CHAPTER ONE

INTRODUCTION

BACKGROUND OF STUDY

Losses and risks are inevitable, but human societies have created novel ways of reducing the burden of loss, the most effective being insurance. Insurance is a means whereby a person pays some sum of money called premium in order to indemnify self against loss of a belonging worth much more than the premium.
When the belonging being indemnified is an automobile – Car, SUV, Bus, Truck, Pickup, etc such insurance is called a auto insurance or vehicle insurance. It may also be called motor vehicle insurance or car insurance.

In Nigeria, there are two types of auto insurance offered by most insurance companies in Nigeria, namely third party and comprehensive auto insurance policy:

THIRD PARTY AUTO INSURANCE POLICY

Third party auto insurance is compulsory in Nigeria and protects car owners from losses caused by their cars on other people. For example, if your car runs into a pedestrian, kill someone, some ones property, or another car or you accidentally break another cars headlamp. However, in most such situations Nigerians will end up arguing or in a police station.

This is because although Third party auto insurance in compulsory most drivers do not know what it means. In fact, most Nigerian drivers just see it as one of the vehicle documentations they have to carry about to prove their ownership of their vehicle. This ignorance has allowed for lots of illegal insurance companies issuing fake and worthless third party auto insurance to unsuspecting Nigerians.

If you go for a third auto party insurance from  a registered insurance companies, you will be able to save yourself of the cost associated with causing damage on others. Assuming your car injured a pedestrian, the insurance company will pickup the medical bills saving you from being torn apart by the relatives of the injured.

Third party auto insurance pays for damages your car cause on others and ignores any loss you personally incurred in the process. Let us say you have a third party insurance and your car ran into another car and deformed the door and as a result, your bonnet was also deformed, the insurance company will only pick the bill of the loss your car caused on the other car leaving you to your fate. To protect yourself and any third party go for a comprehensive auto insurance policy.

Note that the claim you can make on an auto insurance policy is limited. So, find out the limit to the loss the insurance policy covers before subscribing. For example, an auto insurance policy may only cover loss up to a certain amount say N1,000,000. This means that if the property you damaged is worth more than that the insurance company will only provide N1,000,000.

To get a third party auto insurance policy contact a registered insurance company or use the services of an insurance marketer.

COMPREHENSIVE AUTO INSURANCE POLICY

Comprehensive auto insurance is third party insurance and more. The  more being that, Comprehensive auto insurance also indemnifies you from any personal loss. If you want to indemnify yourself against car theft, vehicle fires then you need a comprehensive auto insurance policy. Although not compulsory under Nigerian law, we recommended comprehensive auto insurance for all vehicle owners.

Most authorised auto dealers will give you comprehensive auto insurance cover as an option when buying a car. The auto dealer or an insurance company may also offer you a car-tracking device.

Note that auto dealers are not insurance companies, but only have relationship with them. So, make sure the insurance company the auto dealer is working with is registered and has good experience and reputation in auto insurance industry.

To get a comprehensive auto insurance policy, contact a registered insurance company or use the services of an insurance marketer. Comprehensive auto insurance policy covers private cars, Commercial vehicles (Taxis, Buses, and Hire Cars), Motorcycles, Tricycles, etc.

STATEMENT OF PROBLEM

 The basic principle in underwriting is that the premium paid by the insured should be adequate to cover the risk brought into the ~portfolio. This fact must have inflamed the learned judge to define premium as "a price adequate to the  risks. However,' it is important to know the law maintains that the adequacy of the premium is entirely a matter for the ' insurer and not of any concern to the court, In view of this, minimum premium is normally prescribed to be paid by the . government for certain classes of business, for example, motor vehicle and other types of insurance made compulsory by legislation. Under life assurance, the insurer is sure that the event assured must occur, Therefore claims must ultimately be made with respect to each policy except for term policy. In nonlife, there is a chance that the events insured may not occur and claims would not be made, The basic problems now are:-

 (a) how to determine the appropriate and fair premium so that enough fund will be accumulated in order to settle claims as and when due,

 (b) calculate rates that are not exploitative and therefore encourage the insured  potentials  insured  to come for business, bearing in mind that the insurers are there to make profit,

 (c) make rates adjustable  taking  cognizance of the high and rising inflation, cost of living and health condition of the people,

 (d) determining whether government's intervention in the area of premium rating is desirable and the extent, e determine whether the  non-acceptance of insurance services is a function of premium rate or poor public enlightenment, (f) determine the extent to which non-availability of statistical data has affected premium rating in the country.

RESEARCH OBJECTIVES

The objectives of this research in the light of the problems identified include:-

1, To find out the history of motor vehicle insurance in Nigeria.

 2, To attempt rating as factor affecting motor vehicle premium.

3, To explain the problems that affect motor vehicle premium rating in the country,

 4. To Find out  if the motor vehicle rating practice  in Nigeria   has contributed to the poor patronage by the public.

5. To find out  the  effect of government  Intervention  in the area  of premium  determination.

 6, To find out if premiums reflect the realities of the prevailing economic situation in the country.

7. Attempt to make appropriate recommendation for better premium motor vehicle rating in Nigeria

RESEARCH QUESTIONS

Objectives of this research in the light of the problems identified include:-

1, What is process and issues involved in determining motor vehicle  premium available to the reader?

 2, How does rating factor affect motor vehicle premium in Nigeria?

3, What is the problems that affect premium rating in the country?

 4. To what extent does the motor vehicle rating practice in Nigeria contributed to the poor patronage by the public?

5. What  is  effect of government  Intervention  in the area  of motor vehicle premium  determination?

 6, Does  motor vehicle premiums reflect the realities of the prevailing economic situation in the country?

SIGNIFICANCE OF THE STUDY

The study attempts to highlight the issues, problems and solutions involved in premium rating by the insurers and associated bodies in Nigeria, Insurance as a discipline is new, very interesting and important, As a business undertaking, it is very sensitive, risky and challenging, In terms of its contribution to the economic and social development of any nation, very basic, Yet it is least understood both by the student, practitioner, insured and potential insured and the government, The price or what forms the consideration in the insurance contract is difficult to determine, without it, services would not be provided by the insurers, Therefore any meaningful attempt to explain the issues involved would be of immense benefit not only to the students, the insuring public, but also to the insurers. This is because, it will aid the calculation and administration of a fair price. The fair price will encourage the public to insure and bring in money into the coffers of the insurance companies out of which claims would be settled, The economy will also gain by way of increased investment and money corning into government purse through taxation.

HYPOTHESIS

 In furtherance of the above objectives, the following 8 hypothesis will be tested with the data obtained from the respondents:-

1.      The amount of premiums being charged by the insurers is fair and adequate considering the rate of inflation in the country.

2.      Government intervention in the area of premium rating is very necessary instead of leaving it entirely to the insurers.

3.      The issue of delays in the settlement of claims is as a result of high and rising inflation rather than low premium charged.

4.       Non-acceptance of  insurance services by the public is more because of poor mass enlightenment than high premiums,

LIMITATIONS

It was not easy to have access to many books or articles that treated premium determination. This is because many authors skip this subject not only because of lack of obvious insight but the fact that government intervenes in the fixing of maxima and minima premium rates for non-life business. Materials that are available mainly treated life assurance in developed countries where the information and materials are available, If it were to be in Nigeria, these pieces of information would - be classified, In other words, the basic materials that are used in this work are primarily first hand information based on observed and informed. practices of experienced practitioners in this area. Although  the data was complemented by published 3 materials which are not: very current because of the practice by government bodies to publish in arrears, the lag is not significant enough to adversely affect the result of this study.

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