Enforcing Compulsory Insurance
By ZAKA ABD-KHALIQ
Courtesy: Leadership Newspapers
Insurance industry is losing a potential N1 trillion annually from low adoption of insurance by Nigerians, LEADERSHIP findings reveal.
And to recoup this money would demand effective enforcement of the five compulsory insurances in the country.
Market analysts believe insurance sector is capable of generating about N30 billion premium from each state of the federation if States can enforce , at least , the five compulsory Insurances, with the industry expected to gain about N1.1 trillion from such enforcement.
Moreover, while the private sector seems to fair better in insurance adoption than the public sector, market observers are calling for improved enforcement from regulatory and enforcement agencies to deepen insurance penetration in the country.
The five compulsory insurances are; Motor Vehicle (Third Party) Liability Insurance, Builders Liability Insurance (Buildings under construction), Occupiers Liability Insurance on Public Building, Healthcare Professional Liability Insurance and Group Life.
Challenges Facing Enforcement Of These Insurances
The current Insurance Act 2003, is so obsolete that insurance operators now resort to persuasion rather than compulsion for people to subscribe to insurance products and services, even as the legislations are not only weak but sometimes difficult to enforce.
A product that every citizen ought to have at least one, is now becoming a situation whereby you find maybe, two in every 1000 Nigerians being insured.
On the other hand, the industry’s regulator, that is, the National Insurance Commission(NAICOM) which ought to be the vanguard in ensuring implementation of the already existing insurances has its powers limited by the current guideline and the law enforcement agents could do barely nothing, while some of them have been compromised, even as some of these agencies are expecting funding from the insurance industry to enforce certain insurances.
The Managing Director/CEO, Blue Pearl Konsult Limited, Chief Chris Obi, while speaking at a forum in Lagos recently said, the situation of our laws, especially in insurance, has been stagnant for too long that both insurers and the insured do not feel fully protected.
‘Even the available laws are poorly enforced, so that there are no consequences for breaking insurance laws, especially by insurers. Rather than deepen insurance, people are scared and confined to only the needful,’ he pointed out.
Speaking at an event in Abuja recently, Principal Consultant, Mike O. Onyeka & Associates, Mr. Sam Onyeka, noted that he is particularly worried by the challenge posed by legal framework. By nature, he said, the extant legal framework for insurance business, the Insurance Act 2003 is prescriptive, meaning that the law does not allow the regulator to be innovative or make any changes without reference to the National Assembly.
The prescriptive legal framework, he stressed, is the main reason for low insurance penetration and sectorial growth in the country, stating that the challenge must be addressed with all the capacities the industry can muster.
Moreover, another challenge here is that Insurance Law is an Executive Law, which cannot be effective in States until it is domesticated in the laws through the State House of Assemblies.
Although, NAICOM has make moves to persuade States in this regards, Lagos and Ogun States have so far domesticated some insurances in their states, while there are moves by Gombe and Kaduna States to do the same.
With such domestication, it was learnt that government can now deploy the State apparatus to enforce the five compulsory insurances in the adopting states.
According to the Commissioner for Insurance, Alhaji Mohammed Kari, such domestication will allow government to deploy the state apparatus to enforce the five compulsory insurances in the adopting states.
State agencies such as; Environmental Sanitisation board, Revenue Generation Board, Fire Brigade, among others, he said, would be used to enforce Builders’ Liability Insurance, while the Federal Road Safety Corps(FRSC) and the States’ Vehicle Inspection Offices(VIOs), on the other hand, would be used to enforce Motor Insurance policies.
Initially, the the Federal Fire Services(FFS) and NAICOM had signed an agreement to use Fire Brigade in each state of the federation to enforce Builder’s Liability Insurance.
The aim is to seal buildings, filling stations, shops, among others, for non-insurance of those buildings, while the owners of such building would be sanctioned.
To make this enforcement effective, insurance companies are contributing to a pool to financially assist the Fire Service carry out their civic responsibilities.
However, since most states have yet to domesticate insurance law, it is becoming difficult to enforce.
Experts believe the reason for non-insurance of building under construction in the country was low enforcement.
The former Managing Director, Anchor Insurance Company Limited, Mr. Mayowa Adeduro, said, since insurance is in the subsidiary list in the country, insurance laws must be domesticated by states to make them effective, of which virtually all the states are yet to do.
Adeduro, who is now the Acting Managing Director, Law Union and Rock Insurance PLC, said: ‘The problem is that insurance is in the subsidiary list in the country and in that regard, it’s within the power of the Federal and the States to implement it. When Federal cannot force a state to implement a law, it means the state itself has to pass similar law by domesticating the Federal law in their own state so that they can implement. I think that is where we are having a major challenge.
