Implementing Compulsory Builders’ Insurance

Unabated collapse of buildings under construction in Nigeria has spelt the need for enforcement of compulsory builders’ Insurance, writes Ebere Nwoji

The recent collapse of 21 storey building in Gerard Road Ikoyi Lagos, in which more than 21 people have been declared dead and many injured spells the need for intensification of efforts by government to implement the enforcement of compulsory builders and building under construction insurance in Nigeria.

This has become necessary because six days after the building collapsed, no insurance firm in Nigeria or a foreign insurer has admitted that it insured the building.

Investigations by THISDAY to ascertain from insurance underwriting firms, insurance brokers and agents which particular firm insured the building has not yielded any result.

The situation has been worsened by the fact that the owner of the building and site managers who should be in position to give information on the insurance status of the collapsed building were said to be among the victims.

This is so despite the fact that insurance of building under construction is one of the compulsory insurances in Nigeria as well as one of the compulsory insurance slated by the Lagos State Government for enforcement.

Section 65 of the Insurance Act 2003 requires the owner or occupier of every public building to be insured against liability for loss or damage to property or death or bodily injury caused by collapse, fire, earthquake, storm or flood.

The Act defines a public building as one to which members of the public have access for educational, recreational, medical and commercial purposes.

The penalty for non-compliance is a maximum fine of N100,000 or one-year imprisonment or both. Also, Section 64 of same Act, stipulates that for insurance of buildings under construction, every owner or contractor of any building under construction with more than two floors must take an insurance policy to cover liability against construction risks caused by his negligence or that of his servants, agents or consultants which may result in death, bodily injury or property damage to workers on site or members of the public.

The collapsed build is said to have been subscribed to by would be users at a very high rate.

National tragedy

Speaking as a guest on a TVC programme on the collapsed building and insurance, monitored by THISDAY, the Commissioner for Insurance, Mr Olorundare Sunday Thomas described the incident as a national tragedy saying governments at all levels, insurance operators need to up their games in sensitising the people and enforcing them to key into compulsory insurances like insurance of public building and building under construction.

Describing the incident as one thing that affects many, the commissioner said there were already made provisions in the insurance Act 2003 for unforeseen and unfortunate situations like the collapse building pointing out that this is contained in the law on insurance of public building and building under construction but regretted that Nigerians would hardly obey it although the case of the collapsed building fell under the stipulated compulsory insurances.

“The Law knew that things like this will happen and that things will follow after so the law provided for this by making building under construction one of the compulsory insurances and this falls under it” but what will happen now is to confirm if there is compliance by the owner of the property and if there is insurance then we begin to search for the insurance firm in charge and make them bring succor, “he said.

The commissioner said insurance was about risk taking and claims payment when the unforeseen happens assuring that if the building was insured, the insurance company in charge would pay and NAICO as a regulator would ensure that claims were paid.

He said concerning this kind of unforeseen circumstance, the starting point going foreword would be for insurance people to create awareness on existence and relevance of such compulsory insurance then the federal and state governments should use their agencies to compel Nigerians to take insurance covers especially compulsory insurance
“There are a lot of financial implications, children may be out of school these are liabilities foreseen in the provision, there are also other liabilities, I learnt that people have subscribed to the building and these suppose to rest on the shoulders of insurance people if such building has insurance cover, “he added.

On the question on willingness of insurers to pay claims promptly, the commissioner said it was one thing to insure and another thing to pay claims adding that the insurance cover had to be taken first before one could talk about claims payment.

According to him, claims payment is responsibility of insurers and if there was delay, there is distress mechanism, like the Complaint Bureau of both National Insurance Commission and Nigeria Insurers Association.

He added that tales on non-payment of claims when the unforeseen happens were mere perception by the public especially by those who were ignorant of Insurance.

He said though there were legacy issues in the past but that things had changed as he commiserated with families who lost their loved ones in the incident.

The way forward

On the way forward, Thomas said though no level of claims or provision would bring back dead ones, insurance operators needed to do more on sensitisation, Lagos State government whom he said had been bearing a lot of expenses in compensation of victims when that kind of occurrence happened should also stand up to enforce the compulsory insurances to reduce its burdens in this direction.

He described Lagos State as Insurance friendly state adding that it had done much in patronising insurance sector through provision of insurance arrangements for its workforce but said the state government should stand up to help in enforcing compulsory insurance especially the insurance of public buildings and buildings under construction.

In their comments, industry analysts said enforcement of the building under construction insurance would go a long way to not only compensate victims of collapsed building also would go a long way to prevent the building collapses.

According to the analysts, it is obvious that the cause of building collapses is mainly the use of defective, substandard building materials as well as failure to adhere to recommendation of building experts.

The analysts said if building under construction insurance was enforced it would help to compel builders to adhere to use of the right quality building material in building.

