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Third Party Insurance as Two-edged Sword for Operators
Stakeholders in insurance industry have weighed the pros and cons of the recent increase in premium charged on the compulsory Motor Third Party Insurance by NAICOM. Ebere Nwoji reports that the development has been described as two-edged sword that can make or mar the operators.
The National Insurance Commission (NAICOM), precisely on December 22nd, 2022 announced 200 percent increase in premium payable on the compulsory Motor Third Party Insurance.
The commission said the increase took effect from January 1, 2023 meaning that motorists have only one-week notice to abide by the new premium rate.
Before now, motorists were paying N5000 premium on the policy but with the increase they are to pay N15000 showing 200 percent increase.
Also claim on the policy was increased from N1 million for death and permanent disability to N3 million.
The increase though has been muted by NAICOM for some time to the extent that it set up a committee that would set the new rate, but this has elicited series of reactions from the insuring public, insurers themselves and other stakeholders in insurance industry.
Industry analysts see the new rate is a two edged sword that can make or mar operators depending on how it is enforced and monitored.
According to the analysts, it is two-edged sword in the sense that if insurers themselves align with the regulator by adhering to the stated rate without cutting corners in terms of rate cutting, it will put more money in their pockets and enable them attend to emanating claims.
On the other hand, if the operators engage in their usual unhealthy competition and its implementation not well monitored and enforced, it will throw wide open the gate for fake insurers to continue their insurance certificate faking deals which has been flourishing until the Nigeria Insurance Industry Data base (NIID) initiative came on board.
According to them, given the fact that this particular policy has over the years suffered the worst abuses by fake insurance certificate sellers, there is need for mass education and campaign on the need for Nigerians to buy their motor insurance from genuine insurers at standard rate and get their claims paid in case of eventuality than pay paltry sum to certificate fakers and have no body to hold responsible in case of the unforeseen.
They are of the view that the new rate and its implementation needs to be monitored by both NAICOM and Nigeria Insurers Association through massive campaigns and education against activities of fake certificate sellers. Also the NIID should be made to be effective in all the states.
In addition to this, they said insurers should collaborate with law enforcement agents and endeavor to make a clear difference between their activities and those of fakers by charging the appropriate premium as stated by the regulator and paying claims promptly when accident occurs.
Before the NIID initiative, Motor Third Party Insurance among the six compulsory insurances in Nigeria suffered the worst abuse and has stood as a major loophole through which premium drift from genuine insurers to fake ones.
THISDAY checks reveal that even with the NIID, there are states where fake certificate sellers on Motor Third Party Insurance are making impressive outing because motorists prefer to pay N1000 to certificate fakers than to pay N5000 official rate to the genuine insurers.
But the danger here is that such motorists expose third party road users whom the Motor Third Party insurance policy is supposed to protect to danger.
Holders of the fake certificates when involved in accident cannot make claims for compensation of their victims because no genuine insurance firm will take responsibility.
Most times, holders of the fake certificates are perpetrators of hit and run crime whereas a claim of N1million is attached to the policy for holders of genuine certificates in case of death or permanent disability. If the accident involves another vehicle, the insurance company that insured the vehicle will take the responsibility of repairing the third party’s vehicle.
Motorists’ choice of fake certificates
But despite these benefits, motorist in Nigeria, especially commercial motorists, prefer to patronise fake certificate sellers to pay lesser premium, without minding what the fate of the third party whom the policy is meant to protect, will be in case of accident.
But insurance sector critics argued that insurers often take advantage of public ignorance of benefits and claims attached to the Motor Third Party Insurance to deny them claims, a situation, which they said has aided patronage of fake certificate sellers.
With the new rate, especially the high margin increase, analysts have reasoned that the new rate and poor disposable income of the masses will compel motorists in states where the NIID is yet to be effective and even states where it has become effective to resort to patronising fake insurance certificate sellers.
Their fear is hinged on the fact that even when rate was N5000, there were states where commercial motorists openly said they prefer to obtain their insurance certificates from fake agents that were ready to collect N1000 rather than offices where the official premium rate of N5000 were being charged.
State government’s attitude
For instance, in December 2021, there was a media report on the Kaduna State Internal Revenue Service (KADIRS) removing Motor Third Party insurance in the registration and renewal of commercial vehicles’ documents from its coverage, due to N5,000 premium which was said to be too expensive compared to N1,500 paid in neighbouring states.
The Executive Chairman, KADIRS, Dr. Zaid Abubakar, was said to have made the announcement in Kaduna at a sensitisation of taxpayers in Kaduna Central Senatorial zone.
Abubakar was said to have explained that the compulsory Motor Third Party Insurance was paid at the same time as motor vehicle registration, adding, however, that mainly private vehicle owners renew their vehicle documents in the state, while commercial vehicle owners preferred to register and renew their vehicle documents in neighbouring states where the cost for Motor Third Party Insurance was lower than what obtains in the state.
“If the compulsory third party insurance will be a hindrance to tax collection and revenue generation in any way, we can do without it.
This is very disturbing because these commercial vehicle owners conduct their business in Kaduna State but would rather renew their vehicle documents in other states. Therefore, we are taking off the third party insurance in the registration and renewal of vehicle documents for commercial vehicles.
