The Impact Of The Prudential Guidelines In The Insurance Industry
This project work is aimed at giving an insight of what the prudential guidelines on insurance companies hold for the industry in the nearest future.
It is centered on the impact of issued guideline by the various regulatory bodies like the insurance. Decree of 1976 and 1991 and the establishment of the various bodies like the NISB and others.
It also examine the performance apprisal of the insurance companies with a view of improving revenue profits, identifying the problems faced as a result of this prudential guidelines issued.
Hence the need to finding lasting solution to sanitize the insurance industry to bring about a more better future for its existence.
Insurance companies deal principally money and property.
According to Brettl. J. the subject matter of insurance is money and money only. They act as mobilizers of funds from surplus units and channel them to deficit units.
This channeling can be refered to as indemnity.
This can be put in another way, that the primary purpose traditionally of insurance to spread the financial losses of insured members over the whole of the insuring uncertainty by compensating the unfortunate few from the contributions of all members.
Premium changed by the insurance company is its primary sources of manning income, therefore the insurance companies help on premium for its insured or person, financial rights or liability to mention but a few.
However, the financial compensation promised by the insurer is what is called the subject matter of the contract.
Insurance contract is subject to the general Principles of Nigerian Law of Contract as in any other commercial activity. It these principles that makes for its validity. Not only does it affect insurance but it operates in every other commercial aspect of life.
1.1 Background of Study
The role of insurance as one of the major economic activities of a nation has long received would acclamation. It is not a dispute that insurance has attained a high degree of commercial sophistication.
Insurance business plays a major role in shaping the economic furtunes of the business enterprise institutions and individuals.
The economic profits of any country usually has an impact on both cost and benefits of insurance. Thus one should consider the examination of the subject of insurance regulation timely in view of current economic climate.
1.2 Statement of Problems
It has been a concern within the insurance industry on the introduction of the prudential guidelines, as it affects the performance appraisal of the insurance companies.
This research work is geared towards investigating the impact of this guideline as it affects the insurance industry in Nigerian.
In 1979 there was an act guiding the operations of insurance and ie- insurance business in Nigeria.
This act stipulated that minimum of 25 percent of the total assets of the insurance companies should be held by government and semi-government securities.
Non life insurance companies should invest not less than 10 percent of their total assets in real estate, while the minimum proportion for life insurance companies was fixed at 25 percent.
However, in recognition of the financial intimidation role of insurance companies by government the lending operation of the companies were brought under the control of the C.B.N with effect from April 1978. From then an insurance companies required to render monthly returns of their operation to the bank within 30 days from the end of each month.
1.3 Objectives of Study
- To ascertain the impact of the prudential guidelines on insurance companies.
- To examine the facts contained in the prudential guidelines issues.
- To examine the performance of insurance companies with regards to premium income and profit since the introduction of the prudential guidelines.
- To identify the problems insurance companies face as a result of the introduction of prudential guidelines.
- To know whether insurance companies now send monthly report to regulatory bodies.
- Recommendations on the researcher’s findings.
1.4 Significance of the Study
a. Insurance Companies
This licensed companies will, through this research, work improve on their performance since the researcher will let the public know all that is required of the insurance companies as contained in the prudential guidelines issued on licensed insurance companies.
b. The Government
Since the government though it regulatory bodies like NISB, C.B.N, etc issued the prudential guidelines this research will help the government know whether to let the prudential guideline continue or to withdraw it from being used by insurance companies.
C The Public
The public here includes, the “insured” and the intending ones. This research work will help particularly the intending policy buyers to be aware of the new insurance policy on the insured.
1.5 Scope Limitation and Delimitation
This research work covers the facts of the guidelines, premium income and profits position of insurance companies before and after the prudential guidelines, how the insurance companies welcome this new guidelines the impact the guidelines have made so far and the problems facing insurance companies as a result of the guidelines.
In Nigeria researchers are most of the time, regarded as tax collectors and they face many problems in the society. The researcher are not exempted and so, had a share of problems.
i. Finance and Time wasted
The research had to call on C.B.N, NDIC and some insurance companies within Enugu before obtaining the required information.
