Ensuring compliance with insurance laws

By Nike Popoola

Monday, 18 Oct 2010 

To ensure the success of the compulsory insurance laws, all the sub-sectors that make up the insurance industry need to collectively strategise on their implementation. NIKE POPOOLA writes on the factors affecting the implementation of such statutory policies. For decades, the development of the insurance sector in Nigeria had been hindered by several factors, including the general apathy that characterised the sector as a result of poor awareness and the neglect of the development of the retail market segment by operators.

For these reasons, while other sectors continued to grow their share in the financial market, the insurance sector remained relatively small, with insignificant contribution to the Gross Domestic Product.

Recent efforts by the Federal Government to reverse the situation and revamp the sector came in the forms of the last recapitalisation exercise in the sector and the inauguration of the six compulsory insurance policies, which are currently being enforced under the Market Development and Reconstructuring Initiative of the National Insurance Commission.

The six policies include Builders Liability Insurance (under Section 64 of Insurance Act 2003); Occupiers Liability Insurance (under Section 65 of Insurance Act 2003); and Statutory Group Life Insurance (under Section 3(2)(a)(b) and 9(3) of Pension Reform Act 2004).

Others are Workmen‘s Compensation Insurance (under Section 40 of Workmen‘s Compensation Act of 1987); the Third Party Motor Insurance (under Section 68 of Insurance Act 2003; and the Professional Indemnity Act).

The objectives of the enforcement of these statutory legislation include the need to attain an increase in the industry‘s gross premium, from N164.5bn in 2008 to N1.1tn by 2012; the need to create about 250,000 new jobs in the sector; the need to achieve an increase in insurance sector‘s contribution to the GDP from the current 0.72 per cent to over three per cent; and the quest for an increase in insurance industry‘s premium per capita from the current N1,200 to N7,500 by 2012.

The relevance of a strong and viable insurance sector has continued to be stressed because it is the risk bearing arm of any economy. The import of a virile insurance sector will also reflect in the ability to minimise waste and losses.

Above all, having a strong insurance sector will help in motivating players in the financial market, by giving them the needed confidence that if they should suffer a loss, they will be restored back to their former positions.

However, since the inauguration of the compulsory insurance policies early this year, the story has been one of a mixed content. While some of the policies have recorded some developments, nothing has been recorded on account of the implementation of some of the policies.

Section 64(1) of the 2003 Insurance Act states that, ”No person shall construct any building of more than two floors without insuring with a registered insurer, his liability in respect of construction risks caused by his negligence or the negligence of his servants, agents or consultants, which may result in bodily injury or loss of life to or damage to property of any workman on the site or of any member of the public.”

The second policy, under Section 65(1) of the same Act, also states, ”Every public building shall be insured with a registered insurer against the hazards of collapse, fire, earthquake, storm and flood.”

The insurance policy under this subsection (1) covers the legal liabilities of an owner or occupier of premises in respect of loss of or damage to property or bodily injury or death suffered by any user of the premises and third parties.

These Acts were first inaugurated in 2008 but only became instituted in the compulsory policies this year. So far, they have only been officially introduced in the Federal Capital City, Abuja, Oyo and Sokoto states.

Despite efforts by NAICOM, Lagos State, which is known for recording the highest number of building collapse, is yet to officially commence the Acts‘ enforcement.

The Group Life Assurance scheme was instituted under the 2004 Pension Reform Act. Section 9(3) of the Act states that, ”Employers shall maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee.”

Essentially, this is meant to provide compensation for the dependants of workers, who may die while still in service.

The Federal Government set the ball rolling on the scheme in November 2008, with the payment of a premium of N4bn to insure its workers. Indeed, this has been the single largest premium that the sector received so far.

This year, following the renewal of the policy, life insurers, who are the underwriters of the policy, lost the opportunity to double their annual premium through this policy, when they lost N15bn to rate cutting.

