Successive administrations in the National Insurance Commission including the incumbent, has been unable to effectively implement compulsory insurance as enshrined in Insurance Act 2003 as a result of several challenges, writes Ebere Nwoji
Compulsory insurance are insurance that are made mandatory by law. In Nigeria, there are six of them but the most popular one is the Motor Third Party Insurance meant to ensure the safety of Third Party road users; the government has made it compulsory for citizens and residents to have motor insurance before plying public roads.
Effective enforcement of compulsory insurance in Nigeria is one dream commissioners for insurance in the National Insurance Commission (NAICOM) wish to realise as insurance regulatory body but this looks like a hard nut to crack.
Indeed, past commissioners for insurance pursued this dream with vigor but the more they pursue it the more the realisation looks like a mirage.
The former commissioner for insurance, Mr. Fola Daniel more than any of his predecessors and successors seemed to have made the highest effort in this regard.
Daniel was the commissioner that highlighted the various compulsory insurances as stated by the insurance act 2003, staged the launch in six geopolitical zones of the country and commenced the journey of their implementation.
Before his efforts, Nigerians assumed that the Motor Third Party Insurance was the only compulsory insurance in Nigeria and even the sale of motor insurance was high jacked by fake insurance certificate sellers.
But on assuming office as the helmsman of NAICOM, Daniel, hired an expert contractor to help in promoting the enforcement through the launch of medium term plan, tagged, “Market Development and Restructuring initiative (MDRI),” which objective was among others to transform the Nigerian insurance market into trillion Naira market from N320 billion annual premium income.
One of the commission’s plans towards achieving this was the enforcement of all the compulsory insurances nationwide.
The six compulsory insurance in Nigeria include Motor Third Party Insurance, Employee Group Life Insurance, which requires every employer of labour with five or more employees to take out a life insurance policy on each of the employees at least three times the annual total emolument of the employee in both the private and public sectors.
In the same vein, the Health Care Professional Indemnity requires every licenced health care provider to obtain insurance before treating a patient. Health care professionals are required to obtain insurance that will protect their patients in case of accidents or fatalities resulting from professional negligence. A health care provider comprises any registered government or private healthcare practitioner, hospital or maternity centre.
Insurance of Public building which law requires that every public building must be insured against liability in the case of loss, damage to property, death or bodily injury that may be caused by collapse, fire, earthquake, storm or flood. It described public building as any building accessible to people for educational, medical, recreational or commercial purposes.
Buildings under Construction
This requires owners or contractor of any building under construction with more than two floors, to undertake insurance from the construction stage. The purpose is to guard the public against construction risks that may be caused by negligence on the part of the contractor, resulting in bodily injury, loss of life or property damage.
The Aviation Third Party Insurance and Marine cargo insurance are also among these compulsory insurances but NAICOM in 2008 slated the first five insurances mentioned above for launch and implementation.
Among these compulsory insurances, the only policy that has enjoyed reasonable level of implementation was the Motor Third Party Insurance which through the Nigeria Insurers Association’s Industry Data base (NIID) initiative is currently making waves in many states especially Lagos and Oyo States where the activities of fakers of the policy certificate have been reduced to the barest minimum and motorist now willing to get their cover from genuine operators.
On January 1st this year, NAICON increased both the premium payable on Motor Third Party Insurance and the claims paid on it by 200 per cent thus after 20 years of charging N5000 premium on it, the commission increased the premium to N15000 and the claims from N1 million to N3 million. The commission also added more value to the policy by extending its coverage to take care of the ECOWAS brown card across the West African sub region. What this means is that effect from January 1st 2023, if you are traveling to any West African country and have the Motor Third Party insurance paid at the new rate, you have been covered for the ECOWAS Brown card, as no body will require your possession of the card again.
Aside these, implementation of the other four compulsory insurances has not seen the light of the day but occurrences of the various risks they were meant to cover seem to be on the rise. The worst hit in this regard is the compulsory building insurance which builders have refused to embrace, whereas cases of building collapses abound in different parts of the country.
The erstwhile Commissioner for Insurance, Mr. Fola Daniel, during whose tenure the compulsory insurance of public building and building under construction campaign was flagged off, listed structures covered under the Act to include: all buildings occupied by government ministries; extra-ministerial departments; statutory bodies; tenement houses; hostels; 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 transactions.
Expectation and Performance
During the launch, which took place in Abuja, the insurance industry operators who were highly elated projected that the builders insurance, if well implemented as planned by the commission, would yield a minimum of N10 billion premium to the industry annually.
Their hopes in this regard became higher when in the same year the state governments started enacting compulsory builders insurance in their various states. The Lagos State government followed by the Imo State government among others led the states.
