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1.0 Background of study

Commercial properties are useful and essential infrastructure in the built

environment. They provide sheltering and other commercial services

necessary for mans balanced development. They are expensive and

take reasonable long time to provide and so are scare and very limited

in supply. This is however, underscored by the fact that most urban

dwellers cannot afford this essential social infrastructure.

It is also common in this regard that existing stock of commercial

properties in Aba urban are not protected and out rightly preserved. The

result is that they are exposed to all risk which could lead to their

deterioration and extinction. Some of these risk are five, erosion, flood,

storm and poor maintenance. These risks are insurable, that is, these

risks can be adequately provided for through adequate insurance cover.

In the extent insurance policy had influenced the quantum of

commercial properties in Abia state of Nigeria.


The inherent economic recession in Nigeria has caused many sets backs

among which is the considerable decline in the supply of new properties.

The society, especially propertys owners (commercial property) has thus

channelled actual maintenance and management to existing property


Consequently, it calls for an appropriate mechanism through which,

these existing stocks would neither be allowed to be destroyed by fire

and other parts nor vandalized through theft. According to Dickson

(1981), these occasions of loss have unfortunately not stirred the

average Nigeria to take necessary and appropriate steps to avert or

transfer the burden of loss which this seemingly unavoidable risk pose,

so as to greatly palliate the financial hardship which they may cause.

Rather, to the average Nigerian, the risks of fires, theft, explosions,

burglary or building damaged by storm, civil strife and war, have

become common place features which have often times hit headlines in

the electronics and print media in the recent past. It therefore puzzles

the mind that the qualified estate surveyors and valuers whose main

field is land (out of which buildings or rather property is a major

concern) does not take appropriate steps. To advise property owners

and developers in the importance of insuring existing stocks of

commercial properties. For instance, the evolution of insurance is a sure

means of indemnifying oneself from loss or damages particularly those

that may arise from ones commercial property, the reverse seems to be

the case.

Furthermore, the near absolute neglect of commercial properties as

regards insuring them have caused property burnt down by fire,

destroyed by storms or other parts, or whole accessories have been

burgled, not to be immediately rebuilt or replaced. Rather in some

cases, they are abandoned completely. These not only cause bad

aesthetic and ecological conditions to the environment but visually

placed the landlord and corporate tenants in a loss situation occasioned

by the damage created. This in turn reduces the supply of commercial

properties available.


The goal of this research is to determine not only the best way or

avenues of improving the insurance climate, but also of increasing the

propensity of insuring commercial properties.


To determine whether commercial property owners insure their


To educate and enlighten the public on the benefits of insuring their

commercial properties

To explore the weakness and performance of commercial property

insurance in Nigeria

To determine the reasons why people carryout insurance

To use the findings of the research to determine useful solutions and

makes appropriate recommendations that will meet the demands of



The significance of the study is that the findings will be generated to all

parts of Nigeria especially within towns whose configuration of people

and recuperation resemble that of Aba urban. It will also be an avenue

for added knowledge for all professionals and the general public who are

and should be involved in insurance of commercial properties.


This work then seeks to identify the probable causes of this aversion, if

ever it exist and proffer possible solutions measures to improve the

incumbent situation.


Consequently, the following hypothesis were postulated

1. There is no significant relationship between commercial property

values and independent explanatory variables in the study area.

2. There are no difference in individual contributions of explanatory

variables to variability in commercial property insurance in the study



This study has been confined to Aba urban which is bounded by four

local government areas. The urban centre is at the southern part of Abia

state showing Aba north/south on its map.

Aba north and Aba south comprise of different communities in Osisioma

local government, Ugwunagbor and obingwa local government areas.

These communities are as follows:

Eziukwu Ama Autonomous Community

Aba Ukwu Ama Autonomous Community
Ohazu Autonomous Community
Etiti Ohazu Autonomous Community

Other areas that are within Aba urban includeus Ezeama, Agbor, Ehere,

Umuola Egbele, Umuola Okpalor and Umuechilegbu communities


Aba urban, is known as the commercial nerve centre of the eastern

region of Nigeria connecting, Owerri,umuahia and calabar, The urban

centre is at the southern part of Abia state. It is located between

institute So S1 W and longitude 70 25 to 70 to 421 at the south eastern part

of Nigeria.

It presently in the spans the area of four local Government Area,

obingwu in the North East, osisioma in the North west, ugwunagbor on

the west and ukwa local Government in the south west, Abia urban has

a land mass of 18km2 with a population of 500, 183 (Five hundred

thousand,one hundred and eight three) for both sixes as published in

2006 by National population commission. Its labour consists

predominantly of traders.
From time immemorial, Aba has been associated with various from of

commercial activities such market are: Ariria international market,

Ekeakpara market, Ehere modern market,Ahia ohuru market and

cemetery market all within and around Aba urban have been the life

wire of this commercial city.


For the purposes of this research, the research intends to limit his study

to insurance of commercial properties within Aba urban only. The scope

is limited to available insurance data obtained which will either help

prove, or disprove the above mentioned objectives. This is necessary so

as to ensure than an in-depth study with respect to the topic is carried


The major problem experienced in the course of his research is the

unavailability and in accessibility of data from many of the insurance

companies. Some declined to help on security grounds arguing that such

information were confidential. In some cases, they could not be found.

There was also the problem that most companies were not

computerized which could have aided collection, as data in some areas

were too cumbersome together. Bureaucratic bottle neck and radtapism

made data covered impossible in many cases, while in some, they were

collected after a long time.

