry out the business 01
insurance or re-insurance in Nigeria, such person(s) must firs I
I' incorporate a company under the Companies and Allied Matters Act
at the corporate affairs commission. According to section 3( 1} & (h)
of the Act, this is a called registration, otherwise no insurer shall
commence insurance business in Nigeria. Registration may he
cancelled were certain conditions as stipulated under the act are no!
met.

Section 9( 1)(a) (d) ofthe act specifies the minimum paid-up capital
requirement that must be met by the insurer while commencing the
business ofinsurance. It provides thus-
a) Life insurance business, not less that N 150,000,000
b) General insurance, not less that N350,000,000
c) Reinsurance business, not less that N350,000,000

The commission (CAC) may cancel the registration of any insurer

or re-insurer that fails to satisfy the provisions ofsection 9( 10) ofthe
insurance act 2003 as it relates to the category of operation of such
i
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