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CLAIM SETTLEMENT AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN NIGERIA

ABSTRACT

When it comes to general insurance claims, a surveyor has long played God. He is the one on whose word insurance companies rely while handing out the money. For the uninitiated, a surveyor is a qualified professional, who assesses the nature and extent of your loss, and the insurer company processes your claim on the basis of the report that is prepared by him. However, in a recent case, the National Consumer Commission held that the surveyor’s assessment need not be the final word while settling a claim. An insurance company’s primary objective is to restore the insured / policy holder back to the condition the insured was in before a loss and to spread risk through reinsurance. But at the back of it all, an insurance company’s main role is to make a profit as they are a business. A merger is a combination of two or more companies in which the resulting firm maintains the identity of the firms, usually the larger. Companies merge for many reasons some of which are that they are worth more together than. Others do to cut costs through vertical integration where a company merges with either its supplier or consumer purposely to enable the resulting company to acquire raw materials at the marginal cost, others merge for growth and market power and to eliminate competition mainly through merging with a competitor to create more power in the market. Other companies merge to diversify, like acquiring another company in a seemingly unrelated industry in order to reduce the impact of a particular industry’s performance on its profitability. According to “Africa Reinsurance Corporation 2011, Annual Reports and Accounts”, in the year 2011 was in many ways very bad for property / casualty insurers and reinsurers. Surprisingly, heavy catastrophe losses hit the industry even where they were not expected, in the previously called “cold spots”. It is believed that the earthquake and tsunami in Japan (above US$ 35billion incurred losses), the earthquake in New Zealand, the floods in Thailand and other natural perils caused over 30,000 deaths and US$350 billion total economic losses compared with US$226 billion in 2010. Insured catastrophe losses of above US$103 billion could be the costliest year for the industry. Regulation is also forcing new requirements of sophisticated risk management, possible capital increase and high compliance costs. Keeping up with the focus on growth with profitability and to grow premium income by a greater percentage across all business lines, effort to deal with claims expeditiously and pro-actively, to settle claims and outperform the market, make adequate provisions for outstanding claims, develop new products that are not only flexible but also targeted at the uninsured populace of the society whilst adding value, are part of challenges that engulf the insurance industry and its players. The study set out to investigate the effects of Mergers and acquisition on the financial performance of insurance industry in Nigeria. The study took a causal research design. Causal research design is consistent with the study objective which is to determine the effects of mergers on financial performance of insurance industry in Nigeria which can be measured through long-run profitability, stability, leverage and liquidity. Gay and Airasian (2003) noted that causal research designs are used to determine the causal relationship between one variable and another. In this study, the population was insurance companies in Nigeria with keen interest on those that have gone through mergers and acquisitions. The process of data collection involved the use of audited accounts used to estimate the relationship between pre and post merger, and liner regression model to enhance the analysis of the effects of M & A on financial performance. A paired t-test was performed to determine if a merger was effective. The mean profit before tax was 316.2, with standard deviation of 405.598 for 5 observations was significantly greater than zero, t(4)=1.74, two-tail p = 0.16, providing evidence that the merger is effective on the financial performance of the insurance company. A 95% confidence interval about mean weight loss is (187.42, 820.02). By carrying out regression tests, it was possible to confirm the relationship between mergers and financial performance where it was found out that the two have a strong relationship. However, the regression analysis could not be used exclusively since it was found out to be much lower than the residual figures hence confirming that financial performance of insurance companies were affected to a large extent (67%) by other factors other than mergers/acquisitions (33%). Based on the evidence collected from the study, as above, the researcher is for policy that insurance companies should opt for mergers / acquisitions to enable the insurer / reinsurer alleviate the above challenges among others that engross the insurance industry.

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Any request or demand for payment under the terms of the insurance policy. A claim may be made as a result of injuries or damages to an insured or for a third party’s injuries or property damage allegedly caused by the insured.

