N1 trillion gross premium income for insurers

Insurers were banking on the enforcement of compulsory insurance, which is a key component of their Market Development and Restructuring Initiative (MDRI), to grow their business, but their hope seems to have been dashed, with the initiative running into a hitch. CHUKS UDO OKONTA reports.

Even before it takes off, the compulsory insurance scheme has run into a hitch. Thus, insurers’ hope of attaining N1 trillion gross premium income next year through the enforcement of Market Development and Restructuring Initiative (MDRI), which mandates the public to comply with compulsory insurances on motor vehicle, buildings and buildings under construction, employer’s liability, medical professional liability, group life for all employers, has suffered a setback.

The initiative, which was to be flagged-off last month, could not start because of technical hitches which the National Insurance Commission (NAICOM) said it has identified.

NAICOM and operators are leveraging on Insurance Act 2003 to enforce the MDRI. Sections 64 and 65 of the Act makes it mandatory for anyone constructing a building that is more than two floors to insure their liability in respect of construction risks caused by their negligence or that of their servants, agents or consultants, which may result in bodily injury or loss of lives or damage to property of any workman on the site or of any member of the public.

The law further penalises anybody who fails to insure such buildings to a fine of N250,000 or three years’ imprisonment or both on conviction.

The Insurance Act also makes compulsory motor vehicle, employer’s liability, medical professional liability and group life for all employers.

To make the initiative a success, NAICOM has solicited the support of state governments, urging them to incorporate in their laws the compulsory insurance Act.

The Assistant Director, Corporate Affairs, NAICOM, Mr Lucky Fiakpa, said the initiative could not commence last month due to some issues that cropped-up, adding that NAICOM wanted to fine-tune the process before it is flagged off.

He said: “We are working hard to commence the initiative. We have held meetings with the consultants to fine-tune the challenges that cropped up and we hope to inform the public of our next line of action.

“We are very careful in the handling of the process for we do not want it to run into problem once it comes on stream.”

He said the challenges identified are sensitive, which if not properly addressed, may clog the free flow of the programme, adding that a new date for the commencement of the initiative has not been reached.

The challenges

The Nation’s investigation revealed that the major challenge clogging the wheel of the initiative is the inability of NAICOM to get states to incorporate the compulsory law into their state legislations. Another issue borders on enforcement of the initiative, which cannot be enforced by a single agency. For instance, motor vehicle insurance falls within the ambit of the police and Federal Road Safety Commission (FRSC). Building insurance is to be handled by state building regulatory agencies and the other four product lines are handled by different agencies

The Director-General, Nigerian Insurers Association (NIA), Mr Sunday Thomas, said despite the challenges, strategies have been put in place to ensure a successful outcome for the initiative when it fully commences.
To a large extent, we have made progress. It is a gradual process. We commend the efforts of the Lagos State Government for signing into law the compulsory building Act. We are also reaching out to other states. We are optimistic that as we make progress. More states will join us by signing into their law the initiative.

Supports from states

The Deputy Commissioner (Technical) NAICOM, Mr Ibrahim Hassan, appealed to states governments to support the initiative, adding that though the Act is backed by the national law, endorsement by states will assist in the enforcement and implementation of the compulsory insurances at the grassroots.
“The compulsory insurances are already backed by national laws, but what we are saying is that to give it more impetuous and strength, state governments should enact the law into their code of behaviour, so that the local people will be begin know that the compulsory insurance Act is not just a federal government law, but also a law that has been adopted by their states,” he added.

He lauded the effort of the Lagos State government, which is the only state that has signed into law the insurance of building and buildings under construction, adding that step taken by the state has put it above others states in the safety of lives and properties of the its dwellers.

Regulators’ perspective

The Commissioner for Insurance, Mr Fola Daniel, said the National Insurance Commission (NAICOM) is poised at providing all necessary frameworks that will aid the achievement of the vision, adding that the vision is predicated on adherence to the industry’s laws. He said the commission will ensure the closure of all leakages in the industry, which deterred the growth of the sector in the past, noting that NAICOM is collaborating with the practitioners to ensure that the insurance sector takes its place in the nation.

Daniel said NAICOM will also grow the industry’s capital base by enforcement of the compulsory insurances, adding that through full enforcement and compliance, the industry’s N1 trillion premium income target for year 2012 will be achieved without hassle.

He said it is sad to note that despite the existence of the compulsory insurance products, Nigerians still die in motor accidents or during collapse of buildings without any form of compensation, adding that the situation will not be allowed to continue.

“The sensitisation of the public on the six insurance products together with the organ that is liable to take the insurance, the sanction for refusal to take the insurance and the benefits to be derived by the people protected by the products have been made the subject of the on-going road-shows embarked upon by the insurance companies across the country since the beginning of the year.

“It is our strong belief that if the provision in existing laws for compulsory insurance are rigorously enforced and the insurance agency systems of insurance marketing is reformed, while the approach to insurance regulation and supervision is made effective and operators-friendly, the idea implicit in the Market Development and Restructuring Initiatives (MDRI) will be realised.

“We believe also that with the cooperation of all stakeholders in the project, the industry will meet the deadline for all elements of the Financial Services Sector 2020 initiatives,” he added.

Implementation

Daniel said NAICOM will through the MDRI initiative leverage on existing laws to plug many of the leakages in terms of insurance premium. “We believe if the implementation is as envisaged, there is no reason why the premium income benchmarks of N1 trillion by 2012 and N6 trillion by 2020 estimated in the initiative cannot be surpassed by the industry,” he added.

Daniel said in line with MDRI, operators will not be forced to increase their capital, but would be encouraged to engage in self imposed recapitalisation to enable them meet the line of business they want to undertake.

“NAICOM is not looking at the direction of fresh recapitalisation. We are rather looking at what we call risk-based capital. By risk-based capital, we would be asking an insurance company to recapitalise in accordance with the risk it is taking. So, if you are insurance company that does aviation and oil and gas underwriting, then you must have the wherewithal to absolve those risks.

“If you are an insurer that does motor insurance alone you do not need the same capital. That is the concept of risk-based recapi-talisation. That is what we have in other clan such as Britain, United States and Canada. So, we need to migrate, because if we go to N20billion, and some insurance companies have capital in excess of N20 billion, yet their ability to take large risk is very limited. So, why N20billion if you cannot underwrite businesses in aviation, oil and gas?

“If we do risk-based capital, each company will be judged on the basis of the portfolio it carries and that will be a more objective determinant for capital base of companies,” he added.
Daniel said NAICOM will also grow the industry’s capital base by enforcement of the compulsory insurances, adding that through full enforcement and compliance, the industry’s targeted premium income target will be achieved without hassles.

By CHUKS UDO OKONTA