By STANLEY OPARA

The implementation of the compulsory insurance of buildings above two floors as stipulated by the Insurance Act, 2003, is being threatened by conflicts over property valuation and applicable premiums, STANLEY OPARA writes

The enforcement of the Insurance Act, 2003, which makes it obligatory for owners of properties or developers to insure buildings of more than two floors for construction risks, is causing ripples in the construction industry.

While the law makes provision for insurance companies to charge premiums based on the values of existing buildings and those under construction, professionals in the built environment have queried the methodology of determining property values.

For instance, the Nigerian Institution of Estate Surveyors and Valuers is fuming that it has not been consulted by the National Insurance Commission and insurance companies on how to determine the value of properties to be insured.

The President, NIESV, Mr. Bode Adediji, said, “As I speak with you now, there is no collaboration or cooperation between the insurance practitioners and the institution vis-à-vis the valuation of buildings for insurance purposes. The only set of professionals mandated by law to do property valuation is the estate surveyor and valuer.

“We believe in dialogue. We can work out a partnership so that what is capable of transforming the Nigerian economy is not jeopardised.”

He added, “No two buildings are ever the same like it is with cars and other assets. That is why NAICOM and the insurance companies must involve professionals who are members of NIESV. Otherwise, we foresee a situation whereby the insurance companies will have problems when paying indemnity.”

The NIESV boss told our correspondent that like other major policies, the success of the mandatory building insurance scheme depended on effective implementation.

Adediji said that in the short-run, there might be some challenges with the implementation of the Act, especially on the premiums, but noted that as more people understood why they should insure their buildings, the cost of building insurance would drop.

The enforcement of the law commenced on March 1, 2011, when it became mandatory for public buildings such as tenement houses, offices, schools, hostel, hospitals and hotels, among others, to be insured against the risk of collapse, fire, flood, and other natural disasters.

The law states, “A person, who contravenes the provision of this section commits an offence and on conviction shall be liable to a fine of N250,000 or imprisonment for three years or both.”

It exempts only private abodes that are occupied solely by the owner for residential purpose or a church or mosque from the compulsory insurance scheme.

There are also fears that the implementation of the law may lead to a sharp rise in the prices of landed property as the insurance premium will naturally be added to the value of the property, while it will be additional costs for buildings under construction.

Our correspondent gathered from the insurance industry that for the builders’ liability insurance policy, the premium chargeable would be determined by the value of the building.

For properties belonging to the Federal Government, the premium rate is 0.3 per cent, while those at state and local government levels will attract 0.325 and 0.35 per cent respectively.

It was further gathered that there was also provision for an open insurance cover for groups of buildings like those in estates, where the premium chargeable will be based on the value of the entire project.

The Managing Director, Linkage Assurance Plc, Mr. Gus Wiggle, who spoke to our correspondent on the telephone, said calculating premiums payable on insurable buildings depended on the area where such structures were located, their nature and worth, as well as the experience of the contractors engaged.

According to him, the average premium rate is between 0.2 per cent to 0.35 per cent of the property value.

“If the exposure is higher, the building owners will have to pay higher and vice versa,” he added.

Wiggle, however, noted that the compulsory insurance policy for buildings of two floors and above was more of a third party liability cover.

The Senior Manager, Corporate Affairs, NAICOM, Mr. Rasaaq Salami, who also spoke to our correspondent on the telephone, said, “It is compulsory for buildings of two floors and above to be insured. The agreement on premium is exclusively between the insured and the insurer.”

He said the premium charged by the insurance companies must be significant enough to pay for damages if the risks insured against eventually happened.

Commenting on why NAICOM would not interfere in the fixing of premiums, Salami said, “There are some insurance policies that you cannot fix their premiums and building is one of them. It is left with the insurers and the builders to determine what the premium will be.”

Also speaking on the likelihood of a rise in property prices as a result of the enforcement of the law, he said, “People don’t have any reason to complain now because the law has always been there.”

However, the Chairman, Nigerian Institute of Building, Lagos State Chapter, Mr. Moroof Abbass, told our correspondent that the implementation of the compulsory insurance policy on buildings and the rising prices of building materials would further increase property prices and make houses more expensive.

He said, “Yes, the total cost of construction will increase and there is nothing we can do about it. The effect, however, is dependent on the type of building and its cost implication.”

Abbass noted that generally, property prices would rise following the escalating cost of building materials like cement.

“The cost of cement alone covers at least 70 per cent to 75 per cent of the building budget and this is significant. We have been talking to the government and we will continue to do that,” he added.

In the same vein, the National Secretary, Real Estate Developers Association of Nigeria, Mr. Goke Odunlami, urged NAICOM to interfere in the determination of the premium rates to be paid on buildings, otherwise, “we will have a scenario where building insurance will not be popular.”

He said, “That will not make building insurance to be a success in Nigeria because if you are asking builders and insurers to reach a compromise in terms of premium, the process will not be objective. Builders will always want to do what will be convenient for them.”

 

Source: Punch