In April 2005, the owner of Uni Ply Industries insured the stock in his factory for Rs 30 lakh with New India Assurance, for a year. The insurance company issued a one-page policy cover note, but without any terms and conditions. The policyholder renewed the policy for another year in 2006, but before the term ended, a fire broke out in the factory, destroying stock worth Rs 19 lakh, as per the owner’s estimate. However, the surveyor approved by the Insurance Regulatory and Development Authority (Irda) assessed the loss at Rs 10 lakh. The insurer made a payment of only Rs 8 lakh to the factory owner by invoking the excess clause. According to this clause, in the event of loss, a predetermined portion is paid by the policyholder. The factory owner protested, but accepted the Rs 8 lakh settlement as part payment. Later, when he asked the insurance company to pay the balance, his request was rejected on the grounds that the matter had already been settled. So, in 2007, the owner filed a case on the grounds of deficiency of service with the district commission, which ruled in his favour. The insurance company’s appeal to the state commission also went in favour of the policyholder. The New India Assurance then filed a revision petition with the National Commission, questioning the findings of the district and state commissions. The company’s main argument was that it had processed the claim based on the findings of an independent surveyor and, hence, there was no deficiency in service. However, the National Commission held that it was incorrect on the part of the company to treat the payment of Rs 8 lakh as final settlement since the policyholder had accepted it only as partial relief; his signing the discharge voucher did not end the matter. The ruling also referred to court precedent, or ‘settled law’, that a surveyor’s assessment could not be treated as the final word. The Commission held that the company could not invoke the excess clause as it had failed to issue the terms and conditions of the policy to the factory owner. Evidence from the property-casualty insurance industry suggests that some insurers tend to settle quickly and out of court, while others vigorously defend all claims. A 1999 change in the National Association of Insurance Commissioners reporting standards now requires that U.S. insurers submit detailed data related to defense cost expenditures. This study incorporates the new defense cost data in a quantile regression framework to assess the relation of insurer characteristics to expenditures on defense costs. Our results support the hypotheses that factors related to the type of business and business environment shape the insurer’s defense expenditures. Most laws regulating the insurance industry in the U.S. are state-specific. In 1869, the Supreme Court of the United States held, in Paul v. Virginia (1869), that United States Congress did not have the authority to regulate insurance under its power to regulate commerce. In the 1930s and 1940s, a number of U.S. Supreme Court decisions broadened the interpretation of the Commerce Clause in various ways, so that federal jurisdiction over interstate commerce could be seen as extending to insurance. In March 1945, the United States Congress expressly reaffirmed its support for state-based insurance regulation by passing the McCarran-Ferguson Act (found at 15 U.S.C. §§ 1011-15) which held that no law that Congress passed should be construed to invalidate, impair or supersede any law enacted by a State regarding insurance. As a result, nearly all regulation of insurance continues to take place at the state level. Such regulation generally comes in two forms. First, each state has an “Insurance Code” or some similarly named statute which attempts to provide comprehensive regulation of the insurance industry and of insurance policies, a specialized type of contract. State insurance codes generally mandate specific procedural requirements for starting, financing, operating, and winding down insurance companies, and often require insurers to be overcapitalized (relative to other companies in the larger financial services sector) to ensure that they have enough funds to pay claims if the state is hit by multiple natural and man-made disasters at the same time. There is usually a Department of Insurance or Division of Insurance responsible for implementing the state insurance code and enforcing its provisions in administrative proceedings against insurers. Second, judicial interpretation of insurance contracts in disputes between policyholders and insurers takes place in the context of the aforementioned insurance-specific statutes as well as general contract law; the latter still exists only in the form of judge-made case law in most states. A few states like California and Georgia have gone farther and attempted to codify all of their contract law (not just insurance law) into statutory law.

Early insurance contracts were considered to be contracts like any other, but first English (see uberrima fides) and then American courts recognized that insurers occupy a special role in society by virtue of their express or implied promise of peace of mind, as well as the severe vulnerability of insureds at the time they actually make claims (usually after a terrible loss or disaster).

