Why some insurance policies are compulsory
All over the world, government identifies the need to protect its citizens and their properties through effective mechanism that ensures there is compensation for damage or loss incurred, either as a result of their activities or the third parties. This is to prevent economic shock and give peace of mind to enable individual and groups pursue their goals without much distraction.
Based on this, government strives to ensure that its insurance industry is properly positioned with the requisite capacity to absorb large risks; and as professional risk bearers, take the responsibility to give succour by paying compensation which is also called claims to victims or third parties after a loss.
To secure this binding, the citizens’ part-with some money called premiums to the insurance companies, which by virtue of their technical expertise pull these monies into a pool, from where it meets claims obligations when they arise.
The essence of this is to assist victims to bounce back after losses and at least, return to the position they were before the incident.
This explains why experts define insurance as a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. It is also defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium.
The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer, in exchange for the insurer’s promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
Compulsory insurance policy
The fact that some of these insurances are necessary for a healthy social and economic environment, underscores why government in its wisdom insists that they are made compulsory so that people concerned are compelled under given laws to take the covers against expected damage or loss, for selves or third parties.
With these compulsory insurances, government wants to ensure that risk that could pull individuals down and make them economically impotent are taken over by insurers, whose expertise is to provide cover and pay compensations.
Accordingly, the benefiting individuals are protected from going back to poverty as result of loss of assets or property, and most importantly are more positioned to contribute their own quota to the overall economic growth of the society, which when pulled together makes the country’s economy better.
As espoused by great author and philosopher, Adams Smith in his book “Wealth of Nations” individuals roles and contribution to societal good and economic development is unimaginable in achieving a strong and vibrant system.
By pursuing individual own interest, people frequently promotes that of the society more effectually, so justifies why government seek protection of the individuals and their different economic activities.
The insurance industry in providing these risk management services, get bigger, earn more revenue and contribute significantly to the country’s gross domestic product (GDP).
Beyond that, the implementation of the project under the National Insurance Commission’s Market Development and Restructuring Initiative (MDRI) is expected to thousands of jobs, because it is designed to engage insurance agents and marketers that will take the insurance products to the grass root, as part of the vision is to increase market penetration.
By this effort, the industry would have contributed reasonably to reducing unemployment rate in the country such that poverty is gradually being reduced in the society.
In Nigeria today, five types of insurance are made compulsory under different laws, which government identify as necessarily good to enable people have peace of mind in pursuing their daily economic activities.
The five compulsory insurances under the law are:
A . Group Life Insurance in line with the Pension Reform Act 2004
B .Buildings Under Construction-section 64 of the Insurance Act 2003
C .Occupiers Liability Insurance –section 65 of the Insurance Act 2003
D .Motor Third Party Insurance –section 68 of the Insurance Act 2003
E .Health Care Professional Indemnity Insurance- section 45 of the NHIS Act 1999.