To further boost activities in the industry through this particular policy, the federal government shortly after the launch approved NAICOM’s recommendation to make possession of compulsory builders insurance certificate a pre- requisite for getting government contracts.
But despite these efforts, enforcement of the compulsory insurance looks very much unrealistic.
When THISDAY confronted NAICOM top official on why the commission was foot dragging in forcing Nigerians to obey this all important law on insurance, the answer got was that it is pretty difficult for NAICO officials to be walking along the streets of various states or hospitals forcing people to take the policy because the commission lacked the power to do that except with the aid of law enforcement agents. This is quite unlike the National Pension Commission, which was from inception bestowed with the powers to prosecute violators of contributory Pension scheme.
But THISDAY gathered that empowerment of NAICOM with such necessary powers is embedded in the Insurance consolidation bill which the industry is hopeful will be passed before the expiration of President Buhari’s regime.
During the tenure of Daniel’s immediate successor, Mohammed Kari, he tried to pursue the initiative though not as vigorous as Daniel. Kari, was proposing to stage a re-launch of the MDRI, but he was unable to achieve this before the expiration of his single tenure in office.
Presently, the incumbent commissioner for insurance Mr. Sunday Olorundare Thomas is leaving no stone unturned in his effort to ensure effective enforcement of the compulsory insurance.
Thomas in a recent interview with THISDAY highlighted his plans regarding effective enforcement of compulsory insurances saying, “We have done a lot trying to sensitise the states. We realised that as a government institution, we may not be able to do so much sitting in Lagos or Abuja. We need the instrumentality of the states to be able to enforce some of the insurance policies. I am talking about the Motor Insurance third party; building under construction, public buildings, professional indemnity and all other compulsory insurance policies”.
Continuing he said, “ We know that if we don’t partner the states, it might be difficult for us to be able to maximise the benefit of our enforcement.
“Consequently, we have to a large extent brought to the fore, the issue of financial inclusion, having in mind the structure of our population that is predominantly at the lower end of the pyramid in terms of income parity. Therefore, we have encouraged our operators to develop products like the micro insurance that will financially include all. Our responsibility is to license institutions and give them authority to go there and sell. We have licensed some institutions and we realised that, looking at the size of Nigeria, we need to spread ourselves wider” he explained.
Of truth, Thomas has through his campaigns and sensitisation programmes touched every part of the country including Kastina and other remote states in the country with insurance awareness and education.
Thomas, however, had lamented that the challenge he has at hand is that among the three classes of citizens of Nigeria, only one class buys insurance.
According to him, the high class of people in Nigeria hardly regard insurance let alone patronising because they felt they could replace their assets when they get damaged.
He said the lower class felt their resources are very low as such there is no surplus to spend on insurance. According to him, only the middle class buys insurance. This he said has affected achievement of financial inclusion in insurance industry.
Daniel had shortly after the launch had said that the transformation of the insurance industry into a trillion Naira market, a major dream of the industry from the then annual premium income of N320 billion 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.
But a close look at where the industry is today, premium income wise shows that it is still far from meeting the target mainly because though the motor insurance through the Nigeria Insurance Industry Data base (NIID) has yielded substantial premium to the industry, the builders insurance yields fall below expectation mainly due to lack of enforcement.
But in a latest interview with Daniel, years after his tenure as insurance commission to seek his views on progress he saw on compulsory insurance implementation, Daniel told THISDAY that though his predecessors have not hit the trillion Naira mark, reasonable progress has been made and that strategies have been laid down to meet and surpass the mark.
At present, Thomas said the annual premium income of the insurance sector stands at N720 billion still below the target of N1 trillion which the industry sets to achieve during the first phase of the MDRI and compulsory insurance implementation which elapsed in 2012.
But even at that he said this is a fair attempt considering the N320 billion figure he met on ground. According to him, going by the present state of the economy, his administration is not priding at anthem achieved 720 but is even gunning to more than double it before the expiration of his first tenure in office.
Builders’ insurance
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.
Public buildings are defined in Section 65(2) of the Act as 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.
Section 65 (4) of the act specifies that 0.25% 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.
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.
Insurers are of the view that the reason for incessant violation of the compulsory insurance laws is because going by inflation rate in the country, the penalty attached to the violators is so low that in most cases, the penalty is lower than the premium to be paid by builders as a result many builders prefer to violate the law and pay the penalty which is just N100, 000. They therefore advocate for increase in the penalty to be paid.
Non-enforcement of policy
But despite these laws and determination by the insurance regulator to enforce the builders insurance, patronage of the policy and compliance with the law has been on a very low key.
This has compelled NAICOM to solicit for support of government in enforcement of builders insurance.