In turn, the development of the modern cause of action for insurance bad faith can be traced to a landmark[2] decision of the Supreme Court of California: Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 328 P.2d 198, 68 A.L.R.2d 883 (1958).[3] Comunale was in the context of third-party liability insurance, but California later expanded the same rule to first-party fire insurance in Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973). During the 1970s, insurers argued that these early cases should be read as holding that it was bad faith to deny a claim only when the insurer already knew that it had no reasonable basis for denying the claim (i.e., when the insurer had already acquired information showing a potentially covered claim and denied it anyway). In other words, they contended that only intentional mistreatment of an insured should be actionable in bad faith, versus merely grossly negligent claim handling. In 1979, California’s highest court refuted that argument and further expanded the scope of the tort by holding that inadequate investigation of a claim was actionable in tort as a breach of the implied covenant of good faith and fair dealing.

Other state courts began to follow California’s lead and held that a tort claim exists for policyholders that can establish bad faith on the part of insurance carriers. According to Stephen S. Ashley’s treatise, Bad Faith Actions: Liability and Damages, 2nd ed. (Eagan, MN: Thomson West, 1997), §§ 2.08 and 2.15, courts in nearly thirty states recognized the claim by the late 1990s. In nineteen states, state legislatures became involved and passed legislation that specifically authorized bad faith claims against insurers. An insurance company has many duties to its policyholders. The kinds of applicable duties vary depending upon whether the claim is considered to be “first party” or “third party.” A common first party context is when an insurance company writes insurance on property that becomes damaged, such as a house or an automobile. In that case, the company is required to investigate the damage, determine whether the damage is covered, and pay the proper value for the damaged property. Bad faith in first party contexts often involves the insurance carrier’s improper investigation and valuation of the damaged property (or its refusal to even acknowledge the claim at all). Bad faith can also arise in the context of first party coverage for personal injury such as health insurance or life insurance, but those cases tend to be rare. Most of them are preempted by ERISA.

Third party situations (essentially, liability insurance) break down into at least two distinct duties, both of which must be fulfilled in good faith. First, the insurance carrier usually has a duty to defend a claim (or lawsuit) even if some or most of the lawsuit is not covered by the insurance policy. Unless the policy is expressly structured so that defense costs “eat away” at the policy limits (a so-called “self-consuming” or “burning limits” policy), the default rule is that the insurer must cover all defense costs regardless of the actual limit of coverage. In one of the most famous decisions of his career (involving Jerry Buss’s bad faith lawsuit against Transamerica), Justice Stanley Mosk wrote: “[W]e can, and do, justify the insurer’s duty to defend the entire ‘mixed’ action prophylactically, as an obligation imposed by law in support of the policy. To defend meaningfully, the insurer must defend immediately. [Citation.] To defend immediately, it must defend entirely. It cannot parse the claims, dividing those that are at least potentially covered from those that are not.” Texas (and a few other conservative states) follow an “eight-corners rule” under which the duty to defend is strictly governed by the “eight corners” of two documents: the complaint against the insured and the insurance policy.[8] In many other states, including California[9] and New York,[10] the duty to defend is ascertained by also looking to all facts known to the insurer from any source; if those facts when read together with the complaint show that at least one claim is potentially covered (that is, the complaint actually alleges a claim of the kind which the insurer promised to defend or could be so amended in light of the known facts), the duty to defend is thereby triggered and the insurer must undertake the defense of its insured. This powerful bias in favor of finding coverage is one of the major innovations of U.S. law. Other common law jurisdictions outside of the U.S. continue to construe coverage much more narrowly. Next, the insurer has a duty of indemnification, which is the duty to pay a judgment against the policyholder, up to the limit of coverage. However, unlike the duty to defend, the duty to indemnify exists only to the extent that the final judgment is for a covered act or omission, since by that point, there should be a clear factual record from trial or summary judgment in the plaintiff’s favor revealing what portions of the plaintiff’s claims are actually covered by the policy (as distinguished from potentially covered). Therefore, most insurance companies exercise a great deal of control over litigation. Bad faith can occur in either situation—by improperly refusing to defend a lawsuit or by improperly refusing to pay a judgment or settlement of a covered lawsuit. In some jurisdictions, like California, third party coverage also contains a third duty, the duty to settle a reasonably clear claim against the policyholder within policy limits, in order to avoid the risk that the policyholder may be hit with a judgment in excess of the value of the policy (which a plaintiff might then attempt to satisfy by writ of execution on the policyholder’s assets). If the insurer breaches in bad faith its duties to defend, indemnify, and settle, it may be liable for the entire amount of any judgment obtained by a plaintiff against the policyholder, even if that amount is in excess of policy limits. This was the holding of the landmark Comunale case. Bad faith is a fluid concept and is defined primarily by court decisions in case law. Examples of bad faith include undue delay in handling claims, inadequate investigation, refusal to defend a lawsuit, threats against an insured, refusing to make a reasonable settlement offer, or making unreasonable interpretations of an insurance policy. In many states, either the common law tort or an equivalent statute authorizes punitive damages for bad faith to further incentivize insurers to act in good faith towards their insureds. U.S. courts usually follow the American rule in which parties bear their own attorney’s fees in the absence of statute or contract, which means that in most states, bad faith litigation must be financed solely by the plaintiff, either out-of-pocket or through a contingent fee arrangement. (Insurance policies in the U.S. generally lack fee-shifting clauses, so that insurers can consistently invoke the default “bear your own fees” American rule.) However, in California, the plaintiff in a bad faith action may be able to recover part of its attorneys’ fees separately and in addition to the judgment for damages against a defendant insurer, but only up to the extent that those fees were incurred in recovering tort damages (for breach of the implied covenant) as opposed to contractual damages (for breach of the terms of the insurance policy).[11] Oddly, the allocation of attorneys’ fees between those two categories is itself a question of fact (meaning it usually goes to the jury).

