INSURANCE State Govt: Risk Averter, Risk Neutral or Risk Preferer?

“…It is for the interest of the state government to embrace insurance, by becoming a risk averter consumer”

The basic demand for insurance arises from the satisfaction that a consumer gains from the increase in financial security achieved by transferring the risk of loss or damage through an insurance broker to an insurer. the operation or function of insurance has several important implications for the consumer

1. In return for the payment of a premium in advance, the consumer is able to transfer some of his
risk (but not all) to the insurance company. Indeed, not all the uncertainty because not all risks are
insurable.

2. the unknown cost of risk of replacement of a subject matter is substituted by a known cost, namely the premium payment made at a particular time for an agreed period.

3. the consumer is left to bear all those risks that cannot be insured plus all those insurable risks that he chooses to retain for reasons best known to him.

Where shall we place the Cross River State Government on the above three points? Your guess is as good as mine. that is, the consumer is left to bear all those risks that cannot be insured plus all those insurable
risks that the consumer chooses to retain. this brings us to the main topic of this article, whether the state government is a risk averter or a risk neutral or risk preferer. the position of the state government can influence the elasticity of demand for insurance in the state. the Friedman and Savage theory states that, a consumer who dislikes the existence of risk and does not want to tolerate or retain it, is known as a risk averter. So clearly, a risk averter is an individual or organization or government that is prepared to pay an agreed amount in excess of the expected cost of risk in order to have the risk removed. Let me ask, how much of her insurable risks had the state government transferred to the insurer through an insurance broker for an agreed premium?

A consumer who is indifferent as to whether a risk exists or not is known as a risk neutral. thus a risk neutral person is not prepared to pay any amount in excess of the expected cost of risk in order to remove it. In other words, a risk neutral consumer would retain his risk. He will not insure his property no matter the cost. With this explanation, is the state government a risk neutral consumer? What do you think? the following underwriters and intermediaries closed their branches and relocated to nearby states:

• America International Insurance Co. (AIICO)

• Regency Insurance Company Ltd

• Consolidated Hallmark Ins. Plc.

• Equity Assurance Plc.

• Corner Stone Insurance Plc.

• LASACO Assurance Plc.

• Sovereign Trust Assurance Plc.

• Stock Bridge Insurance Brokers

• Afam Insurance Brokers

• Vision Trust Insurance Brokers

• Laudable Insurance Brokers

• these risk bearers and intermediaries moved out of Calabar to very nearby states because of:

• Poor business climate in the state

• Poor patronage from the state government

• Multiple taxation and levies

• the current business trend in the state, whereby individuals, organizations and indeed government function as risk neutrals.

I am very sad because the closed insurance organizations in the state moved out to nearby states without the employees employed in the state. I think only one Cross Riverian was fortunate to move with his company to another state. Now who is a risk preferer? A risk preferer is a person or organization that
would actually seek out risky situations by entering into gambling contracts, and would be prepared to pay a price in excess of expected winnings in order to participate in the gamble. Since insurance is not gambling, such a person or organization would not seek insurance cover. The government is said to be the biggest spender. the resources of the state government though limited cannot easily be quantified. there are so many government-owned industries springing up in the state kudos to His Excellency
Senator Prof. Ben Ayade, the digital Governor of Cross River State. We are priding ourselves of enjoying an industrial revolution in the state. this had naturally translated to more jobs for the youths.

However, we need more buyers of goods and services and more buyers of insurance products. the risk bearers and insurance intermediaries are not enjoying the state government patronage, hence the closure of many underwriting houses and brokerage offices. It is for the interest of the state government to embrace insurance, by becoming a risk averter consumer. the state government can positively
contribute to the survival of the insurance sub-sector in the state by coming up with a deliberate policy on insurable risks of the state. It is pertinent for the state government to save the remaining 13 underwriting houses and intermediaries from packing out of the state or simply going under. God bless Cross River State!

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