According to them, this is because; no insurer would like to sit on a keg of gunpowder in terms of providing cover for any building whose construction quality they cannot ascertain.

They said as such if the policy was enforced, insurers, through their assessment of buildings they insure in collaboration with estate managers, quantity surveyors and building constructors and architects would work together to ensure that any house to be covered by insurance policy was built with the right specification by the building experts.

They said this way builders who must get insurance policy cover as one of the requirements before commencing building would ensure that the right standard specification was maintained in the construction process otherwise no insurance company would want to accept the liability of covering such building.

They said this would drastically reduce frequent cases of collapsed building in the country often caused by use of substandard building materials and wrong specifications.

Construction experts namely Professor Awoyera Alfa, A Adetoye and L L Akinwumi all from the Department of Civil Engineering, Convenant University Ota in their recent work on building collapse in Nigeria causes and effects said building collapse in Nigeria in the last few decades has become a growing concern for investors and the government alike.

According to them, many of the documented cases of building collapse in Nigeria are due to the use of defective or substandard building materials, no requisite technical knowledge, non- adherence to building codes and standards, the use of non-professionals and the high level of corruption which has ravaged every sphere of the construction industry including government and private parastatals.

According to them, in addition to the established causes of the collapse of structures, empirical data from developed countries of the world has shown that many of the recorded cases in this climes are due to the fact that the current codes of practice do not make provisions for unexpected loads and an unexpected failure of a single member may lead to an all-round collapse of the entire structure.

This being the case, the role of insurance as a risk mitigating factor in addressing losing emanating from building collapses as well as in encouraging if not compelling building owners to adhere to the right standard cannot be overemphasised.

Building under construction insurance

But insurers said this could have only happen if government could use the current incident as a case study and implement in practical reality the enforcement of compulsory building under construction insurance and builders insurance.

President of the Nigerian Council of Registered Insurance Brokers (NCRIB) Mr Rotimi Edu, in a statement to this effect noted that the increasing cases of building collapse constituted a huge challenge to government and other stakeholders in the built environment calling on relevant authorities to embark on better synergy to ensure compliance with extant building regulations.

Edu was of the opinion that in spite of the strident efforts of Lagos State government through its various dedicated agencies, the incidences of building collapse has not been fully stopped.

He underscore the need for compliance with the compulsory insurance of public buildings as stipulated in Section 64 & 65 of Insurance Act of 2003 which makes it mandatory for all contractors and their agents to, among others, undertake insurance against death or injuries to third parties to a public building in the event of a disaster of this nature

He specifically highlighted the crucial roles of Insurance Brokers who he noted were professional intermediaries in the insurance value and had the duty to advise clients about what to insure, how to insure and how to pursue their claims in the event of occurrence of a loss.

Cases of Building Collapse

In March 2019, the same Lagos Island witnessed the collapse of a three-storey building in the Ita-Faji area of Lagos Island Local Government, in which many people including school children lost their lives.

Within the same period, in Apo Mechanic village Abuja, a story building collapsed trapping six people and there was also another reported case in Ibadan, within the same period.

This is in addition to fire outbreaks in markets all of which supposed to be covered under the compulsory insurance of public. just three weeks ago, the popular Nkwo Ogbe Market in Ihiala Loc al Government Area of Anambra State was gutted by fire destroying goods worth of millions of Naira.

The owners of the shops gutted by the fire lamented that the state government Governor Willie Obiano came to the venue but failed to say anything tangible in terms of rescue and intervention effort.

Asked if they insured their shops the fire victims said no. This confirms what the insurance commissioner said about huge task of awareness and sensitisation of the people on the value of insurance in addition to government’s enforcement need and effort.

Also analyst said the review of the insurance Act 2003 is overdue adding that N100,00 and N250,000 penalty for non compliance to the compulsory builders insurance is long overdue for upward review.

They said all these would help to encourage builders to maintain the right standard in their projects and prevent building collapses.

NAICOM on its part had been making efforts to see that the compulsory building insurance is enforced but these efforts have not yielded the desired results.in 2020, the commission launched the compulsory insurances in the six geopolitical zones of the country.

In October 2017, it inaugurated a technical committee that would drive the enforcement of public building insurance in Nigeria.

The committee was made up of representatives of NAICOM, the Federal Fire Service (FFS), representatives of states fire service from the six geo-political zones and the Nigeria Insurers Association (NIA). Since then nothing has been heard about the work or achievement of the committee.

The expectation was that by now, everybody would have embraced this policy and a significant number of buildings in Nigeria covered by the insurance policy. With the increasing incidence of building collapses in the country especially in Lagos, it is expected that the Lagos State Government, would through its ongoing partnership with over 150 insurance brokers who serve as intermediaries and 20 insurance underwriters for the purpose of providing end to end risk management services to its workforce, the state government would leverage on this partnership and implement the enforcement.