Fola Daniel, Commissioner for Insurance
By Nnamdi Duru
The Commissioner for Insurance, Mr. Fola Daniel, has explained why the insurance regulator barred insurance operators from underwriting risks on credit, saying the menace of unpaid premium has been impacted negatively on the fortunes and survival of the insurance industry.
Speaking with newsmen, he observed: “The vexed issue of delayed or unpaid insurance premium has now attained an alarming crescendo, threatening to drive the industry into extinction if not curbed”.
According to him, most insurance companies made huge provisions for outstanding premiums in their books on an annual basis, “which invariably affects their bottom-line and thus, their inability to make profit, pay dividends to shareholders and attract investments to enable growth.”
He said that such situation, which he said was avoidable, was unhealthy and dangerous to the industry and has to be stopped by the regulatory body, the National Insurance Commission (NAICOM).
With this development, it is expected that insurance companies would be posting less premium income and make no provisions for premium debts.
This policy would also make underwriters stronger and make the almighty insurance brokers accountable for premiums collected on behalf of insurers unlike what obtained in the industry in the times past.
A few months back, 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 to go about collecting and remitting insurance premium to beneficiaries.
The guidelines directs 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 licence 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 bring 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.
Determined to ensure that the insurance industry did not go down the way of the banking industry with the distress of some key operators, NAICOM before the latest directive 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.