THE IMPACT OF RISK MANAGEMENT IN NIGERIAN INSURANCE INDUSTRY A CASE STUDY OF ANCHOR INSURANCE PLC, UYO
CHAPTER ONE
INTRODUCTION
Risk occurs where it is not known that the future outcome will be but where the various possible outcomes may be expected with some degree of confidence form knowledge of past or existing events. In other words probabilities of alternative outcomes can be estimated (Akinsulire, 2010). Risk management is the process of identifying, qualifying, and managing the risk that an organization faces. Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate event to minimize the realization of opportunities (Hubbard, 2009). Risk management in insurance industry is to assure uncertainty does not deviate the endeavour from the business goals. As the outcomes of business activities are uncertain, they are said to have some element of risk. Risks can come from different ways e.g. strategic failures, operational failure, financial failure, market disruptions, legal liabilities, credit risk, accidents, natural causes and disasters, regulatory violations as well as deliberate attack from an adversary, or events of uncertain or unpredictable root-cause.
Risk management by insurance industry involves the process of identification, analysis and either acceptance or mitigation of uncertainly in investment decision-making. Essentially risk management occurs anytime an investor or fund manage analyzes and attempts to quality the potential for losses in an investment and then takes the appropriate action (or in action) given their investment objectives and risk tolerance. Inadequate risk management in insurance industry can result in severe consequences for companies as well as individuals. For example, the global recession that began in 2008 was largely caused by loose credit risk management of financial firms. Simply put, risk management is a two-steps process-determining what risks exist in an investment and then handling those risks in a way best-suited to investment objectives. Risk management occurs everywhere in the financial world. It occurs when an investor buys low risk government bonds over more risky corporate debt, when a fund manager ledges their currency exposure with currency derivatives and when a bank performs a credit check on an individual before issuing them o personal line of credit (Peter and David, 2012).
According to Darfman (2007) risk management involves identifying the types of risk exposure within the company, measuring those potential risks, proposing means to ledge, insure or mitigate some of the risks and estimating the impact of various risks on the future earnings of the company. while it is impossible that companies remove all risk from the organization, it is important that they properly understand and manage the risks that they are willing to accept in the contest of the overall cooperate strategy. Rather, insurance industry is primarily responsible for risk management and they are playing a critical role. Risk can be managed in a number of ways: by the buying of insurance, by using sharing risks with others, or by avoiding risky positions altogether.
Therefore, insurance is co-operative device to speared the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against the risk (Mishaiva, 2006). Thus, the insurance is
- A co-operative device to spread the risk.
- The system to spread the risk over a number of persons who are insured against the risk.
- The principle to share the loss of each member of the society on the basis of profitability of loss to their risk; and
- The method to provide security against losses to the insured, insurance industry continue to play a crucial role in helping companies to manage risk by transferring it. But also serves as a vital risk management tool traditionally and non-traditional uses in which risk transfer is, at best, a minor consideration.
It is against this backdrop on the impact of risk management in insurance industry that motivated the researcher to know whether insurance industry still maintain her traditional role in financing and management of risk.
It is noted that, although insurance industry had been saddled with responsibility of managing risk, risk is the possibility that an event will occur and adversely affect the achievement of a company’s objectives thereby, decreasing value of the company’s stakeholders. However, inadequate risk management in insurance industry results is server consequences for companies as well as individual which invariably affects the societal well beings. Rather, many businesses and young companies are often under insured. As noted, this is for two reasons: First, they may not have the capital to acquire all the insurance they need to cover their bases. Second, they are unaware of what they need to insure and does not take stock of their in coverage.
The impact of risk management in Nigerian insurance industry still remain unclear even at this stage, due to regulatory uncertainty. The need to operate economically and efficiently; comply with new and existing regulations and standards, meet competitive pressures, and take advantage of opportunities to grow are all exerting considerable pressure on insurers. Perhaps, due to high level of corruption in the polity, inexperienced insures, poor financial base and lack of adherence to insurance principles; risk management in the industry nowadays is being regarded as a “sheer dream”. And policy inconsistency has marred the integrity of insurance industry. The risk in the have received relatively little attention from academics and regulators, and is causing a severe problem. The combination of a low interest rate environment and poor risk management generated large losses, even during the global financial crisis. A fundamental problem with the insurance industry is that no one knows the market value of liabilities.
The specific objective of the study therefore, are to
- Examine the impact of risk management in Nigeria insurance industry.
- Examine the relationship between insurance industry and risk management
- Assess the area of risk undertaken by insurance industry in Nigeria
- Know the measures adopted by insurance industry in managing risk.
- Determine whether insurance regulations facilitate management of risk in insurance industry.
- Identify problems bedeviling efficient management of risk in the Nigeria’s insurance industry.