Finally, financial constraints limited the sample size with the public



1. Commercial property: Is also called commercial real estate,

investment or income property) refers to building or land intended

to generate a profit, either from capital gain or rental income.

2. Insurance: is a contract, represented by a policy, in which and

individual or entity receives financial protection or reimbursement

against losses from an insurance company.

3. Premium: Money charged from the insurance coverage reflecting

expectation of loss.
4. Property: Coverage protecting the insured against loss or

damage to real or personal property from a variety of perils,

including but not limited to fire, lightening, business interruption,

loss of rent, glass breakage, tornado, hall, windstorm, water

damage etc.
5. Rate: Value of insured losses expressed as a cost per unit of

6. Risk: Uncertainty concerning the possibility of loss by a peril for

which insurance is pursued

7. Salvage: Value recoverable after a loss
8. Tenant: Homeowners insurance sold to tenants occupying the

described property.
9. Treaty: A reinsurance agreement between the ceding company

and reinsurance.
10. Loss: Physical damage to property or bodily injury,

including loss of use or loss of income.

11. Insurer: An insurer or reinsurance authorized to write

property and / or casualty insurance under the law of any state.

12. Insured: Party covered by and insurance policy.




According to Amadi (2003), one of the parameter for measuring

the development of an economy is the size and maturity of its insurance

industry. The insurance industries plays a pivotal role in the mobilization

and utilization of investible resources in the economy. The Nigeria

insurance market is the biggest in African. It is an active participation in

the international insurance market. It affords member of the public

opportunities to obtain various type of covers. This is done directly with

any insurance company or indirectly through insurance brokers agent

and other intermediaries who work closely with the insuring public to

obtain the best insurance cover for their customers.

In his own words Irukwu (1990) said that the structure of the

insurance market includes the selfless (insurance companies and

reinsurance companies); The intermediaries (Broker agent); the buyer

(the insured); the market associations (that the Nigeria Association, the

chattered insurance institute of Nigeria, the Nigeria corporation of

insurance brokers and institutes of loss adjusters of Nigeria); and the

regulatory or supervisory body (that is, the national insurance


The Nigeria insurance market is a free market environment, which

promote competition and participation by local and foreign investment,

the regulatory regime is geared only toward the sustenance of ethnical

standard in insurance practice and toward sustaining the confidence

market. The federal government has always limited its intervention in

the insurance market to the provision of regulatory measure that ensure

the healthy growth of the industry.

In addition the insurance industry has played and is still playing a

vital role the stimulation of growth and development in the economy.

The industry has made remarkable achievement in the national economy

by insuring real estates, apart ensuring the safety of the bases of human

activities, is a way of contributing to the economy development of the


Summarily, owsegun (2003), opined that insurance companies, it must

remembered, are financial institutions, and since they accumulate a lot

of surplus funds which are not requirement in most countries that a

certain percentage of insurance fund should be invested in the real

estate development and in the purchase of government bonds.



These comprise the main shapes, shows room and offices, generally

they are usually located in central business district of most town like in

Aba metropolis. Thus, commercial properties have usually been regards

as very secure investment with capital appreciation and few

management difficulties.



According Udechukwu (2006), in recent years, the pattern of shopping

has versed considerably into various categories such as super market,

shopping centres, centre area shops, sub-urban shops and particularly

local shops. The shops are usually from street and towns respectively.


Nwanekezie (1996) maintained that these kinds of properties are found

in most part of the town in Nigeria and Aba respectively. In areas where
restrictions abide on a provision of new properties either by government

policies or by environment cum economic factors, demand will increase.

In this regard the demand for office accommodation has continued to

rise and there is every indication that will remain the case Nwanekezie



Risk is the chance that an event may occur has or might have adverse

consequence or little chance of gain in certain instance. Although, risk

and return tend to go together (Alexander) 1989.

This is mainly because most investor especially when financial objective

is the primary goal is the maximize return and minimize risk (Ogbuefi

1988) they are:

- Fundamental Risk
- Particular Risk
- Pure Risk
- Speculative Risk
- Dynamic Risk and static Rick


Risk are said to be fundamental if their origin and associated losses are

impersonal and socially extensive in their impact. The origin such risks

are not traceable to a particular person and the damages destruction

arising from them are usually extensive to the society. This is why they

are regard as fundamental risk.


Where risk are traceable to a specific or object in their origin and the

damage there from restricted specific individual or object, they are

called particular risk. The difference between the fundamental and

particular risk could be traced from the causation and consequence of

the risk. Also on the origin and the degree of loses.


Pure risk relate to item already in existence whether to a person,

property or transaction that offer on prospect of gain. It is the purest

form of where uncertainty and losses are real. They always result in a

loss such as fire accident and business interruption more so, this type of

risk can be estimated assessed and managed by alternative methods as

provided in the subject of insurance


This form of risk is said to be speculative, if the risk causing transaction

was not in existence but rather was created by the very act of

speculation, and if transaction can yield any of the following three

positive outcomes loss, loss no again that is zero position. A goal

examples of speculative risk is belting and loss of goals in transact.


This term dynamic risk is associated with the above mentioned risk,

which implies that the very situation under consideration calls for self

propelling activities like a business undertaken with prospects of

changing its solid- economics status overtime. A good example of

dynamic risk in the speculative risk.

Static risk implies that there is no self generating activity induced with a

view influencing socio-economic prospect the situation there is no

prospect of gain in future. It is case of either status quo being

maintained or even a deterioration in value.


