Insurance companies are financial institutions that are concerned with insurance. Insurance may be defined as a contract between an insurer and an insured, under which an insurer promises to indemnify (compensate) the insured against loss, which he may suffer in future, upon the payment of a premium. It is a provision made by an individual or an enterprise against the occurrence of some future loss.
There are certain risks which can be insured against. Examples are risks of fire, burglary or theft, accident, loss of goods in transit, untimely death and bodily injury to factory workers.
Examples of insurance companies in Nigeria are:
- Reinsurance Corporation of Nigeria
- National Insurance Corporation of Nigeria (NICON)
- Industrial and General Insurance (IGI)
- Custodian and Allied Insurance Nig. Ltd.
- Lion of Africa Insurance.
- Amicable Insurance.
Functions of insurance companies
- It facilitates international trade: Insurance stimulates and facilitates international trade. This is because marine policy, for example, provides cover for cargoes and vessels. The export credit guarantee also guarantees credit sales.
- It offers investment opportunities: Insurance makes funds available for investment. A large proportion of these resources are invested in the capital market, where businessmen can obtain loan. This helps in developing the country’s economy.
- It leads to risk reduction: Insurance helps to reduce or control loss or liabilities of a businessman. It spreads the financial losses of the insured.
- Provision of security: Insurance provides security to commercial activities. Some small enterprises would have collapsed as a result of major losses, but insurance always takes care of such uncertainty.
- Provides a means of savings: Insurance companies provide a means of saving regularly, which will help to provide for the future, e.g. endowment policy.
- It serves as collateral security: Life assurance policy can be used as a collateral security to obtain loan from the bank for business investment.
- Motivation of workers: Through group insurance policy, the workers are fully aware of a secured future; hence they will work harder, which will bring about higher productivity.
- Provision for old age and disability: Life assurance can be used as a way of providing for old age and to make provision for permanent disability.