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‘No Premium, No Cover’ Challenge for Insurers in 2013

02 Jan 2013

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 Fola Daniel, Commissioner for Insurance

2013 has ushered in full enforcement of a relevant provision in the Insurance Act, 2003, ‘no premium no cover’; a new phase in the insurance industry. Nnamdi Duru writes on this major challenge before insurance operators in the country, which is likely to change the face of insurance for good

Determined to ensure that the insurance industry did not go down the way of the banking industry with the distress of some key operators, the National Insurance Commission (NAICOM) embraced a tight regulatory model which ensured that all the operators were forced to make adequate provisions for all incurred and anticipated losses in the last four years.

It also put in place measures, strategies and policies to stem the drifting of any insurance company into distress while the operators grudgingly complied with all the necessary rules set for them by the regulator.

The insistence on adequate provisions made it impossible for many companies to declare profit in previous years as whatever underwriting profit and other incomes raked in by most firms were eroded and used to make up for such losses associated with various provisions.

The operators in 2010 subjected themselves to various financial health checks as they prepare for the challenges ahead, and in 2011, many of them broke even and even went ahead to declare profits and in very few cases paid shareholders little dividends from profits made in 2010.


In 2011, the operators only managed in most cases to meet up the regulatory pace of NAICOM, without any serious innovations in the product or marketing aspect of their operations.

Last year, the regulatory body, which tightened the noose around the neck of operators, found many culprits including the sanctioning of two insurance broking firms and two insurance companies. One of the broking firms was later pardoned, having corrected all identified infractions in its operations while the other three are still facing the music.

In furtherance with its supervisory activities, the regulatory body forced about two chief executives and other top executive in their respective organisations to resign their positions, having been found wanting of defaulting in the areas of corporate governance and fraudulent misrepresentations of their finances to the regulatory body.

Having instilled so much discipline in the operators, this year, the operators still have a great battle, and this has to do with full compliance with the no premium no cover provision in the Insurance Act, 2003. This is in addition to other key outstanding issues in the industry.

‘No Premium No Cover’
Just recently, NAICOM issued ‘Guidelines on Insurance Premium Collection and Remittances’, signalling the death of providing insurance covers on credit and guiding both insurance brokers and underwriting companies on to go about collecting and remitting insurance premium to beneficiaries.

The guidelines direct as follows:
“All insurance covers shall only be provided on a strict ‘no premium no cover’ basis. Consequently, only cover for which payments have been recovered directly by the insurer or indirectly through a duly licensed insurance broker shall be recognisable as income in the books of the insurer.

“Any insurer who grants cover without having recovered premium in advance or premium receipt notifications from the relevant insurance broker shall be liable to a penalty on the sum of N500,000 in respect of each cover so granted and in addition, may be a ground for suspension of the license of the insure

“Irrespective of the period of insurance, insurers shall ensure that at any point in time, they have received directly or indirectly through the insurance broker, the full premium in advance for the cover being granted.”

In the same manner, the guidelines provided that insurance brokers, lead underwriters and primary underwriters must notify insurers, co-insurers and reinsurers as the case may be of any premium collected on their behalf within two days of receiving such premium.

“All insurance brokers shall within 48 hours of receiving insurance premium on behalf of any insurer, notify the insurer in writing in each case, of the receipt of such insurance premium. All such notifications shall be accompanied by the broker’s credit notes acknowledging indebtedness to the insurer. An insurance broker who fails to notify the insurer of any premium received on his behalf shall be liable to a penalty of not less than N250,000 in each case of failure to notify,” the commission directed.

“In consonance with the Insurance Act, 2003, there shall be no outstanding premium in the books of any insurer as covers granted on credit are not recognised by the law. In order to protect the interest of policyholders and other stakeholders from the negative consequences of the existing practice, insurance operators are required to comply with the following guidelines with effect of January 1, 2013,” it stated.

With this development, it is expected that insurance companies would be posting lesser premium income this year and in the same manner, make lesser provisions for premium debts, it any at all.