An owner or tenant of a commercial property after identifying and

classifying that risk inherent in is property should choose alternative

method of arranging protection after considering financial and human

cost related to each method. This is, the most crucial stage as if requires

careful analysis and appraisal of the cost and benefit of the several

alternatives. The four method of treating risks according to Ogbuefi

(1988) are as follows:


This form risk control is the first of its kind, which implies that people

can as such as possible avoid conceivable risk which they face in their

daily activities thereby avoiding the risk car theft if he avoid to own a

car. He can also put the money he would have use in buying a car

into other use and then he face with the alternatives of using public

transaction with his own constraints and in conveniences.


Risk reduction is the action taken to reduce if possible eliminate the

chance of loss, these action could be taken prior to or during or after the

occurrence of loss such as pro-loss reduction which involves those step

the risk manager would think of taking once a risk as been identified but
prior to any loss occurring. Post loss- involves those steps which the

risk manager believes will reduce the impact of the loss once the event

as taken place. A good example is the use of sprinkler systems

especially the automatic sprinklers.


This is a situation where a risk manager cannot avoid a risk and has

done everything possible to reduce the loss impact, the next available

option would be to retain if it can be transferred. Unplanned risk

retention could be as a result of ignorance or inability to reach the right

decision because laziness or indifference on the part of the operators of

the business.


Risk transfer involve those risk faced by both individual and organization

that cannot be avoided or restrained. The only available left would be

transfer as much of such risk to someone else. This transfer with

regards to commercial property could be done through insurance

mechanism or non insurance transfer. Insurance remain the most

efficient modern methods treating risk which is scientific and reliable.


Insurance Luce other profession have general principal. These are

guidelines or rather the legal antecedent of standard practice, it should

be stated however, that its rationale for achievement of just, prudent,

legal, socially justifiable insurance practice (EGERUE) 1993 the

fundamental principal are discussed as follows:


For an insurance to be valid, the insured must stand to suffer a loss or

reduction in value when a loss due to the insured peril occurs.

Therefore, the peril must cause a personal loss, but must not establish a

moral hazard by turning the insurance into a gambling contract.


A popular Latin interpretation of this is Uberrimaefidei. This is

regarded as the principal of non-concealment and connotes the insurer

to evaluate the risk involved. This is an anti-thesis of caveat emplor

meaning let the buyers beware. It stipulated that the proposer is under

no obligation to disclose materials fact known to him but that is was the

duty of the insurer to adequately verify the information been handed

over by the proposer. Those have been adequately modified by statues.


This aim of the indemnity principle is to give compensation for a loss

sustained by placing the insured in the same position he was before the

loss occurred. As it is, all contracts of property pecuniary insurances are

contracts of indemnity. What an insured would receive in any settlement

of claim is however limited by some factors. The factors includes: the

sum of under insurance and franchise.


Although the contract of insurance is mostly that of indemnity, some

contract like fire insurance can be that of reinstatement, if it was

expressly agreed between the insurer and the insured. This is the option

of replacement, repairing or rebuilding the property to its original

condition before the insured peril occurred by the insurer. It should be

noted that under this principle, if the insurer agreed to reinstate, their

liability is not limited either to the amount of damage or to the sum

insured / insurable interest, but to restored to original condition.


The principle of subrogation relate to the rights of the insurer to acquire

factor payment of a loss, this advantage of every right of the insured,

arising previously or in the future including right in contract or tort,

which will diminish the insured loss. The sole aim is to prevent the

insured from recovering more than the indemnity.


This principle states that for a loss to be admitted, it must be a

necessary consequences of the insured peril. The insurance company

can only indemnity if and only if the sustained is proximate, that is

(actual) cause of the risk insured. For instance, if a property is insured

against fir and same is destroyed by windstorm, the insurance will not

indemnity or reinstate the insured.


This is another principle whose major aim is to protect the principle of

indemnity. Though the insured could affect more than one particular

policy on one property, but he is not entitled to receive more than

indemnity. It is stipulated that the entire several insurer, shall contribute

pro- rata to satisfy the loss against which have all insured. In other

words, every insurer are entitle rateable proportion of the loss. But for

this right to exist, the policies must cover same peril, some object

matters and must be effected by or behalf of the same insured.


This primarily refers to the transfer of property from one person to

another whether sold, mortgage or alienated in any form. For an

assignment in insurance to have valid, the insured transfer or should

transfer / assign both the insurance policy and property which the object

of his policy at the same time to the transferee for the insurable interest

to subsist. This assignment is valid provided that the consent of the

insurer was obtained prior to the transfer.


This is evident when an insured will fully insures his property against a

peril to the turn of an amount less than the actual value. If loss or

damage by the insured peril occurs, then the settlement of the claim is

subject to the condition of the average which state that:

Whenever the same insured is declared to be object to average, if the

property shall, at the breaking out of any fire or at the commencement

of any destruction of, or damage to such property by any peril hereby

insured against, be collectively of greater value than the sum insured,

then insured can be considered to be his own insurers for the difference

and shall bear a rateable share of the loss accordingly. (lfediora 1997).

This can be illustrated mathematically thus:

Amount payable: Actual loss sustained x insured value

(Real) value of the property at risk

This is just a technical policy wording which simply means that if one is

insured for less than the true value at risk, at the time of lose, only a

proportional part of the proven loss will be paid.


