By Douglas Anele
To explicate the role of EI in the quest for corporate success, we shall use the insurance industry as an illustration. This is because an overwhelming percentage of Nigerians, including the educated ones, are yet to embrace the practice of insuring themselves, their loved ones and their belongings. Secondly, since insurance is typically concerned with compensation for every form of damage or loss incurred by the insured, the emotional factor plays a preeminent in insurance. The questions that naturally rise at this point are, what is insurance?
What are the core functions of insurance companies? Taking a cue from A.O. Isimoya, insurance is defined here as “a social scheme which provides financial compensation for the effects of misfortune.”
Of course, the financial compensation derives from the pool of accumulated contributions of individuals or corporate organisations participating in the scheme. Those participating in the scheme are policyholders or the insured. The contribution they make to the pool is the premium, whereas the various risks they insure against are insured events. Risk, technically speaking, is “the possibility of an unfortunate occurrence,” the “chance of loss” or “uncertainty as to the occurrence of an economic loss.” Risk and risk-taking is part of life; the certainty of uncertainty propels insurance as a carefully designed social institution for managing risk. Therefore, risk is the epicentre of insurance business, for without the uncertainties and negative outcomes associated with risk there will be no need or motivation for insurance.
Insurance business thrives on calculated or measured optimism, because any loss incurred, which is a negative event, can be quantified and ameliorated or remedied. Although Individuals and corporate organisations are exposed to risk all the time, different individuals and business enterprises face different risks. Thus, technicians and engineers working in an oilrig located far out in the sea, fire fighters working hard to quench a raging inferno in a large building, and police officers battling well-armed robbers face greater risks than an insurance sales person trying to convince a potential client to pick up an insurance policy from her firm. Factors that determine the level of risk for individuals and corporate bodies include age, physical fitness, occupation, geographical location, the nature of the business and operating conditions.
Risk identification and calculation is a very cardinal aspect of insurance. It involves rigorous scientific investigation into causes of the loss incurred by an individual or firm. Risk analysts systematically analyse the losses suffered by the insured, identify the proximate causes of such losses, and methodically assess other underlying causes and their consequences. An individual can lose his property due to theft, fire and natural disaster. He may also suffer loss of income because of death, accidental injury, loss of employment, and sickness. Similarly, a corporate body may incur property risk, personnel risk in the form of death or accidental injury of a key member of staff, liability risks stemming from legal liabilities involving injury to third parties or damage to their property, and pecuniary risks arising from theft by employees, fraud, and default by debtors.
Insurance companies are corporate organisations that specialise in all types of insurance business, and constitute an essential component of the global economic system. Chris Obisi defines a corporate organisation as a legal entity or well-defined system and structure through which individuals collectively work and relate for the attainment of stated objectives. Every corporate organisation established as a business outfit, irrespective of its size, geographical location and organisational structure, is expected to make profit for the owners by providing goods and services, as the case may be, to its customers. Insurance companies in Nigeria are no exception in this regard. Modern insurance practice in the country began around the early 1920s. At that time, the British colonial administration did not regulate insurance business probably because it felt that since the pioneer insurance companies in Nigeria operated under the supervision of insurance firms in Britain, they were subject to the same laws regulating insurance there. In 1945, the Motor Vehicles (Third Party Insurance) Act was enacted for the first time, followed by the Marine Insurance Act of 1961. Since then, several regulations have been formulated to strengthen all aspects of insurance, the latest being The Insurance Act of 2003.
Insurance companies in Nigeria, like their counterparts in other parts of the world, perform different functions. These include spreading the financial losses of policyholders over the entire insuring public, creating a common pool from where compensation are paid for claims, and providing security for companies so that their management can focus more effectively on business transactions without worrying so much about the risks and uncertainties associated with daily operations
An interesting aspect of insurance business is reinsurance. Reinsurance is a type of insurance “whereby an underwriter or a direct insurer can transfer to another insurer (the reinsurer) all or part of the risks or liabilities already insured under the contract of insurance that he writes.” In other words, insurance companies themselves need insurance. Typically, an insurance firm charges its policyholders an amount, which, in conjunction with investment earnings on the insurance funds, would adequately cover potential claims and make profit for the company. However, this objective may be derailed if competition lowers the premium charged, aggregate claims cost exceed the amount reserved, and administrative costs and other charges escalate above expected levels. Moreover, fluctuations in portfolio size, large individual risks, and interdependent exposure units also make reinsurance necessary in insurance business.
A corporate organisation is successful to the extent that it actualises its vision and mission statement. Now, since, as already indicated, profit motive is the fundamental driving force for the establishment of any business, an insurance company aims to be profitable by providing good quality and reliable services to its customers. Because of the crucial role of insurance firms in contemporary societies as risk bearers for both individuals and business organisations, it is imperative that key players in the industry must be knowledgeable in the principles of EI and endeavour to apply them in their professional and personal lives.
The importance of EI in enhancing insurance practice can be looked at from two interrelated perspectives. First, one has to consider how staff or employees of insurance companies relate to potential customers and current policyholders. Second, there is need to examine critically the relationship between top management staff and their subordinates in the workplace. In her book, Emotional Intelligence, Emily A. Sterrett addresses these issues by developing personal and social models of basic EI skills required for corporate success generally.