“Following the removal of insurance in vehicle papers renewal, I am urging all commercial vehicle owners to renew their vehicle papers in Kaduna State. This will enable the state to optimise revenue generation from motor vehicle registration due to the state,’’ Abubakar said.
Reacting to the removal, the Secretary, Road Transport Employers Association of Nigeria (RTEAN), Kaduna State, Mr Suleman Shaba lauded the gesture saying the step would encourage renewal of vehicle papers in the state.
Shaba acknowledged that most of the members travelled to as far as Jigawa, Kano and other neighbouring states to either register new vehicles or renew expired papers.
He said that some of the members who preferred to go to other states argued that the N5, 000 charged in Kaduna State was too expensive compared to the N1, 500 or N2,000 for the same insurance in Jigawa.
“Now that insurance has been taken off, we will encourage our members to renew their vehicle papers in Kaduna state,” he promised.
Obviously, when the above decision was taken by the revenue department of the state, every Nigerian knew that the official premium rate for Motor Third Party Insurance nationwide was N5000 and anybody who charged anything less than that was a fake insurer yet the motorists preferred to travel to places where they would pay less.
Against this backdrop there are fears that the upward review of the premium rate by NAICOM would compel motorists even private vehicle owners who buy the policy more from genuine insurers to prefer to patronise fake insurers.
But Managing Director, Royal Exchange General Insurance, Mrs. Ebelechukwu Nwachukwu said insurers were not unmindful of the initial reluctance and resistance of the new premium by the insuring public.
She said insurers were aware that such would happen but that they needed to educate the public on the need for the increase.
She said the premium increase has become inevitable because of cost of maintaining vehicles, which has drastically changed.
She argued that prices of everything in the country has risen and insurance premium could not be exception.
She however said the timing was not well structured but that insurers would try to find a balance because they would not want to loose their customers.
She also said the industry would embark on strong enforcement programme to prevent fake operators from taking advantage of genuine insurers.
Before the premium increase, the Deputy General Manager of sales Sovereign Trust Insurance plc, Mr Segu Bankole, had in a telephone chat with THISDAY lamented that the Motor Third Party Insurance, not only suffers abuses by fake certificate sellers but also by genuine insurers.
He said some insurance operators in their quest to rake in premium cut the rate and charge as low as N2000 and resolve within themselves not to pay any claims that emanate from such low charges.
He said such insurers sweep claims from Motor Third party Insurance under the bed proving to the insured that there are no claims attached to it.
Industry watchers said with the premium increase, the industry would return to the era of premium drift from this particular policy as many people will want to cut corners.
NAICOM charged on collaboration
To avoid this, they urged NAICOM to collaborate with law enforcement agents especially in states where the NIID is already working to ensure that certificates paraded by motorists were from genuine insurers.
The commission was also challenged to ensure that claims from the policy were paid to encourage motorists buy their policy from genuine insurers.
View of insurance consumers
But the Insurance Consumers Association (INSCAN) shortly after the announcement called on NAICOM to reverse the new rate saying it was at variance with some of the works commissioned by the National Insurance Commission (NAICOM) which recommended phased increase of Motor Third Party Motor Insurance premium.
INSCAN National Coordinator, Yemi Soladoye, in a protest letter titled, “Demand for reversal of your policy directive on the increase of Motor Third Party Insurance premium in Nigeria by 200 percent under one week notice to the Nigeria insurance consumers,” noted that the policy required a staggered increase first to N7,500 and subsequently to N10,000, N12,500 and ultimately to N15,000 within a ten year period.
Soladoye outlined that the recommendation was not limited to premium increase but that there was a mandate to NAICOM in 2012 to include in the process initiatives that would ensure, emergence of high level confidence in insurance mechanism in Nigeria to the extent that by the year 2012, mere exchange of insurance papers would resolve any accident/damage dispute among Nigerian motorists.
However, he said only the benefits were taken and he asks “Why take only the benefit and ignore the responsibility that was already 10 years overdue.
Meanwhile, the Nigerian Corporation of Registered Insurance Brokers (NCRIB); which actively participated in the prolonged process of announcing the new Motor Third Party Insurance premium, has referred the matter to its technical committee to take a position.
THISDAY learnt that the Technical Committee of the brokers council is already sitting and would pass their recommendations to the Council of NCRIB for further deliberations at which point the NCRIB would present its position.
In its protest letter, INSCAN, which claimed to be representing almost 20 million motor insurance consumers in Nigeria, argued that consumers deserved more than one week notice for the new rate.
In its argument over the new premium rate it said, “We are not impressed by your corresponding increase in the indemnity limit to N3 million as the questions on the lips of our members are who requested for this increase to N3 million, how many claims have you really settled even when the limit was N1 million, are you aware that many fleet owners on their own volition do pay extra premium to the underwriters to increase their TPPD limit to N5 million and where are the insurance ratios to justify that premium increase by whooping 200 percent.”
Checks by THISDAY on when the industry started charging N5000 on the policy yielded no result as none of the industry operators remembered when the N5000 rate started showing that going by the inflation rate in the country and high cost of repairing damaged vehicles, the rate is overdue for upward review.
But as stated by the industry critics, operators should in the face of the new rate comply with the regulator’s official rate, avoid cutting corners and be ready to pay claims emanating from the premium.