The insurers and insured all have cogent reason for entering into

insurance contracts. This primary purpose of functions is the the

insures collects at regular intervals sums of money in the pool. In

return for the premium paid by the insured. They undertake to pay out

the pool an amount equal to the loss sustained. The aim of the

insurance company is to put the victim to the position he was before the

incident. It is vital to stress that modern insurance does not undertake

eliminate or prevent the occurrence of the event insured against. Rather

insurance undertake to soften the pain inflicted as a result of the

happening of the event insured against (first bank report 1989). In

summary, the primary function of insurance is to provide a disk transfer

mechanism by mean of am common pool into which each policy holders

pays a fair and equitable premium according to the disk of loss he or

she brings to the pool.(Dickson 1981).

The secondary purpose of the insurance business is to invest the surplus

fund into capital investment which will yield income that will in future

help offset huge claim. They also serve as a form of security for

shareholders and investors. According to (Egesue 1993).

The principle insurance therefore evolved as compotation against these

sharp practices such as co-ageing and gambling and to protect the

insurance disk portfolio as well as genuine insureds and claimants.


Insurance business has been given various authors. Generally the

modern business of insurance is broadly classified into life and non life

insurance. For life, the word assurance used to differentiate it from

other form of insurance. The reason for this is that human life cannot be

equated in monetary terms. When the insurance company does is to

compensate the beneficially for the loss of income as a result of the

death of the assured. But for non life or (causality) insurance, it is

possible (and that is what they undertake to do). To restore a loss to his

original economic position.

However, the following insurance cover can be taken on commercial

property which includes:

a) Standard fire or violation insurance, which usually covers

properties against damage occasioned by fire and storm (Wind

and Lightening)
b) Extent fire or special peril insurance like war include in the

standard fire insurance policy like war, riot, earth quake, flood and

so no.
c) Burglary insurance which covered un-lawful entry and removal of

contents or part of the insured property.

d) Losses of profit insurance which covers against the loss of rent

caused by the damages or peril.


The insurance industries in all parts of the world have been recognized

as the most important institution for the maintenance of the social

equilibrium. No modern can survive without the support and facilities

offers by and organized insurance industry.


Insurance as an economic institution plays two main roles and each of

those roles has a direct beneficial effect on the well being of the national

economy. Firstly, the primary function of insurance is to bear risks and

to indemnify the insured for his losses. The insured may be an individual

or a business of commercial enterprise or real estate organization for its

insured financial loses which might otherwise have wrecked or crippled

the industry is universally accepted as a very useful tool for industrial

and technological development. Some of the major affecting some of

our key technological, industrial and other national assets which have

crippled our national economics had those risk not been insured and had


Example of such losses includes fire losses affecting our refineries, real

estate organization, textile and chemical factories and plants as well as

the airlines aviation losses to name just a few. This was done by

undertaken the responsibility of bearing the financial loss of insure

individuals and commercial and industrial enterprises thereby creating

the necessary societal equilibrium and hereby environment that is

conducive for industrial and technological development.

In addition to its primary function of bearing risks and offering

protection to its policy holder, the insurance companies as financial

institutions accumulate funds which they invest in the national economy

both in government owned and privately owned small and medium scale

industrial and business enterprises including real estate project. In those

insurance market in which life insurance is taken quite seriously, the life

companies play a major role in the promotion of private saving through

life assurance. The insurance industries also contribute to the

development of the capital and money market and in the earnings of

foreign exchange through international reinsurance thereby helping in

improving the countries balance of payment positions.


Although the Nigeria insurance industry in the past tended to restrict its

activities to the traditional function of giving insurance cover, one very

healthy development which is fast gaining roots is the fact that the

insurance companies are becoming actively involved in such important

secondary activities as loss prevention, risk reduction, the promotion of

safety measures and general risk management activities. All these

activities have had the effect of reducing our level of national waste in

the overall interest of our national economy insurers and re-insured are

playing vital roles in the finance of some industrial technology and other

development projects and programmes. Viewed nationally well as the

world economy is able to move smoothly by providing the viral risk

bearing service which insures protection and peace of mind to the

investor, industrialist and businessmen as regards their investments

which helps to advance technological and economic progress.

The practice of national and internal reinsurance which is an important

feature of modern insurance practice ensures that all the risks which are
apart of everyday life including those of real estate managers today

which affect economic and technological development are spread

nationally and internationally depending on the size of the risk and

relevant degree of exposure. As stated earlier, the economics of

developing countries like Nigeria would we have encountered in recent

times but for the fact that such losses were reading absorbed by the

reinsurance protection offered by the international reinsurance



The probability that fire would occur in any building may be negligible

but, if it does, the loss is total (Aluko 2006). Before a contract of

insurance comes into existence, the person who wishes to ensure

against a risk will complete a proposal form. The form contains the

questions and requires the risk which he wished to insured against

(Osundor, 1984) while the sole duty of prosper in filling the proposal

form is to provide relevant and material information which the insurer

will act, duties of the insurer are not to accept insurance business un-

forceable at law, not to issue any policy ion ambiguous terms and not to

make un-true statements during negotiation with the prosper (Egerue

1993). But before the insurer carries out these duties, he has to inspect

and survey the property in order to determine the physical hazards

which may increase the likelihood of loss. The areas to be given much

attention during surveys are the location, structure occupancy, exposure

and so on. The insurer may ask the proposer to add burglar alarms or

fire extinguishers to the building to give it more protection. If the insurer

is satisfied with the insurer provided he accepts the offer.

The insurer goes to calculate the premium according to risk involve in

the police to be undertaken usually a percentage between 4 to 5% of

the sum insured. The proposer turns to the insured after the payment of

the specified premium and a contract of insurance comes into existence

upon the basis of statements and conditions contained in the proposed

form. Though, the insurance policy is usually valid for one year but

renewable annually after each expiration. The insured usually keeps a

copy of the policy for further reference. It damage, which necessitates a

claim situation arises during the duration of the policy, the insured

should report immediately either in person or through a phone call to

the claims department of the insurer. This should be done within

reasonable time to avoid further damage.