This will make the operators stronger and make the almighty insurance brokers accountable for all the premiums they collected on behalf of insurers unlike what obtained in the industry in the times past. Industry stakeholders are waiting to see which companies would be the first victims of the new directive.

Dana Claims
In spite of all the assurances by the insurance industry, the Dana claims would still be a major challenge to the industry this year. The lead underwriter for the Dana aircraft that crashed on June 3, 2012 in Iju area of Lagos State, Prestige Assurance Plc, said it has contributed up to $2.609 million to make up for the $30,000 initial payment to relatives of victims of the accident.


The insurer absolved itself from all blame regarding delays in payment of initial compensation to relatives of the crash victims, saying it was not responsible for negotiating and verifying claims made by the bereaved families and that its duty under the contract is limited to contributing its share of verified claims.

The Managing Director of the company, Dr. Mital, who confirmed this, said the payout was in respect of compensation to victims of the deceased and legal and legal fees paid to relevant agencies handling various aspects of the claims arising from the accident.

However, his explanations did not go down well with aggrieved relatives of victims of the air crash who made several allegations against the airline and its insurers.

Some relatives of the crash victims alleged irregularities and deliberate delay in the payment of the initial compensation on the trio of the management of Dana Airline, Prestige Assurance Plc and the foreign reinsurer, Lloyds Syndicate of London, represented by Clyde and Co and its Nigerian representatives, Yomi Osikoya & Co.

Some raised an outcry that their names were advertised as having collected the $30,000, while they were yet to receive any such money from any of the parties; and others alleged that they were short-changed by the trio, having been paid $15,000 instead of the full amount.

Some others accused the officials of Dana Airlines and Yomi Osikoya & Co of threatening them to withdraw the suit the instituted against Dana Airlines in the United States even as another would-be beneficiary alleged that the airline’s management and legal representative of the reinsurer forced him to go through a DNA test and secure a Letter of Administration but still refused to pay him or his proxy the said $30,000 initial compensation.

Meanwhile the legal representatives for relatives of 40 of the crash victims, M. O. Awoyemi & Co. wants the National Assembly, the Aviation Minister and President Jonathan Goodluck to prevail on Dana Airlines and the local and foreign insurers to speed up the payment process with a view to alleviating the suffering of those who lost their loved ones in the accident.

This year, stakeholders would be on the watch as events unfold and the industry’s image would be affected positively or negatively depending on how the claims issues are resolved.

Deadline for Submission of Reports
A few years back, NAICOM reduced the time allowed insurance companies to reflect unpaid premiums in their books from one year to six months saying, “we don’t want to have bubble capital and we don’t want to have figures that are not realisable”, the Insurance Commissioner, Mr. Fola Daniel said.

As a fall out of this directive, many companies could not meet up the June 30 deadline for submission of report for the preceding year. Many of them had their 2010 accounts approved in the last quarter of the year at great cost to shareholders of such companies.
This year, the commission needs to review the N5,000 fine per day for companies who fail get their financial reports approved by the end of June of this year and going forward. It could also reduce the time allowed for submission of reports from June 30 to March 31, as being touted by the commission.

Insurance Law Review
The Federal Government four years ago set up a committee headed by insurance professional and Lawyer, Prof. Joe Irukwu, to look at all insurance laws and make recommendations on how to upgrade and consolidate them into a new Act.
Having consulted far and wide, the committee submitted its report to government, and the industry is still awaiting the Finance Ministry to submit a bill in this regard to the National Assembly.

It is expected that the government should give teeth to the insurance regulator by ensuring that the new law in the making is rolled out in good time to ensure that all the necessary regulations and directives get legislative back-up as soon as possible. This will also encourage the commission to forge ahead with its mandate effectively and efficiently.


The above-mentioned are some of the issues that would shape the insurance industry in the country this year, and both operators and regulators are expected to be on their toes, to ensure full compliance with the no premium no cover directive particularly.

Tags: Nigeria, Featured, Business, NAICOM, Insurers in 2013

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