Rate cutting is a system, whereby an insurer charges an uneconomically low premium in order to secure a business, even when it is at a loss.

For now, the Group Life Assurance scheme is stuck in a quagmire, as it has continued to be fraught with inconsistencies and misconducts on the part of operators.

On Professional Indemnity Insurance, there has not been any record of any Health Maintenance Organisation that has bought into it.

In fact, insurers have not been enthusiastic about it because, according to them, though there are many hospitals, the professional indemnity of one hospital is not as much as the number of buildings springing up in Lagos alone.

For this reason, they say, it may not really be profitable in view of the fact that the HMOs will only pay little premium.

The Workmen‘s Compensation scheme has continued to grapple with challenges as a result of the cold war between the Nigerian Insurers Association and the Nigerian Social Insurance Trust Fund.

At present, there is a bill before the National Assembly to repeal the Workmen‘s Compensation Act 2004 and replace it with an Employee Compensation Scheme, to be managed by the NSITF.

This bill, which has passed through the second reading, is currently being vehemently attacked by all the bodies in the insurance industry.

The last of the policies is the Third Party Motor Insurance policy. Motor insurance derives its legality from the third party motor insurance law of Section 68 of the 2003 Insurance Act that compels all vehicle users to have a minimum of a third party motor insurance for the main reason of ensuring the safety of all road users.

Research has shown that for many years in the country, 90 per cent of motorists possessed fake insurance certificates, which they purchased either from local government or licensing offices.

The fake operators had continued to feast largely on the proliferation of the fake certificates to the detriment of the insurance companies.

Now, insurance operators are being urged to ensure a mechanism that will help to curb the activities of adulterators and proliferation of these fake papers.

According to the Commissioner for Insurance, Mr. Fola Daniel, Market Development and Reconstructuring Initiative project is aimed at helping the industry to leverage the existing laws to plug many of the loopholes in terms of insurance premium.

He said that with the implementation of the policies, the industry had plans to achieve a premium benchmark of N6tn by 2020.

The commissioner added that the MDRI was aimed at addressing the issues of compulsory insurance products, insurance agency system, fake insurance institutions and risk-based supervision.

Sixteen insurance products, he said, were directly or indirectly made compulsory in Nigeria. He added, however, that those six policies were very prominent and capable of generating about 55 per cent of the industry‘s premium.

He stressed the role of insurance brokers and insurance agents in ensuring the success of the project.

He said, ”They should be able to utilise the large size of their network, spread across the country to promote the good image of the industry and deepen insurance penetration.”

The Managing Director, Nem Insurance Plc, Mr.Tope Smart, observed that with the MDRI project, NAICOM was trying to grow the industry, by ensuring that some of these compulsory insurance policies were taken up.

He noted that there were leakages in the sector‘s premium generation, especially through the motor insurance policy.

Smart discouraged the possession of fake insurance policies because they had no benefit for the policy owner.

To curb this menace, he stressed the need for enforcement agents to assist in ensuring that only original motor insurance policies exist in the country.

He also sought the government‘s support in ensuring the enforcement of the building insurance laws.

Acording to him, ”If you look at public buildings in Lagos alone, one notes that they are many. How many of them are insured? This is because nobody is going to ensure compliance. In this area, we need the cooperation of government agencies in enforcing these laws.”

The Director-General, West African Insurance Institute, The Gambia, Prof. Mike Ikupolati, noted, “it is one thing to have laws; it is another to implement such.”

He observed that the implementation of the policies needed better coordination, which should begin with an era of unity in the industry.

According to him, ”If you want to enforce compulsory insurance policies, it has to be the collective responsibility of every sector in the insurance industry. NIA, the Nigerian Council of Registered Insurance Brokers, the Chartered Insurance Institute of Nigeria and the Association of Registered Insurance Agents of Nigeria and all the other bodies need to come together as one body. When it comes to something that affects the industry as a whole, we should be seen to be together and form a common goal to achieve it.”

Source: Punch

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