An invesigation of the contribrution of insurace to the manufacturing sector

1.1 INTRODUCTION AND BACKGROUND OF STUDY
Over the years, there have been many definitions of insurance but the most accepted definition is that given by ALAN WILLET in 1901. He defined insurance “As the accumulation of reserves for the purpose of contingencies”. Thus it is a business activity wherein some people or parties who are subject to certain risk pay monthly or yearly premium to an insurance company to transfer the burden of such risks.
Insurance also may be defined “as a contract whereby a person called the insurer or the assurer agrees in consideration of money paid to him called the premium by another person called the insured or assured to indemnify the latter against losses resulting to him on the happening of certain events.... J.O. Irukwu (1991)”.
The origin of insurance initially had a connection with ships and cargoes achieving a spread of risk. This origin dates back to as early as 3000BC (carter, 1991) when the “Babylonians developed a system of loans on maritime ventures whereby the loans were not repayable in the event of the loss of the venture”, to the emergence of modern insurance development which owes its credence to Great Britain, though insurance being introduced into Britain by the Lombard in the 14th and 15th centuries (Coker, 2002).
Insurance is an intangible service paid for and received at a future date. The technicality of insurance makes it obvious for uneven incidence of risks when there are infinite numbers of identical risks. It is also a risk transfer mechanism which provides enormous benefits to the individual/organizations (both profit and non-profit), government and socio-economy at large.
Every individual or organization is faced with the likelihood of a loss, injury, destruction of life or properties; hence, it is asserted that “Risk is concomitant of life” (Ikupolati 2006). In other words, risk is unavoidable.
Since It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss, it is therefore because of the liability of an organization to predict the future that insurance is purchased. 1.2 DEFINITION OF RISK
The term risk is a simple notion which cut across a layman’s definition to the technicalities of business practices. When someone states that there is risk in a particular situation or context, be it business or an event, the ordinary listener understands what it means on the face of it. ‘What then is Risk?’ This question can easily be answered by adopting a generally accepted definition of Risk by a renowned scholar, Dr Mathias G. Haller. He defines it as the possibility that positive expectation of a goal-oriented system will not be achieved (uncertainty) and this will be due to either certain human or inhuman factors.
Furthermore, risk refers to the uncertainty that surrounds future events and its outcomes. It has an expression which looks again at likelihood and impact of an event with the potential to influence the achievement of organizations objectives. When “risk” is said to exist, there is also the likelihood that expected results may not match those results hoped for i.e. a deviation.
Benjamin Franklin in his book observed that in this world nothing can be said to be certain, except death and taxes. Yet there is some uncertainty about those two phenomena: no one can be sure when he/she will die, and tax rules and rates are frequently changed. In fact, the whole of life is surrounded by uncertainty. In some situation uncertainties are within the control of individuals or firm, others are part of the environment in which our lives operate.
However, the word ‘risk’ used here changes. Insurance is an unsought good and the uncertainty in future events is what is being insured. Insurers’ profitability in any portfolio depends largely on the frequency, the severity of its impact and its final results (uncertainty). Uncertainty is not merely a dimension of threats, hazards and risks but opportunities which if anticipated may result in a reward. The risk is the thing which is insured, the insured peril, the expected claims cost for any given policy, or as a general term for unwanted and uncertain future events.

1.3 RISK MANAGEMENT AND INSURANCE
Organizations had long practiced various parts of what has come to be called risk management.
Risk management is attempting to identify and manage the threats that could severely impact or bring down an organization. The management of risk is a fundamental aspect of entrepreneurial activity. Entrepreneurs manage the risk of accidental loss by weighing the costs and benefits of each alternative. In a structured risk management process, this involves:
1. Identify and analyze the loss exposure.
2. Formulate alternatives to dealing with such exposure
3. Select the apparent best techniques to treat exposure
4. Implement the decisions made
5. Monitor the effectiveness of the decisions implemented.

Those who do not apply a structured process still make decisions about risk, although sometimes by default rather than design.
For industrial or commercial firm, the objective of risk management may be to maximize profits, or to increase revenue, net worth or perhaps market share over some period, or to achieve a combination of several objectives, or just to stay in business. Managing a multitude of internal and external risks is one of the most significant challenges facing organization set up today.
Insurance serves a number of valuable functions that are largely distinct from other types of financial intermediaries. In order to highlight specifically the unique attributes of insurance, it is worth focusing on those services that are not provided by other financial services providers, excluding for instance the contractual savings features of whole or universal life products. The indemnification and risk pooling properties of insurance facilitate commercial transactions and the provision of credit by mitigating losses as well as the measurement and management of non diversifiable risk more generally. Typically insurance contracts involve small periodic payments in return for protection against uncertain, but potentially severe losses. Among other things, this income smoothing effect helps to avoid excessive and costly bankruptcies and facilitates lending to businesses.

