Protecting Investment from Riot: How to use Insurance

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Thursday, October 29, 2020 / 09:00 AM / Chinyere Onyia / Header Image Credit: Property Insurance Coverage

Bosede Anthony, an Entrepreneur with many years of active experience in perfumery had recently opened her factory worth N800m (about US$2m) in the outskirts of Lagos, the commercial capital of Nigeria and with capacity to employ over 100 persons within the first year of operations. However, a few months later, precisely in October, as the protests police brutality by youths in Nigeria got hijacked by miscreants who resorted to looting and destroying properties, Bosede's factory easily became a target. Not only was the factory completely looted but part of it was set ablaze and with no response from anywhere, what stood as a splendor of good investment decision was now one of the sad pictures of Lagos State after the violent protests. Everyone around Bosede, especially the medical team at a renowned hospital in Victoria Island, gave her the best possible attention to keep her in a stable condition after she suffered shock from the news of the carnage.


In 2017, Bosede had returned to Nigeria from the United Kingdom against the advice of some of her close friends to launch her enterprise and celebrated the power of decision upon the opening of the factory, now in a state requiring reconstruction. She did not have the financial resources and was even exposed to her bank from where she had sourced thirty percent of the capital she needed while the rest came from a venture capital based in the UK. Her only hope would now be whatever she can get from the consortium of insurance companies that provided Industrial All Risks cover for the factory.


The discussions have commenced and led by a global insurance brand, the insurance consortium is willing to undertake the process of settlement of the claims with the best loss adjusters, unfortunately they are equally overwhelmed by the volume of reported claims they have to deal with, thus cannot speedily resolve her case.


While there is that bit of good news in the case of Bosede because she was obliged to have full insurance coverage for the new factory, same could not be said about most of the other private businesses that had been looted and destroyed by angry protesters, but did not have insurance cover.



Why is Insurance Necessary

Globally, the risks we face have seemingly increased over the years, especially with changes in weather conditions coupled with the trade war and COVID-19 pandemic, which put serious strain on developing economies like ours in Nigeria. The decision of where people invest had become guided by the quality and capacity of the insurance sector hence the drive by the regulators in Nigeria to increase the capital base to ensure the operators - insurers and reinsurers - are in the best condition to deliver excellent service evident in the prompt payment of claims.


When investors decide to put their funds in any venture, they seek protection against the unexpected and unforeseen incidents that may occur, from natural causes to unintended and deliberate acts of people, as in this case, riots following the peaceful protests by youths. Insurance is probably the only financial instrument that can adequately compensate victims of riots whilst recognizing that some relief comes from government.


The value of insurance is best seen in situations like that of Bosede who now has to fall back on her insurers for any hope of returning to her business, and this is what insurance has done over the years for several businesses and economies.


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Getting the Right Insurance

It starts with identifying your risks and considering the appropriate means of managing them, and with the help of risk management professionals, you can determine what you should retain and what should be transferred to another entity, usually an insurance company.


Different businesses have different risks, some are peculiar and require unique features for addressing them, so even from an insurance perspective, the policy a bank gets to protect its premises against fire would differ from what a supermarket or mall would take.


The more you make efforts to secure your business environment and enable prompt response in the event of the unexpected, the more you are likely to get discounts and incentives from your insurers. It is always advisable to meet insurance advisors or insurance brokers for professional advice in this regard.


From their experiences of working with many customers (policyholders), advisors and brokers would know that your business assets need to be insured adequately with the right clauses, conditions, and extensions. For example, Riots, Strikes and Civil Commotion (RSCC) extension is necessary for any business located in a densely populated megacity like Lagos.


Putting your pricey vehicle on the road in Lagos without comprehensive insurance that has RSCC extension is, to say the least, unthinkable.



When Something is Wrong

The insurance you bought will become tested when an incident occurs as we had during the recent riots and your chances of returning to your business would be high (like Bosede) if your insurance had all the conditions that would enable you get your claims paid.


Insurers upon receiving the news of these lootings and destructions from their policyholders, would verify the status of the policy, register the claims and assign claim numbers then proceed to inspect the premises of the claimants. Thereafter, a loss adjuster is appointed to assess the extent of damage and determine the cost of repair and replacement of the damaged or lost portions of the businesses, and its report would be submitted to the insurers that rely on these reports for final determination of the value of compensation that the policyholders would receive.


Normally, an offer of the sum payable is sent to the policyholder for acceptance after which payment would be made by the insurer. Sometimes, this process takes months depending on the severity of the damage or loss.


In all, getting the right insurance policy and working with advisors/brokers is necessary to ensure your business and investment is protected against potential loss.


Coming soon: Personal Finance Series 3 - Investing in Peace of Mind


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