Accordingly, a claims form might be filled or one should write the

company stating the policy number explaining the entire story or

situation. (Greene 1992) opined that if one does not get a satisfactory

reply within ten days at most, he should write the companys president

or chief executive. The insurer will send their inspectors, or for bigger

claims such as an office building or multi-tenanted shops in order to

procure three estimate of damage. Usually by loss adjusters, the claims

when verified will be paid to the insured according to the stipulations of

the policy. The claims will not be paid if the duration of the policy has

expired or where the peril insured was fire, but the office building or

shops was damaged by flood, the company can only make ex-gratia

payments the insured if he is a good customer.

In consonance with this, if the insured is not satisfied by the stance of

the insurers, he can seek redress in court, which must be within twelve

months after the loss, provided that all requirements of the policy shall

have been complied with (Arnold 1983).


The value of subject property of the insurance is its value;

At the time of loss

At the place of loss

Value here means its real and intrinsic value, no addition being made for

any sentimental value. No allowance may be for loss of prospective

profit or other consequential loss. There are two known bases of

insurance valuation and these are;

a) Reinstatement basis
b) Indemnity basis


Reinstatement is defined under most insurance policies as the carrying

out of the aforementioned work namely;

A. Where property is destroyed, the rebuilding of the property, its

replacement by similar property, in either case in a condition equal to

but not better or more expensive than its condition when now.

B. Where property is damaged, the repair of the damage and the

restoration of the damage portion of the property to a condition

substantially the same as but not better or more expensive than its

condition when now. It will be apparent that the reinstatement policy

goes further than an indemnity policy which places the insured in the

same position as he (she was before the fire, since it allows him/her to

rebuild, replace or repair a property to a condition equal to or the same

as its condition when new (Aluko 2006).

Here the valuation will be based on the cost of replacing the existing

assets with identical or substantially similar building or equipment at

manufacturing new prices, together with costs of transport and

installation commissioning costs and where approaches private

consultant fees. Reinstatement claims are made only when the lost of

damage items are actually reinstated.

Valuation example: From Olusegun Kuye. Revised Edition (P.291) 4

storey office blocks with an open garage developed on a land space of

47.70 x 20.60m paved and fenced round situated at No. 5 Akpata

Street, Katsina.


Gross Floor Area = 28.05 x 10.50m x 4

= 1178.10m2
1178.102 @ N20, 000/m ---------------------- 23,562,000
2(47.70m) + 2(20.60m) = 136.60m
136.60m2 @ N3000/m2 ------------------------ 409,800
Area = (47.7m x 20.60) (28.05 x 10.50m)
= 982.62m2 294.525m2
= 688.095m2
688.095m2 @ N2000/m --------------------------- 1,376,190
Area = 7.65 x 5.00m = 38.25m
38.25m2 @N20000/m ----------------------------- 765,000

Add: Cost of demolition and removal of debris @ 20% = 4,878,469

National rent (Assuming 2 years rebuild period) = 1,323,192

Fall reinstatement value = 30,594,006

According to Aluko he opined that, it would not be practicable to put a

cost on each element of construction (roofs, walls and floors) or we

should be back to preparing bill of quantities, but it is essential for the

estate surveyor and valuer to gather all the importation that will reveal

an inner feeling of quantity; and hence cost level of each part of the

building which is to be separately assessed.


When this is contemplated, the value must be prepared on the basis of

replacing the existing structure with identical or substantial similar items

in a condition comparable to that of the existing one. This is appropriate

where the building after loss is not feasible. The building may be

outmoded or due to fast changing technology, tests and fashion, the

equipment of plant might be out of production or use. For such property

or assets, indemnity value could only be calculated. In a nutshell, in the

event of any destruction, the indemnification of the owner or insurer

should strictly speaking be represented by a payment equal to the cost

of reinstatement or the loss actually suffered and proven considering the

state of repair and condition of the assets. But, most policies reserve the

right to the insurance company to do the work itself (that is, reinstating

the property) instead of paying cash, but this right is seldom exercised.

The calculation of indemnity approach is as follows:

For indemnity basis

Gross internal floor area of building N756m2

X cost of construction/m2 @ say N6500

Cost of construction of building as new N4,914,000

Less depreciation at say 25% N1,228,500

Depreciated replacement cost N3,685,500


Professional fees at say 20% N737, 100

Cost of demolition % debris removed say N100, 000

Contingency (ies) say N500, 000 N887,100

Indicated insurance value on indemnity basis N4, 572,600




This research is a basic objective in which expository, investigative and

descriptive methods were used in examining the insurance industry in

Nigeria with regards to commercial properties within Aba urban in order

to find out and evaluate its achievements and lapses. The survey

approach was used to obtain vital statistics, that is raw data or facts and

figures which were helpful in formulating perfect principles of



This research involves the use of questionnaire, which were distributed

to respondents through random selection in order that each persons

likely idea or decision will be represented. They were equally distributed

based on properties occupied such as office building, shops and show

rooms respectively. For the purposes of this research, the following were

laid out such as St. Michaels were we have office buildings, school road

with single rooms respectively.

This research is also required to ascertain the existence of insurance

aversion, its causes and reasons. Though it necessitated the collection of

data from older or consolidated insurance companies like NEM insurance

company and ALLICO insurance companies.


For the accomplishment of this work, necessary information was

obtained from the following sources.

