Straight Talk: Is Insurance like Gambling?
It is a clear fact that majority of Nigerians do not subscribe to insurance and a very substantial reason behind this is that many consider it as gambling. To an average Nigerian, when he thinks insurance, he thinks gambling, and not being ready to engage in such practice, he prefers to rather enjoy life to the fullest than to take out time to insure any of his belongings. However, a proper delineation between these two phenomena, if clearly presented to the Nigerian, would be of great help in resolving this confusion, hence, this piece.
Every individual in one way or the other has some exposure to loss or hazard which may be of low or high magnitude depending on the circumstances of the event. However, the loss, no matter its magnitude, can either be in the control of the individual as in the case of reckless driving by the individual on a public road, causing injury to a third party or himself; or simply beyond his control as in the occurrence of death or natural disaster. What is so disastrous about this loss is that it cannot be predetermined or is uncertain, so when it occurs, before the person’s knowledge, its effect can be severe and may eventually cause unexpected financial disaster beyond control.
Both insurance and gambling are similar but yet distinct practices. Both are practices that deal with risk. Risk is the possibility of the occurrence of loss; that is, whether or not the loss will occur. Risk can either be Fundamental, Pure or Speculative. Fundamental Risk is a risk that is out of human control; Speculative Risk is a risk that its occurrence will likely give two possibilities of the outcome, that is, Gain or Loss while Pure Risk is a risk that the possibility of outcome is certain, that is loss.
Insurance, on one end, is a Mechanism that helps to control pure risk only. That is, the reason we engage in motor insurance is to control against accident and no other outcome which implies that one does not insure one’s car so as to be able to get a new car. Gambling, on the other hand, is a speculative risk because the outcome is not sure, it can either be loss or gain, and speculative risks are not insurable.
Of all the risk management tools available to man, insurance remains the best tool that can be applied as a scheme in reducing the burden on the individual and the government as a whole as it helps in reducing the risk and sharing the burden with so many people.
A very significant point worthy of note is that people do not get Insurance for profit making but reinstatement to the status quo while gambling might be for profit-making. The view that people have of comparing Insurance with gambling is a wrong one. People often assume that if the loss does not occur then, the insurance company makes profit, but that is not the case. The essence of the insurance company is to carry the burden of the eventuality of an accident and in the case where the accident does not occur, the status quo, which is the safety of the property, is maintained, and the burden is already transferred to the Insurance Company. Gambling, on the other hand, cannot maintain status quo and burden cannot be transferred to anyone, the gambler simply bears the burden alone and is at the mercy of loss or gain but the insured need not worry about that, he is simply safe, which is a very much desirable state of being.
In the analysis of insurance and gambling, it is important to note that Insurance contracts are legally valid while gambling is void of such. Gambling is a type of practice that would have the warning sign of “at owner’s risk”. Insurance, on the other hand,would have the placard of “come; let us handle your risk for you”. In both cases, the party saddled with the responsibility of handling the risk is the one that feels the effect of loss and also takes responsibility for it. So in the interest of the individual, he is free from further trouble that may emanate from his loss if the burden has already been transferred to another, that is, the insurer. However, in a situation where he gambles and loses, he does not only lose all; he is also broken by the thought of being alone in his misery, a condition which, if not properly handled, may degenerate into suicidal thoughts and even actions especially when the loss is too grave.
Another feature of insurance is the availability of Utmost good faith which is not obtainable in gambling. Utmost good faith is a common law principle in insurance that ensures the disclosure of all necessary information. The insured, as well as the insurer, are mandated to be honest and accurate in their dealings with one another. This is to ensure the dismissal of fraud. Expectedly, this is not achievable in gambling.
Indemnity is yet another principle applicable in Insurance which gambling is devoid of. Indemnity is the payment made to someone because of damage, loss or injury. So the insured is not only relieved of risk management, but he is also certain of reimbursement after his loss. But in gambling, no one gives one back what one has lost. So clearly put, insurance is a clearly different concept from gambling even though many have continuously juxtaposed and confused for one another.