Assignment or direct action, In some U.S. states, bad faith is even more complicated because under certain circumstances, a liability insurer may ultimately find itself in a trial where it is being sued directly by the plaintiff who originally sued its insured. This is allowed through two situations: assignment or direct action. The first situation is where an insured abandoned in bad faith by its liability insurer makes a special settlement agreement with the plaintiff. Sometimes this occurs after trial, where the insured has attempted to defend himself or herself by paying for a lawyer out of pocket, but went to verdict and lost (the actual situation in the landmark Comunale case); other times it occurs before trial and the parties agree to put on an uncontested show trial that results in a final verdict and judgment against the insured. Either way, the plaintiff agrees to not actually execute on the final judgment against the insured in exchange for an assignment of the assignable components of the insured’s causes of action against its insurer . The second situation is where the plaintiff does not need to obtain a judgment first, but instead proceeds directly against the insured’s insurer under a state statute authorizing such a “direct action.” These statutes have been upheld as constitutional by the U.S. Supreme Court. The saying “HAD I KNOWN”, is a frequent question of the human race. The phrase can be induced or possibly eliminated if human beings can foresee or visualize what would happen in future. Life itself is full of risks and uncertainties abound. Every individual faces risks, either of personal nature or business nature.

A businessman for instance faces the risk of his goods being damaged by fire while his dependant may suffer loss of income through his death. Equally, a manufacturing firm runs the physical risk of possible loss of goods by fire or theft or such other technical risk as loss of trade as a result of government policies, loss of trade of trade due to change in fashion, loss of profit as a result of fire outbreak. A car owner for instance stands to face the possible theft of his car and damage through accident. Efforts can be made to avoid some of these risks. Accidents can be avoided if proper precautions are taken. An individual can avoid airplane disaster or crash by not engaging in air travel no matter how careful one can be, some form of danger still hangs around.