There was a huge transportation cost because of the researcher’s regular visits to the insurance companies and NDIC and much time was wasted which could have been employed in accomplishing some other things.
ii. Secrecy and lack of Statistics
To obtain the required information from the CBN, NDIC and others insurance companies was difficult because every information they considered confidential and so not information needed by the researcher was made available to him.
Due to the above limitation, the researcher purposely did not write out names of distressed insurance companies as a result of guidelines issued and detailed of their transactions.
1.6 Research Hypothesis
- H0 The prudential guidelines has not made any impact on licensed insurance companies. Since its introduction.
HI The prudential guidelines has made some impacts on licensed insurance companies since its introduction.
- H0 The insurance companies indemnity and premiums positions have not changed in spite of the introduction of the prudential guidelines.
HI The insurance companies indemnity and premiums positions have introduction op the prudential guidelines.
- H0 Insurance companies do not send monthly reports to CBN, NDIC since the prudential guidelines was issued under compulsion.
HI It has become a law that insurance companies disclose all about them to CBN, NDIC monthly as a result of introduction of prudential guidelines issued.
- H0 Insurance companies are not having problems as a result of the prudential guidelines issued to them.
HI Insurance companies are experiencing problems which is do to the result of the prudential guidelines issued to them.
Conclusion and Recommendations.
The prudential guidelines have checked the performance of non performing credit facilities and hence have improved asset qualities of commercial insurance companies.
Greater and better security of loan proposals are now experienced due to the demands of prudential guidelines; thus insurance companies are now more loan shy and demand heavier/bigger collateral backing the loans.
The monetary authorities have increase their supervisory activities in a bid to strengthen the insurance industry and these insurance companies are required to send their quarterly financial statements so as to quickly recognized early sign of distress in the industry; thus insurance companies have been witnessing increase in liquidity which shows that the instrument has come to stay and therefore, a new era in insurance company services. The mismatch between the declared and actual profits in the year prior to the operation of the guideline has so far been checked; the guidelines have warded off any new entrant to the insurance business in the country with the belief that insurance companies is all about profit making and not prudence. Since the introduction of Insurance companies consolidation in 2005, the era of failed insurance companies has been a thing of the past.
The National Insurance Commission(NAICOM) as a matter of fact should ensure that all International laws, rules and regulations guiding the insurance industry is also practiced here in the country so as to meet the world insurance standard. Such laws, rules and regulations should be interpreted in simple form and there should be sensitization exercise on the players.
The guidelines should include the mechanism by which slow loans are retrieved to insurance companies and where there is connivance of insiders such officer should be made to face the law squarely.
Judging from, and based on the findings in this research, it would be pertinent to proffer that monetary authorities takes steps to monitor trends in interest rates in the deregulated economy.
Also regulatory bodies should refrain from promulgating laws which are counter productive i.e. adversely affecting the industry.
Concerted efforts should be made to discover sickly insurance companies, by imposing stricter penalties for default of any provision. The National Insurance Commission(NAICOM) as the apex insurance company should be encouraged as a means of encouraging effectiveness in management and thus avoid distress, this will help curb over competition. In management quality, seminars and special enlightenment program should be encouraged.
The problem of asset classification by insurance companies can be curbed if the regulatory authorities CBN and NDIC subject the prudential guidelines to fit current macroeconomic and monetary trends in the country and world all over. Also, the prevalent debt recovery laws should be subject to review, so as to enable insurance companies who are owed the opportunity to effectively enforced collection of debt from their debtors.
Efforts should be made to instill discipline into the insurance industry in general by continuing the policies of the Abaca’s regime, which saw a lot of liquidation of ailing insurance companies and the trials of fraudsters.
If these recommendations are met, this writer is of a firm belief that the prudential guidelines will not only operate smoothly to achieve its objectives but also in its efforts improve the efficiency of all commercial insurance companies in Nigeria.
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