‘But we will get to a level where we will be able to encourage all the states to pass semblance of Insurance Act in their various states. Lagos is taking the lead in this regard because they even have a Builders Liability Insurance domesticated in the state law.’
Enforcement of insurance laws of buildings, he said, should ordinarily be the work of the Fire Service, but that the agency is incapacitated by fund and manpower to do this.
‘Ideally, Federal Fire Service should be the one to implement insurance of buildings by going to public building and see that they have certificate of insurance. But they are hampered with lack of resources and amenities to do that,’ he pointed out.
He said insurance companies are collaborating with NAICOM to ensure that they allocate some fund to the fire service for prompt supervision of enforcement of building insurances.
He equally urged the remaining states, aside Lagos, to domesticate insurance laws, especially that of Builders Liability Insurance, saying, the rate at which buildings under construction are collapsing on a regular basis with lives lost and some injured, is a courtesy call on states to prosecute builders without the required insurance certificates.
‘Every state government suppose to have their own respective insurance laws embedded in their state laws because approval of a building is within the state parameter,’ he stressed.
Meanwhile, despite the influx of Okada into the country in the last few years, insurance companies have been unable to sell much of their products and services to these transporters as the owners refuse to buy insurance. Motorcycles and tricycles are covered under the Third Party Motor Insurance Act.
The reason for the continuous neglect of insurance cover by these transporters, findings show, is because the law enforcement agencies, such as; FRSC and Vehicle Inspection Officers (VIOs) are too lenient with motorcycle riders; they rather focus on vehicles for insurance enforcement.
With no enforcement, the riders do not care about having an insurance cover, especially as they are unaware of its benefits.
Regulatory Intervention In Group Life, Motor Insurances
Last year, insurance industry regulator issued a circular mandating operators to maintain the minimum rates on Third Party Motor Insurance and Group Life Insurance Coverage, a development that will increase the profit of underwriters in these lines of business.
This policy intervention is expected to earn the 27 Life insurance firms in the country about N135 billion premium income from group life insurance policy in the 2019 financial year.
NAICOM had earlier last year announced a new rate for group life insurance policy, which was a 300 per cent increase to the rate being charged in the market then.
Before then, most of the life offices in the country, LEADERSHIP learnt, were struggling for survival as the rate they were charging was not commensurate with the liabilities there-in, hence, shortchanging themselves, in a policy rate competition among Life operators struggling for the same businesses.
However, with the intervention of NAICOM and its determination to enforce this rate, Life operators are now heaving a sigh of relief, expecting things to change for the better starting from their 2018 financial year.
The insurance industry regulator had, in January 2018, mandated life insurers to comply with group life rate put at 6-8 per cent per mile, which was 300 per cent higher than the market rate.
And since life insurers generated a sum of N44.5 billion premium income from group life business in their 2017 financial year, market analysts expect the Life arm of the insurance industry to rake in N135 billion premium income, which is a 300 percentage growth, from group life in their 2019 financial accounts when the rate must have fully taken effect.
Speaking on this development, Group Managing Director, Cornerstone Insurance PLC, Mr. Ganiyu Musa, stressed that the single positive regulatory intervention that has had the most positive impact on the industry, is appropriate pricing of group life insurance cover and Motor insurance.
According to him, ‘the industry is going to benefit a lot in terms of improved premium growth if the right premium is charged on cover. Price rate competition is a major challenge in insurance industry and that is why I applaud the enforcement of ratings on group life and third party and that, to a large effect, will increase the premium income of the industry in the current year.’
With 6 per mile rate charged on group life, he said, this represents 200 to 300 per cent increase on the average rate being charged in insurance market, for the same level of exposure. To be able to more than double your price, for the same level of exposure, he stressed, can only be very good for the margin of the industry.
Explaining further, he said: ‘Mille is one thousand, so the mile is; for every 1000 of exposure, you charge a price of N6. So, it’s 0.6 per cent, which is 6 per mile.’
Before the intervention, he said, life insurance pricing has nosedived to unsustainable rate of about 1.5 to 2 per mile, and that some life insurance firms were nearing distress, stating that, it was a very timely intervention from the regulator to have insisted on the appropriate pricing.
Moreover, the regulator insisted that insurers must charged a minimum of N5,000 for Third Party Motor insurance coverage.
The Way Forward
Earlier, the Executive Secretary/CEO, Nigerian Council of Registered Insurance Brokers(NCRIB), Mr. Fatai Adegbenro, has charged federal, states and local governments to lead by example by insuring all their assets, including public building, to increase insurance penetration and profitability.
Corp Marshal, Federal Road Safety Corps(FRSC), Mr. Boboye Oyeyemi, said increasing insurance patronage, requires a joint commitment to a public-private partnership process that combines the development of a conducive enabling environment, the building of strong public institutions and programme, and a local private sector that has the capital and knowledge to successfully embed road safety in insurance products.