PRIMARY: The primary sources of data include data collected through

interviews, discussions, administration of study questionnaire to

respondents and personal observations.

SECONDARY: The secondary data was planned in such a manner that

data was mainly collected from published and un-published materials

including papers presented in seminars and symposia, textbooks journal,

classrooms look and articles on newspapers.


A. PERSONAL OBSERVATION: A general visual inspection was carried

out covering most of the wards in Aba Urban to know and fully

appreciate how commercial property owners and tenants treat risk

inherent in their properties.

B. PERSONAL INTERVIEW: This is an effective medium of obtaining

information especially from landlords and tenants with low literacy

levels. It also provide very useful in clarifying data collected from either

sources with their modes of operations.

C. THE QUESTIONNAIRE: This served as a channel of communication

especially from landlords and tenants with low literacy levels. It is also a

useful way of clarifying data collected from other sources with their

modes of operation. The questionnaire starts with a little introduction it

therefore covers public attitude towards insurance as a whole and

commercial properties in particular. It also covered issues such as the

location and type of property, the age, educational qualification and

occupation of the respondents whether the building and its contents

were issued or not and reasons in each case. Lastly suggestion of trust

of insurers and how to reduce insurance reversion. Generally, structured

or close-ended questions were used to limit lengthy insurers.

D. DOCUMENTED DATA: This involves references to documents such

as published research reports, project, works, special reports produced

by government and corporate agencies, seminar papers.


In the process of analyzing certain methods were used to analyze the


Invariant analysis was used to analyze the insurance companies

individually while bi-variant, may be used in comparing the older and

newer generation insurance companies where it applies. These enabled

the establishment of casual or co-related relationships between


These analytical methods were also used for the questionnaire and other

data sources. Tabulations and graphs were also used in the analysis and

were largely descriptive and explanatory in nature.

Lastly, the actual percentage used in computation of the questionnaire is

precisely that of the number of actual respondents in any particular

question respectively (Udo, 1997).




This chapter deals with the comprehensive analysis of data presented

and collected in the course of this study. It was observed that the most

commercial properties had burglar proofs within Aba Urban. However,

from the researchers point of view, over 80% of the properties had

such protection. Also, the well to do people, especially from the low

population density areas employed guards to give additional protection

to their properties such as offices and lock-up shops.

And thusly, these go to show that the security guards and burglar proofs

are aimed at controlling the risk of burglary and ceiling in order to

control the risk of fire from spreading to the main shops, offices and so

on. In other words, most Nigerians and people of Aba urban prefer to

control risks rather than transfer them.


The questionnaires sent out and collected are interpreted as shown

below, as 101 questionnaires were returned out of 130 distributed. From

the 101 respondents, eight (7.8%) properties are presently insured

while fourteen (13.5%) have been once insured. However, (82.76%) of

the respondents have never insured their properties. Forty-six (46%) of

the respondents were either landlords or owner occupiers, while fifty-

five (55.5%) were tenants, it may be observed that some of them might

have some other type of insurance covers as indicated in the not

applicable written at times on the questionnaire.

According to the survey, eighteen of these who have once insured were

over fifty (50) years, while four were within the ages of 41-50 years.

Also 54 of them were retired civil servant who had all terminated their

insurance policies. The rest were three public servants, a businessman,

two corporate employees and ten self employed.

Furthermore, one had a post primary educational qualification, four had

NCE, eleven had bachelor degrees, while six had post graduate degrees.

These show that ones occupation or rather ones income and education

influenced his/her ability or capability to insure.

It is a by smally dismal to note that ten respondents (10%) believed

that a tenant can insure the building he occupies for commercial

purposes, 77.6% put the liability on the landlord, while 20% didnt know
who should bear the insurance of he property. This shows the level of

unawareness available in the Nigeria society especially in Aba urban. If

this is checked properly, probably tenants would know the need to

safeguard their valuables by insuring the property after an

understanding with the landlord. Also discouraging is the fact that

96.1% not have their building content insured. However, seventeen of

them took standard five insurance policies, three burglaries and two

householders comprehensive insurance. This shows that people are

more concerned about fire and this may also give credence to the

assertion earlier that they prefers to control the risk of burglary by

installing proofs. Another explanation could be that the bank which

normally provides industrialist or entrepreneur with loans always insists

on fire insurance protection (Abulinef 1983). Nine of them believed that

premium were low while thirteen believe that they were high. All the

eight presently insured who are owner occupier, believed that fire and

burglary were rampant and thus motivated them. They have not yet

suffered any loss but three of them their insurers, another three were

indifferent while two dont know.

According to the fourteen respondents who have been the insured, four

each terminated their policies because they couldnt pay high premiums

remoteness of loss and loss of confidence respectively. While two were

not paid their claims. This shows that twelve of them terminated their

policies voluntarily while two did same for un-satisfactory service. For

the respondents that have never insured, 31.5% could not trust

insurance companies, 2.5% preferred to be the loss themselves, 11.25%

said it is not necessary, 25% wish to insure but carried afford to pay the

premium while 28.75 have never thought of it. Also 40.7% disagreed

and another 40.7% did not feel that why they did not insured was

because fire and burglary were remote, while 18.6% agreed. As regards

who would be their insurers if the decide to insure, 38.3% had no idea

yet. NICON, ALLCO and NEM insurance companies get 26.7%, 11.75

and 10% respectively while LINKAGE assurance had the confidence of a

respondent each and another will never insure with any company while

yet another persisted that it is the landlord prerogative.