Some risks are inherent in nature or life itself and cannot be avoided. For instance, men are mortal and must die, when complete avoidance is impossible, man attempts to reduce or possibly assumes risks. A thatched roof house is a greater fire risk than one with tiled roof. Many people accept the small risk of building house of standard construction than that of thatched roof. Here the risk has not been avoided but reduced. Risk assumption may also arise out of ignorance or may even be an intentional art where the degree of expose risk is slight or possible loss is minimal. Assumption is even possible where a deliberate provision has been made for consequences of loss happening. Many individuals would however prefer to shift or spread the risk where possible. It is here that Social Economic Services rendered by Insurance companies will be appreciated. Insurance has been described as a social device by which the Insured agrees to transfer all or part of his risks to the Insurer who agrees to indemnify him when the risk insured against happens on the payment of the premium. The basic role of insurance is to create a common pool into which the individual or organization contribute premium commensurate with the degree of risk for which insurance is sought. The members of the pool who are unfortunate to suffer loss are compensated with the contributions of others in the pool. In this way, the larger society is made to be made to be responsible for providing compensation for the unfortunate few who unavoidably incur financial losses through the operation of certain mishap.

It is therefore obligatory on the part of the insurer to compensate the insured (their client) whenever, is loss on the item insured against as long as the insured abides to the conditions stated in the contract or policy. Thus, the modern society retain insurance as the method of solving the risk associated with their activities, in that it helps to soften the financial blow that would have resulted. When the public feels that this function is not being carried out the industry may suffer or face a possible collapse.

1.2 PROBLEM OF THE STUDY

One of the challenges facing the sector is the lack of depth. Series of international businesses passed to local insurance companies are being turned down because they complain that their insurance treaties cannot carry such. What are you doing to correct this anomaly?

The sudden and dramatic increase in insurance premiums is now well documented and generally agreed to be the result of a number of factors which reflect a period of major adjustment in the industry. Lower returns on investment have led to a hardening of the insurance market and a resultant exodus from the high risk areas of the insurance business, most notably the public liability areas.

Since 1997 product and public liability insurance in Australia has run at a loss with the revenue from premiums falling well short of the cost of claims. One of the major drivers is the increase in the number of claims, which have risen from 48,000 in 1996 to 88,000 in 2000. More importantly, claims expenses have risen by 22% per year over 4 years, with expenses exceeding gross premiums by $300m.

The impact of these changes has been exacerbated by the collapse of HIH. For some time HIH had offered substantially cheaper premiums for public liability, most notably from community, sporting and not-for-profit groups. Arguably these favourably priced premiums also contributed to HIH’s downfall, but the disappearance of this apparently false comfort-zone had a huge effect on these clients who then faced substantial increases in premiums as they sought to secure insurance from companies offering policies at less competitive rates.

The events of September 11 have also impacted significantly on premiums– primarily through increasing the cost of reinsurance, but have also made the insurance industry particularly nervous about risk or perceived risk and their financial performance.

Economists may argue that the market should be allowed to correct itself, based on the theory that as profits increase, so will competitive pressures, with new entrants and increasing competition eventually driving prices down. While in the long run the market may settle back towards a more stable pattern, it is unlikely that premiums will return to former levels and the short term adverse consequences are simply not acceptable. The major reason for the establishment of insurance company is to provide a cushion for individual or organization that has or may suffer some misfortune at a price called premium. Sometimes when loss occurs and claims presented, they are delayed or declined and when paid it does not restore the insured to his former financial position. This has formed the architect of dispute between the insured and the insurer. These I think affect the attitude of insuring public and development of the insurance industry in Nigeria. It is therefore the purpose of the study to find out why claims are delayed or not paid at all and the role played by the insuring public that result in claim being settled or declined. The study also finds out if approach to claim settlement affect attitude of the insuring public and to what extent it affect the development of the insurance industry. In describing the importance of claim settlement, H.T.Durojaiye (1988:5) stated that the importance of the subject of claim settlement cannot be under estimated. Infact the bulk of the provisions of the insurance Act for the observation of insurance companies, brokers and agents are to ensure that when a claim occurs the insurers are on healthy ground or position to settle claim or settle the loss in amelioration of the hardship caused the insured. According to E.A Okwor (1988:9), he quoted that prompt claim settlement is the acid test for any insurance company and failure in this text will adversely affect the image of the industry as a whole.