Apparently, non-enforcement of the policy has not only affected insurance industry but other allied agencies of government whose services aid insurance such as the fire service.
At a forum of insurance brokers in Lagos where the Federal Fire service Department was invited as special guest, the agency was surprised to learn that 0.25 percent of premium from compulsory builders insurance was to go to them to enable them equip their workers for their fighting job.
At one of the Insurance conferences in Abuja, when the issue of compulsory builders insurance came up with its expected aid to the fire service from the premium, a former commissioner for insurance said the service has not received aid from insurers in this regard because no account has been opened to that effect as directed by the law. The underwriters themselves said not much premium has been realised from the policy.
At the conference, the insurers agreed that government and its relevant law enforcement agencies should help the industry in the enforcement of the policy while the industry should seek for alliance and cooperation from the agencies and help in buying some of their equipment.
The insurers want all hands to be on the deck in the enforcement of the builders insurance arguing that the policy, if patronised will not only save lives and properties in the country but would position insurance to play its role in the economy.
They said the federal government itself should be at the vanguard of this by getting its law enforcement agents to not only enforce the purchase of the policy but arrest and deal decisively with owners of collapsed building in different parts of the country, especially if such buildings lack insurance cover.
Insurance industry analysts said government need to stand up on the enforcement of the compulsory builders insurance because of incessant collapse of building in the country.
According to them, a situation where a building collapsed, killing scores of people and law enforcement agency like the police waited for a whole day before going there, thereby allowing the owner to escape will create room for carefree attitude among Nigerians regarding patronage of the policy.
They also said the section of insurance Act 2003 that talks about supporting fire service command with part of insurers’ premium should be implemented to the last to enable fire service men be handing in fighting fire out breaks in homes and in markets.
According to the analysts, this will solve the problem of excuses of lack of water; break down of fire fighting vehicles often given by the fire service men when their services are needed.
The analysts believe that implementation of the compulsory builders insurance will not only help in the area of claims payment to victims of collapsed building dependants but will also act as prevention against building collapse as no insurance practitioner will want to give cover to any building which standard is questionable.
They reasoned that implementing the policy and enforcing its compulsion would compel builders to comply with the stipulated standard, which is prerequisite for providing cover by any insurance firm.
Builders’ view
But an estate developer in Ojo area of Lagos, Joe Orakwue who spoke on the need for builders to embrace the policy said the policy is mere money making venture for insurance underwriters.
He said what is more important is government enforcing the use of standard building materials in construction.
According to him this is basic because prevention is better than cure.
He said for him, what people should be talking about is how to prevent building collapses so that lives will not be lost and not how to pay compensation for dead people because no amount of compensation paid to the family of the deceased will bring the dead back to life.
He said as a builder, he ensures that all buildings he handles are of right standard, adding that when this is the case, there is no need for insurance, as the building would stand the test of time.
Insurance Marketers’ Experience
When THISDAY approached those who sell insurance and have direct contact with the insuring public to ascertain the feelings of people they market the compulsory insurances especially builders insurance to, the marketers, mainly members of the Association of Registered Insurance Agents of Nigeria (ARIAN) confirmed that many public buildings in Nigeria were not insured, adding that this is so whereas the law says that they must be insured.
According to them, most hotels in Abuja as well as schools are not insured and they fall under the public building category.
One of the marketers, Sandra Nwachukwu, observed that there is huge potential for building insurance in the country but that the government needs to help.
On what insurers expect government to do in the enforcement of the builders insurance, She suggested that government should support insurers in enforcing the policy by sealing up premises of uninsured public buildings and attaching huge fines to be paid by the owners before reopening.
She said in doing this, government would be helping the masses and not the insurers as some people may think.
Immediate past President of the Chartered Insurance Institute of Nigeria (CIIN) and former Chairman, Insurance Industry Consultative Council (IICC), Muftau Oyegunle, speaking on enforcement of all compulsory insurances shortly after the collapse of Ikoyi building, which killed no less than 45 people, called on federal government to make health Insurance compulsory in Nigeria.
He said the federal government could achieve this by subsidising the premium paid by Nigerians on the policy.
He noted that this has been done successfully in other countries therefore is achievable in Nigeria.
On the compulsory insurance for buildings up to two floors under construction which if implemented would have compensated victim of the menace, he explained that all insurance laws were federal government ‘s laws and should be enforced by government.
The Healthcare professional indemnity insurance among other compulsory insurance suffers worst neglect as no effort is made by anybody to enforce it.
Despite this, the insurers are hopeful that the consolidated insurance bill when passed into law would go a long way to reposition NAICOM and give it the necessary powers to prosecute these laws on compulsory insurances.
