Impact Of The Prudential Guidelines In The Insurance Industry

INTRODUCTION
Insurance companies deal principally money and property.
According to Brettl. J. the subject matter of insurance is money and money only. They act as mobilizers of funds from surplus units and channel them to deficit units.
This channeling can be refered to as indemnity.
This can be put in another way, that the primary purpose traditionally of insurance to spread the financial losses of insured members over the whole of the insuring uncertainty by compensating the unfortunate few from the contributions of all members.
Premium changed by the insurance company is its primary sources of manning income, therefore the insurance companies help on premium for its insured or person, financial rights or liability to mention but a few.
However, the financial compensation promised by the insurer is what is called the subject matter of the contract.
Insurance contract is subject to the general Principles of Nigerian Law of Contract as in any other commercial activity. It these principles that makes for its validity. Not only does it affect insurance but it operates in every other commercial aspect of life.

1.1 BACKGROUND OF STUDY
The role of insurance as one of the major economic activities of a nation has long received would acclamation. It is not a dispute that insurance has attained a high degree of commercial sophistication.
Insurance business plays a major role in shaping the economic furtunes of the business enterprise institutions and individuals.
The economic profits of any country usually has an impact on both cost and benefits of insurance. Thus one should consider the examination of the subject of insurance regulation timely in view of current economic climate.

1.2 STATEMENT OF PROBLEMS
It has been a concern within the insurance industry on the introduction of the prudential guidelines, as it affects the performance appraisal of the insurance companies.
This research work is geared towards investigating the impact of this guideline as it affects the insurance industry in Nigerian.
In 1979 there was an act guiding the operations of insurance and ie- insurance business in Nigeria.
This act stipulated that minimum of 25 percent of the total assets of the insurance companies should be held by government and semi-government securities.
Non life insurance companies should invest not less than 10 percent of their total assets in real estate, while the minimum proportion for life insurance companies was fixed at 25 percent.
However, in recognition of the financial intimidation role of insurance companies by government the lending operation of the companies were brought under the control of the C.B.N with effect from April 1978. From then an insurance companies required to render monthly returns of their operation to the bank within 30 days from the end of each month.

1.3 OBJECTIVES OF STUDY
a. To ascertain the impact of the prudential guidelines on insurance companies.
b. To examine the facts contained in the prudential guidelines issues.
c. To examine the performance of insurance companies with regards to premium income and profit since the introduction of the prudential guidelines.
d. To identify the problems insurance companies face as a result of the introduction of prudential guidelines.
e. To know whether insurance companies now send monthly report to regulatory bodies.
f. Recommendations on the researcher’s findings.

1.4 SIGNIFICANCE OF THE STUDY
a. INSURANCE COMPANIES
This licensed companies will, through this research, work improve on their performance since the researcher will let the public know all that is required of the insurance companies as contained in the prudential guidelines issued on licensed insurance companies.
b. THE GOVERNMENT
Since the government though it regulatory bodies like NISB, C.B.N, etc issued the prudential guidelines this research will help the government know whether to let the prudential guideline continue or to withdraw it from being used by insurance companies.
C THE PUBLIC
The public here includes, the “insured” and the intending ones. This research work will help particularly the intending policy buyers to be aware of the new insurance policy on the insured.

1.5 SCOPE LIMITATION AND DELIMITATION
SCOPE
This research work covers the facts of the guidelines, premium income and profits position of insurance companies before and after the prudential guidelines, how the insurance companies welcome this new guidelines the impact the guidelines have made so far and the problems facing insurance companies as a result of the guidelines.
LIMITATION
In Nigeria researchers are most of the time, regarded as tax collectors and they face many problems in the society. The researcher are not exempted and so, had a share of problems.
i. Finance and Time wasted
The research had to call on C.B.N, NDIC and some insurance companies within Enugu before obtaining the required information.
There was a huge transportation cost because of the researcher’s regular visits to the insurance companies and NDIC and much time was wasted which could have been employed in accomplishing some other things.
ii. Secrecy and lack of Statistics
To obtain the required information from the CBN, NDIC and others insurance companies was difficult because every information they considered confidential and so not information needed by the researcher was made available to him.
DELIMITATION
Due to the above limitation, the researcher purposely did not write out names of distressed insurance companies as a result of guidelines issued and detailed of their transactions.

1.6 RESEARCH HYPOTHESIS
1.6.1 H0 The prudential guidelines has not made any impact on licensed insurance companies. Since its introduction.
HI The prudential guidelines has made some impacts on licensed insurance companies since its introduction.
1.6.2 H0 The insurance companies indemnity and premiums positions have not changed in spite of the introduction of the prudential guidelines.
HI The insurance companies indemnity and premiums positions have introduction op the prudential guidelines.
1.6.3 H0 Insurance companies do not send monthly reports to CBN, NDIC since the prudential guidelines was issued under compulsion.
HI: It has become a law that insurance companies disclose all about them to CBN, NDIC monthly as a result of introduction of prudential guidelines issued.
1.6.4 H0: Insurance companies are not having problems as a result of the prudential guidelines issued to them.
HI: Insurance companies are experiencing problems which is do to the result of the prudential guidelines issued to them.

1.7 DEFINITION OF TERMS
INSURANCE INTEREST
Insurance interest has been defined as “the legal right to insure”,
This definition is important because a person cannot have a binding insurance contract without being in possession of insurable interest. It is the possession of insurable interest. It is the possession of insurable interest that distinguishes insurance contract from gambling or wagering transactions.
INDEMNITY
This is the monetary compensation given by an insurer to an insured following a loss caused by an insured risk.
It has been said to be restoring the insured after a loss to the same financial position in which he was immediately before the loss. In this way, the insured feels as though a loss has never occurred. The insured is not expected to make a profit from his misfortune.
Hansell defines it as “an exact financial compensation “.
PREMIUMS
The Premiums 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 the formation of an insurance contract.
It is also the amount or instalmental payment made for an insurance policy to enhance indemnity if any loss arises.
CONTRIBUTION
According to S.I steel, Elements of insurance study course. II. CII Textbook London, Chapter 5 page 5;
… Contribution is the right of an insurer to call upon others similarly but not necessarily equally liable to the same insured to the share the cost of an indemnity payment.
The fundamental point here is that if an insurer has paid a full indemnity, it could recoup an equitable proportion of the claim from the other insures of the same risk or interest. If a full indemnity has not been paid the insured would want to claim from other insurers to justify equitable sharing of the loss.
SUBROGATION
Subrogation is defined as the exercise, for one’s own benefit, of rights or remedies possesses by another against third parties. If the rights or remedies have already been exercised, subrogation entitles one to the proceeds there form.
Subrogation is, therefore the right of a person, who has indemnified another under a legal obligation, to stand in the place of the other person and avail himself of all the rights and remedies available to that other person whether already enforced or not.
INSURED
A person or property insured by the insurance company.
PRUDENTIAL GUIDELINES
This are plan guidelines or instruction issued by insurance regulatory bodies to enhance effectiveness in the insurance industry.