Notwithstanding the positive roles which the insurance industry plays in the social and economic development of our country, the industry still does not enjoy a good public image. The public see the industry wrongly as dupes. They believe that the insurers are good at extorting money from them in form of premium but are reluctant in settling claims when the time comes or when it arises.

The most important reason for this impression is that there is a low level of insurance awareness in our society. The public are not properly educated on the scope, functions and limitations of insurance as well as the basic rules that govern insurance transactions especially in the issue of claim settlement. Claim settlement is a very importance issue that may cause dispute between the insurers and their insured. Hence most of the disputes that arise in insurance contracts have to do with claims settlement so, an important factor that distinguishes a good insurance company is its claims settlement service. It does not mean that an insurer should be over liberal in order not to edge itself out of the market. Worthy of mention is that the public should appreciate that insurance is not a charitable organization. The shareholders of an insurance company look forward making profit just like any other shareholders in other commercial enterprises. However, the insurers should ensure that they do not sacrifice the interest of their policyholders in order to satisfy their profit motive. The insurers are obviously in the business just because they have their policyholders. The insurers should appreciate that claim settlement is their ship window.

1.3 OBJECTIVE OF THE STUDY

The objective of this research work is to look into the performance of the Nigerian insurance industry viz a viz the procedure and approach to claim settlement. Individuals hold diverse opinion about this industry and the general impression is that the insurance industry has failed to win the confidence of the insuring public. Often times, people make remark such as “unwilling to settle claim but always willing to collect premium and use its small prints in the policy to decline its liability”. It is the belief about the industry is allowed to continue and not corrected that the industry will totally collapse and the after effect will be over bearing on the economy. When we consider the importance of insurance in the economic development of any nation, it is therefore the intention of the researcher to find out if this allegation is true or otherwise, proffer solution and make recommendation that will help to solve these problems.

The purpose of study among other things is to:-

Find out if insurance companies are capitalizing on the ignorance or illiteracy of the insuring public.
To find out what the perception of the public is towards insurance companies.
To find out if there are laws that make it impossible for them to settle claim that are genuine.
To find out what makes it difficult for insurance companies to settle claim when they arise.
To find out the effect of rate cutting on the insurance companies.

1. To know effect of claim settlement on financial performance of insurance companies in Nigeria.

2. To assess the processes adopted by insurance industry in settling claims.

3. To know the risk encountered by insurance firms in the cause of settling claims especially when the issue of bad faith is involve.

4. To understand the legal prove and conditions of settling claims allow by the central bank of Nigeria for insurance companies to operate.

5. To assess the significant relationship between claim settlement and financial performance of insurance firms.

1.4 RESEARCH QUESTION

1. What are the effect of claim settlement on financial performance of insurance companies in Nigeria?

2. Is it possible to assess the processes adopted by insurance industry in settling claims?

3. Are there risk encountered by insurance firms in the cause of settling claims especially when the issue of bad faith is involve?

4. Can one assess the significant relationship between claim settlement and financial performance of insurance firms.

5. What are the legal prove and conditions of settling claims allow by the central bank of Nigeria for insurance companies to operate?

1.5 RESEARCH HYPOTHESIS

H0: Claim settlement has no effect on financial performance of insurance companies in Nigeria.

H1: Claim settlement has great effect on financial performance of insurance companies in Nigeria.

H0: There is no significant relationship between claim settlement and financial performance of insurance firms.

H1: There is a significant relationship between claim settlement and financial performance of insurance firms.

H0: It is impossible to assess the processes adopted by insurance industry in settling claims.

H1: It is possible to assess the processes adopted by insurance industry in settling claims.

H0: There are no risks encountered by insurance firms in the cause of settling claims especially when the issue of bad faith is involve.

H1: There are risks encountered by insurance firms in the cause of settling claims especially when the issue of bad faith is involve.

1.6 SIGNIFICANCE OF THE STUDY

Claim administration is the core of insurance business; an efficient and prompt setting service is the best of advertising for an insurance company.

