Curbing Building Collapse through Builders’ Insurance

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Ebere Nwoji examines the recent move by the Lagos State Government to make the builders’ insurance policy compulsory to stem the rising incidence of crumbling buildings in the state

The Lagos State Government recently intensified efforts to check rising incidence of building collapse in Nigeria as well as ensuring that where it occurs, victims are provided with necessary mitigations against associated huge losses.

The state did this through recent move to enforce compulsory builders insurance on owners of buildings across the state. It also established a safety institute where stakeholders in construction work can be trained and certified to prevent frequent cases of collapse buildings in the state. Lagos has in recent times recorded the highest number of building collapses.

The Director General of Lagos State Safety Commission, Hakeem Dickson, who disclosed this at a press Conference held as part of preparation for the ‘Naija Safe Awards 2017’, organised at Alausa, Ikeja, said the state government would synergise with a consortium of insurance companies and the National Insurance Commission, (NAICOM) to achieve this.

Dickson was disgusted with the rate at which Lagosians pass blames on the state government whenever there is incidence of building collapse especially for not compensating victims.

He was of the view that if Lagosians embrace building insurance policy, it would save them from untold hardship, losses and hopelessness associated with unforeseen emergency situations,stressing that insurance companies have the financial capabilities to compensate and pay claims to victims of disasters than government.

This decision by the state government is in line with long standing crusade by both the insurance industry regulator, NAICOM and the umbrella body of insurance underwriters, the Nigeria Insurers Association (NIA) and other stakeholders in the industry on enforcement of compulsory insurance nationwide.

They have for many years been agitating for implementation of sections of 2003 insurance Act on compulsory insurances.

Builders insurance, especially public buildings and buildings under construction is one of the compulsory insurance policies stipulated by insurance Act of 2003.

Its enforcement since then has been lying low until in 2008, when NAICOM in collaboration with the industry operators kicked off campaign on the enforcement in the six geopolitical zones of the country.

The expectation was that by now, everybody would have embraced this policy and all buildings in Nigeria covered by insurance policies but this has not happened for lack of enforcement.

While insurance underwriters look upon NAICOM as government agency charged with the responsibility of doing that, NAICOM, on its part looks upon federal government for empowerment and deployment of its various enforcement agents for that purpose.

The Commission is also looking forward that the proposed amendment of 2003 Insurance Act would vest on it the necessary powers for enforcement and punishment of offenders.

The compulsory insurance policies slated by the commission for enforcement include statutory Group Life Insurance as required by Section 9(3) of the Pension Reform Act, 2004.

Employee’s Compensation (which replaced Workmen Compensation) as required by Section 33 of the Employee’s Compensation Act, 2010.

Occupier’s Liability Insurance as required by Section 65 of the Insurance Act, 2003.
Motor Third-Party Insurance as required by Section 68 of the Insurance Act, 2003.
Builder’s Liability Insurance as required by Section 64 of the Insurance Act.
Health Care Professional Indemnity Insurance as required by Section 45 of the National Health Insurance Act, 1999.

Section 65 of insurance act of 2003, states that every public building shall be insured with a registered insurer against the hazards of building collapse, fire, earthquake, storm and flood.
The act defined public building as including tenement house, hostel, and building occupied by a tenant, lodger, or licensee.

At the flag off of the enforcement in Abuja, insurers described the exercise as the best thing that has happened to the industry projecting that at least it would yield the industry as much as N10 billion premium annually if effectively enforced .

Indeed, considering the number of buildings in major cities in the country where there are more public buildings than in the villages, one would conclude that the builders insurance holds much opportunity for the insurance industry and is capable of tripling the projected amount by the insurers.

But instead of this, the policy is being affected by a lot of issues that have hampered its successful enforcement.

Among the issues as pointed out by the Managing Director of Niger Insurance Mr. Kola Adedeji are inadequate and ineffective frame work for insurance industry.

According to him, insurance law makes provision for NAICOM as the regulator to enforce the insurance laws but provides no means of enforcement against the public. According to him, the commission lacks the power to arrest law breakers in the industry.