All the respondents apportioned their blames for insurance aversion as

follows: Insurances companies and their agents 46.7%, 22.8% point at

the Nigeria economic climate, the media 9.85%, the public 6.55 and

government policies had 2.2%, while 12% said did not know whom to


Though, an overwhelming 100% or rather all the respondents believed

that confidence and trust matters a lot in the insurance industry. 62.5%

of all the respondent believed that only those with high possibilities of

both loss and claims should insure, while 37.5% had a contrary views,

53.3% of then know those whose claims were not settled by their

insurers, while 47.7% had no ideas about such a situation. Likewise,

61.5% believed that insurance companies are misunderstood and mis-

interpreted by the public while 38.55 believed and accepted otherwise.


The data from insurance companies are analyzed separately (uni-variant

analysis) and jointly (multi-variant analysis) with other data in this

discourse. It should be noted that burglary insurance is taken on volition

mostly by people travelling aboard, while fire insurance is taken on

compulsion where as other motives are of a voluntary nature and

thereby grouped under volition policies.

Similarly, the columns for burglary policies for each year are included as

house holders policies as both are obtained on volition and the latter is

rarely taken for ease of understanding the tables.

A. National Insurance Corporation of Nigeria (NICON)

Nicon is an older generation insurer and its data of fire, standard or

volition and burglary policies within the period under review are as


Table 1



Years No taken on No of fire No of policies

volition or policies taken on

standard burglary
2001 9 19 4
2002 19 10 2
2003 7 24 3
2004 11 20 -
2005 9 13 -
2006 3 11 -
2007 3 3 1
2008 1 3 1
2009 2 2 1
2010 5 5 -
TOTAL 69 121 12
Source: Technical Department, National corporation of Nigeria
(NICON) Zonal office Aba, 2017.

Nicon was seen by the respondent as the ultimate company to insure

with. The reason given by these respondents were based on trust,

confidence and national government support. This is also evidenced in

the 69% of volition policies obtained which fell below that of fire policies

and a sharp decline in the number of burglary insured respectively. But

the fact still remains that there have been a general undulating and

decreasing pattern in the insurance taken for both volition and especially

that of fire and burglary insurances. The claims register of NICON

recorded in both fire and burglary 44 claims, while settled 19 claims with

one still being processed while four claims were dismissed.

B. Men Insurance Company: Is a newly constituted insurance

company with a capital base of N5 billion naira and has been

participating actually in the built market.



Year No Taken on volition or No of No of

standard fire policies
policies taken on
2008 4 10 7
2009 4 9 4
2010 4 7 3
Total 12 28 42
Source: NEM Insurance Company Limited Zonal office at Aba


As indicated above (12) volition policies against (28) fire policies taken

over some few years of its existence. They recorded quite reasonable

number of burglary policies in three years. They had no claims on their

fire policies but recorded one in which it was settled.


This company started operations in the 80s and also got a large

percentage of their early policies CCB as well. This is shown below in the




Year No Taken On No of Fire No of Policies

Volition or Policies Taken on
Standard Burglary
2013 4 38 -
2014 5 19 7
2015 - 10 8
2016 2 4 4
2017 3 2 1
Total 14 73 20
Source: ALLCO Insurance PLC Zonal office Aba 2017

This table shows a decrease in number of volition as well as burglary

policies over the above started years and left 73 for fire policies. The

burglary insurance shows some consistency. They have had no claims

for both classes of insurance over the years as at the time of this




FROM 2008-2017

Year No Taken on No of Fire No of Policies

Volition or Policies Taken on
Standard Burglary
2008 4 9 19
2009 2 19 10
2010 3 7 24
2011 - 11 20
2012 - 11 13
2013 - 9 49
2014 8 8 22
2015 16 5 23
2016 9 8 15
2017 4 12 14
Total 46 95 209
ANNUAL 6.5 9.5 20.9

The total fire policies taken from your summed up to 209 policies with a
mean of 20.9 policies annum, and 95 volition policies at a mean of 9.5
policies per annum.

It can be seen as the number of policies fall and rise rapidly, reached its
peak in 2004 due to the acclaimed provision of securities in most market
places in Aba metropolis. The burglary policies totalled 46 in number
with a mean of 6.5 policies per annum.

In summary, the number of insured commercial property (ies) in Aba

metropolis is very negligible and a great proportion of these are insured
for purpose of fire.






0 x
6.5 9.5 20.9

The pattern on the graph shows little or no correlation and asymmetrical

decline in burglary insurance which is tantamount to a decrease in the

activities of burglars. But there is no noticeable and sharp upsurge in the

graph of fire policies which slopes in upward direction.


Having analyzed and presented data in the above subject, it has been

observed that most commercial properties in Aba urban had never been

insured and those insured cannot be trusted due to unsettled claimant

which said to have unravel the insurance market.

However, some of the respondents did not agree on whom to insure the

property they are occupying presently, while others put the onus on the

landlord as his responsibility to insure. His jointly shows the level of

awareness and information with the people living within the metropolis

as they prefer to control and manage the risk rather than transfer. For

the respondents, they preferred older insurance companies to the newly

consolidated ones simply because they can abysmally be trusted and

they would be insured believe that premiums are higher than it should

be and if it could be lowered as expected they may probably have to

insure their properties. And that the liability of most insurance

companies to perform its function is being faulted upon their agents,

and pointedly, at the Nigerian economy climate and some pointed at the

various government policies. Conclusively, the pattern as shown in the

graph, showered an unequal decline in both burglary and volition

policies except in the case of fire policy which slope up showing a

minimal or little increase in the activities of the insurance market over

the years as outlined in the above graph.