But since claim settlement has been a subject of controversy this study will help :-

-The insurer claim. Setting superior value and effective settlement of claim. The insurance company can change their customer expectations and make them the engine fuel of innovation by listening to their careful analysis, complaints compliment and evaluation of their services delivered.

-The study will also be relevant to academicians who may wish to know themselves of data and information about claim settlement situation in enugu, it will also enlighten the public at large on insurance matters. More so the study will serve as a dimension to putup researchers and will give them the bases for validating and disapproving the finding of this study.

SCOPE OF THE STUDY

This study is centered onclaim settlement and financial performance of indurance companies

.1.8 LIMITATION OF STUDY

Despite the limited scope of this study certain constraints were encountered during the research of this project. Some of the constraints experienced by the researcher were given below:

i. TIME: This was a major constraint on the researcher during the period of the work. Considering the limited time given for this study, there was not much time to give this research the needed attention.

ii. FINANCE: Owing to the financial difficulty prevalent in the country and it’s resultant prices of commodities, transportation fares, research materials etc. The researcher did not find it easy meeting all his financial obligations.

iii. INFORMATION CONSTRAINTS: Nigerian researchers have never had it easy when it comes to obtaining necessary information relevant to their area of study from private business organization and even government agencies. Registered insurance companies in Enugu finds it difficult to reveal their internal operations. The primary information was collected through face-to-face interview getting the published materials on this topic meant going from one library to other which was not easy.

Although these problems placed limitations on the study, but it did not prevent the researcher from carrying out a detailed and comprehensive research work on the subject matter.

1.9 DEFINITION OF TERMS

POLICY:-this is a document which gives the term and condition of insurance contract. It is popularly called insurance policy and it is given to the insured by the insurer after his proposal has been accepted and his premium paid. This shows an evidence existing contract between the insured and the insurer.

PREMIUM: – is the monetary consideration passing from the insured to the insurer for their undertaking to pay the sum insured in the event of the risk insured against happening. It is a necessary element in formation of an insurance contract.

PROPOSAL FORM: – This is a document drafted by the insurer and which seeks answers to main material aspects of the risk. It is a questioned designed to elicit material information pertaining to the risk to be insured. It is completed by the person who wants to enter into insurance contract.

CLAIM FORM: – This is a form in which the insured states the circumstances of the occurrence of the damage or loss for which he sought the form given to him by the insurer.

CLAIM: – This is an application by the policy holder to exercise the right to indemnify or benefit under the policy.

LOSS ADJUSTERS: – This is an independent firm whose services are employed by the insurance company if there is excess claim by the insured to assess such claim. After their assessment, their judgement is final and they are paid for such services by the insurance company.

NOTICE OF RENEWAL: – A policy meant for one year for instance, 2000-1^st January 2001 is expected to lapse at the end of one year. So before it lapses, a renewal is sent to the insured reminding him to come and renew his policy because any claim on lapsed policy is not entertained.

ALMOST GOODFAITH: – Due to its fiduciary nature it is required by this doctrine that all parties to an insurance contract should disclose material fact concerning the contract that they want to enter into whether required or not.

PROXIMATE CAUSE: – The active efficient cause that sets in motion a chain of events which brings about a result without intervention of any force stated and working actively. From new and independent source in Pawsay V. Scottish union and national (1907).

CONTRIBUTION:- is the right of an insurer to call upon others similar but not necessarily equally liable to the same insured to share the cost of an indemnity payment (J.I.Stell, Elements of insurance study course II textbook, London, chapter 5 page 5)

SUBROGATION: – Is a contract that beholds indemnity contract. It is to prevent the insured from receiving more than indemnity.

INSURABLE INTEREST: – Legal to insure arising out of financial relationship between the insured and subject matter of insurance enforceable at law.

INDEMNITY: – Is the control principle of justice. Brett n Castellen V. Preston (1883). Indemnity is a mechanism of pulling the insured back to the former position he enjoyed immediately before the loss.

RISK: – Is the chance of loss. Risk is also the uncertainty as to the occurrence of an economic loss.

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