According to the Niger insurance boss, whereas section 17 of the 2003 Act on third party motor insurance empowers the police to ask any one driving a motor vehicle to produce his or her certificate of insurance and section 40 of the workmen’s compensation act gave the minister of labour power to enforce the compulsory insurance provision of the act. In the case of compulsory building insurance, there is no separate enactment for compulsory insurance of public buildings.
He noted that this inadequate legal framework makes it completely difficult to enforce the provisions.

He therefore suggested a separate act of parliament for each of the compulsory insurance policies adding that each of the acts would provide relevant enforcement agencies through the benefits on the long run accrue to the insurance industry in form of increasing patronage and growth.
He particularly suggested the empowerment of all states and physical planning authorities for the enforcement of the act.

‘’It is equally important to note that the provisions for insurance of public buildings even as they are in the insurance act are quite confusing, the law provides that either the owner or the occupier of the premises can insure public buildings’’, he noted.

Pointing out its other pitfalls, Adedeji queried: “The policy is meant to cover legal liabilities of either owner or occupier at what point in time does the occupier have legal liabilities or insurable interest in the building he or she is occupying?
Despite these pitfalls, Lagos State government have taken the bull by the horns to enforce the law by ensuring that owners of buildings in the state put in place insurance cover for the third party.
The state government has already set up enforcement and monitoring team to ensure compliance.
Members of the team, THISDAY gathered were selected from insurance practitioners and outside insurance as the government was disgusted with high level of abuses by environmental workers in the state.
But Lagosians who commented on the development expressed diverse opinions on the matter. While some said it is a good development, others said what Lagosians need is solution to problem of building collapses not compensation.
They also feared that it will increase cost of building in the state which will in turn increase the already high cost of house rent in the state.
Insurance industry observers said the decision by the state government is a good one but to make it more effective, the government should have used only the law enforcement agents to effect the enforcement.
They argued that using the insurance operators for enforcement would not yield much result because the insurers themselves have often said they were handicapped in enforcing the policy because they find it difficult going into any standing building or building under construction and to ask for insurance policy paper.
The insurers have always wished the law enforcement agents would be assigned to act on their behalf.

The observers therefore want the state government to restrict the enforcement to security and law enforcement agents of government.
At the lunch of the compulsory insurance in Abuja, the then Commissioner for Insurance Mr. Fola Daniel had explained that the enforcement was meant not only to boost the industry’s premium, but most importantly to protect lives and properties which are often lost in building collapses.

He had listed structures covered under the Act to include all buildings occupied by government ministries; extra-ministerial departments; statutory bodies; tenement houses; hostels; lodges; or licences and any building to which members of the public have access for the purpose of obtaining educational or medical service or for recreational purposes or for business transaction.
Apparently, the industry regulator hoped to use the proceeds from the compulsory builders insurance to transform the industry into trillion naira market this year from below N400 billion currently.

Daniel, had said that the trillion naira market transformation of the industry projected by his regime in NAICOM was based on the assumption that if all the houses and motor vehicles in Lagos and Abuja alone were insured, the figure would be met.
Section 64 of Insurance Act of 2003 makes mandatory the insurance of buildings under construction where more than two floors are envisaged. The section says that insurance must cover the liability of the owner of the building in respect of the negligence of his servants, agents or consultant.

Section 65 of the same Act makes the insurance of public building mandatory.
Section 65 (4) of the Act specifies that 0.25 per cent of the premium collected is to be paid into a Fire Services Maintenance Fund to be administered and disbursed by NAICOM for the purpose of providing grants or procurement of equipment to institutions engaged in fire fighting services in the country.

The Act also provides that where there is a violation of this order, which derives from the provision of Sections 64 and 65 of the Insurance Act 2003, such offenders are liable to three years’ imprisonment or a fine of N250,000 or both.

Also, the law prescribes a fine of N100, 000 for a tenant or owner of such insured building in respect of loss of, or damage to property, or bodily injury or death suffered by any user of the premises and third party but it failed to state the right or power of the NAICOM to punish any offender.