The scope of an economy’s insurance market affects both the range of available alternatives and the quality of information to support decisions.
For example, a manufacturer might produce only for the local market, forgoing more lucrative opportunities in distant markets in order to avoid the risk of losing goods in shipment. Transport insurance can mitigate this loss exposure and enable the manufacturer to expand. Similarly, to avoid the risk of total loss from drought, a commercial farmer may keep half of his seed in reserve.

1.4 INSURANCE CONTRIBUTION TO AN ORGANIZATION
Insurance through effective risk management contribute specialized expertise in the identification and measurement of risk. This expertise enables them to accept carefully specified risks at lower prices than non-specialists. They also have an incentive to collect and analyze information about loss exposures, since the more precisely they measure the cost of risk, the more they can expand.

Over the years, the realization of risk management with the help of insurance has contributed enormously in achieving organizational goals severally. For instance,

 It guarantees as far as possible, that the organization will not be prevented from pursuing its other goals as a result of losses associated with pure risks.
 It contributes to profit by controlling the cost of risk for the organization
 It can also reduce expenses through risk control measures (insurance) and as such increasing income.

As a result, the insurance market generates price signals not only to manufacturing sector but to the entire economy, helping to allocate resources to more productive uses. Insurers also have an incentive to control losses, which is a significant social benefit.

Most fundamentally, the availability of insurance enables risk averse individuals, entrepreneurs and organizations to undertake higher risk, higher return activities than they would do in the absence of insurance, promoting higher productivity and growth.

1.5 PROBLEM ANALYSIS
All manufacturing companies are set up with a primary objective to produce goods that meet the needs of their customers and also to maximize profit. In the process of manufacturing goods the company is often exposed to varying and diverse risk(s) which affects all the factors of production.
In as much as these factors are exposed, the logical conclusion is that the income of the company is threatened. Human lives are exposed to industrial injuries which sometimes end up in death, permanent or temporary disability, properties could be destroyed through fire out break or explosions, and liabilities could be incurred arising from the consumption of the product. When less emphasis is placed on these loss exposures, it will definitely lead to the demise of the company.
This project therefore, will look at the effect of insurance in manufacturing sector and also whether manufacturing companies who place major significant on insurance are successful in their total business effort all other things being equal.

1.5 PURPOSE OF STUDY
As earlier mentioned, the aim of any manufacturing company is to maximize profit and ensure customer satisfaction. It is quiet obvious that in carrying out production the organisation is exposed to so many risks. This study is focused on the effect of insurance in manufacturing these products, in essence, how risks that could not be avoided, minimized, reduced or retained can be transferred to insurance companies while the organization focuses its attention to its real business.
Our study seeks:
1. To find out how risks/ loss exposures has been managed in Banjul breweries
2. To examine the effect of insurance in the development of the organization (Banjul Breweries) as a case study
3. To examine risks that they have managed by way of transfer to insurance and how adequate are the various insurance covers.
4. To consider the extent to which insurance has contributed to the attainment of the corporate goals of Banjul Breweries
5. To make policy recommendations on how insurance will assist to further develop Banjul Breweries, GAMBEGA, and The Gambia.

1.6 RELEVANT RESEARCH QUESTIONS
The research exercise is set out to answer the following questions:
1. What is the level of insurance awareness in the manufacturing sector of The Gambia
2. Does insurance enhance corporate development
3. Has your company ever sustained any unusual, large or unique losses either insured or uninsured
4. Is insurance an effective risk transfer mechanism

1.7 STATEMENT OF HYPOTHESIS
1.8 DELIMINATION AND SCOPE OF STUDY
Due to time and other constraints, the researchers had to narrow the scope of their study to Banjul Breweries co. Ltd and Gambega in The Gambia.
The study shall focus on the effect of insurance in the above listed companies as well as its benefits. It will assist the company to continue appreciating the role that insurance plays in their activities, and also serve as a means of reviewing improvement measures in place which hopefully will bring about uncovered areas of loss exposures to their operations.

1.9 SIGNIFICANCE OF STUDY
All manufacturing companies exist to ensure that the shareholders maximize their wealth. Companies therefore undertake economic activities for profit. However, in their pursuit of this venture all the factors of production are exposed to one risk or the other. Thos study is primarily laying emphasis on the essence of insurance which will significantly aid the manufacturing concern to achieve their broad objectives, through a well coordinated and scientific measurement and assessment of the various risks that the manufacturing company is exposed to.
The study will assist the company to continue appreciating the role that insurance plays in their activities, serve as a review of existing measures in place and hope to bring out uncovered areas of risks to their operation.