The numerous findings of this research can be summarized follows:

1. Decrease at the rate of insuring commercial property cannot be

attributed to decrease in both fire and burglary incidents.

2. The number of insured commercial properties in Aba is very negligible

and a great proportion of these are insured for purpose of fire


3. There is a noticeable down turn and general decline in the number of

policies been taken over the years for both fire and burglary and

importantly, volition policy insurance.

4. Most Nigerians, especially Aba urban prefer to avoid, retain or control

risks rather than transfer them because the business of insurance is

aliens, too technical and too legal for them.

5. Mis-interpretation and mistrust for insurance companies contribute to

the aversion.
6. Confidence and trust are fundamental requisites for insurance


7. Most people do not insure unless it is statutory regulated.

8. Some members of the insuring public are dubious which has made it

possible for insurer to relax and simplify meticulous ways to claim

investigation to the detriment of honest insured.

Most tenancies on commercial property are based on trust and do not

have tenancy agreements which should make some insurance


10. And finally, the major blame and causes for the aversion can be

traceable to the insurance industry, the media for inadequate publicity,

the public and the Nigerian economy.


Having gone this far on this issue of commercial property insurance in

Nigeria, Aba capped as the case study, one realized the need to make

necessary recommendations and suggestions for the purposes of

improving on what has been put place. In this work, Idigo (1991)

quoted peter mere Hethan the diagnosis of a disease is often difficult

and impossible but we should presume the disease to be curable, until

its own nature it otherwise. With this premise, it is believed that the

aversion will be minimized with the following recommendations, which

will enhance, facilitate and improve the insurance of commercial

properties in Nigeria and Aba in particular.


It has been apparently beyond a balance probability that there is the

existence of aversion to commercial property insurance by owners and

tenants in Aba region. Although, necessary finding and

recommendations were pointed out to help minimize the aversion unless

and until there is massive public enlightenment and the Nigeria economy

will improve significantly. It is anticipated that the current aversion by

commercial property owners and tenants would persist.


Insurance companies should be a matter of necessity explain clearly and

explicitly to their policy holders, the true nature of their different classes

of insurance covers available together with their terms, conditions and

warrantees before the contract of insurance is entered into:

The insuring public should stop indulging in dubious acts aimed at

repairing more than the indemnity of their losses so that insurers can in

turn relax the procedures for claims investigations. Restoring public

confidence should be the overriding corporate goal or mission of the

industry and this is only achievable through prompt payment or

settlement of genuine claims to minimize unnecessary litigations.

Massive public enlightments scheme should be frequently embarked

upon by the insurance industry in conjunction with the electronic and

print media whereby programme or articles educating the public on the

role and importance of insurance will be highlighted. Also seminars,

lectures, workshops and soon should be organized at regular intervals.

Estate surveyors and valuers should educate their clients (both landlords

and tenants) on the need to insure their properties, such act will help to

protect their profession as well as the existing stock of commercial

properties, besides, they should make insurance provision mandatory in

tenancy agreement should which will boost the industry.

Summarily, government should protect development processes from

sere disturbances caused by loss of life and properties due to fire

outbreaks though legislations that will make insurance of all commercial

properties against fire statutory. In addition, the insurance regulatory

and supervisory authorities should ensure that such appropriate laws are

obeyed to the lettered among the operators themselves. They should

also get rid of quacks and charlatans in the industry.


Abulime J.I (1993) Fire as it affects insurance companies

The Rise Bearer Vol.1 No 7.

Aluko and Okey (August 2006) paper presented at NIEVS conference.

Wise 2. Abuja.

Amadi C.N. (2003) Analysis of residential property insurance

in Nigeria. A study of Enugu.

Essien, E. (1998) Insurance industry: The expansion continues.

Expansion today.

First Bank Business, the roles of the insurance industry in and economic

Reports Nigerians economic transformation. Lagos

Idigo, T. (Nov. 11. 1991) A solution to the image problem in

insurance business times. Lagos. 5th edition pg.16.

Ifediora, B.U. (1996-1997) Lecture on estate and development

Finance class. Enugu.

Irukwu, J.O. (1990) You and insurance: Basic fact about

insurance: Ibadan caxton press: W.A. Limited.


Department of Estate Management

And Valuation,
School of Environmental Design and
Technology, Federal Polytechnic,
P.M.B 21,
Anambra state.

Dear Respondent,
I am an HND Final student of the above named institution conducting a
research work on an analysis of commercial property insurance
in Nigeria (a case study of Aba urban) in partial fulfilment of the
requirements for the award of Higher National Diploma (HND) in Estate
Management and Valuation Department.

I humbly request that you assist me to complete the attached

questionnaire. While assuring you that the research work is purely
academic and any information obtained will be treated confidentially.
Thank you for your anticipated co-operation.

Yours faithfully,
Okodo Pascal .C



Demographic Question 1

What is your gender?

Male [ ]

Female [ ]

Demographic Question 2

How old are you?

18-25 years [ ]

26-35 years [ ]

36-45 years [ ]

46 years and above [ ]

Demographic Question 3

What is your Educational Qualification?

School Cert. [ ]

SSCE [ ]

ND/NCE [ ]

HND/Degree [ ] and above [ ]

Demographic Question 4

What is your Occupation?

Public Servant [ ]

Construction Engineer [ ]

Others [ ]


Research Question 1

There is no significant relationship between commercial property values

and independent explanatory variables in the study area?

(a.) Yes

(b.) No

Research Question 2

There are no differences in individual contributions of explanatory

variables to variability in commercial property insurance in the study


a.) Yes

b.) No