• Default claims to accrue interests
• Enforcement to drive growth
New insurance law, which is awaiting the assent of President Bola Tinubu, is expected to quadruple Nigeria’s insurance industry to more than N5 trillion premium in the immediate period.
In a major reform that aims at unlocking the full potential of the insurance industry, both chambers of the National Assembly have passed the Nigerian Insurance Industry Reform Bill 2024.
Industry sources yesterday said the full implementation of the new law is expected to commence in the second quarter, following Presidential assent.
A review of the Bill yesterday highlighted four themes of phenomenal growth for the industry including recapitalisation, expansive product development, penetration and rigorous enforcement regime.
The Bill, which will repeal several outdated insurance laws, brings a thicker sense of compulsion and enforcement to insurance, which altogether are expected to drive penetration and growth.
The Bill repeals the Insurance Act, Cap 117; the Marine Insurance Act, Cap M3; the Motor Vehicle (Third Party) Insurance Act, Cap M22; the National Insurance Corporation of Nigeria Act; and the Nigerian Insurance Reinsurance Corporation Act, Cap N131, all of which were part of the Laws of the Federation of Nigeria, 2004.
Agusto & Co estimated that recapitalisation of existing insurance businesses alone would add some N600 billion in new equity funds to the insurance industry. Recapitalisation is expected to provide headroom for operational performance as insurers sweat out to optimise enlarged assets.
Agusto & Co approximated gross revenue for the Nigerian insurance industry to N1.1 trillion in 2024, with the new law expected to deepen the industry’s double-digit growth.
Average growth rate for the Nigerian insurance industry in recent period was more than 30 per cent. However, insurance penetration is less than one per cent.
The Bill mandates compulsory insurance of any building of more than one floor, every public building, all petroleum and gas stations, all vehicles transporting petroleum and gas products, all assets and employees of the government and all motor vehicles among others.
“Public building” under the Bill included a “tenement house of more than one floor, hostel, a building occupied by a tenant, lodger or licensee and any building to which members of the public have access for the purpose of obtaining educational or medical service, or for the purpose of recreation or transaction of business”. This provision effectively implies all schools, hotels, hospitals and health centres, tourist centres and hostels under compulsory insurance.
Industry analysts said stronger penalties could lead to deeper penetration and compliance. For instance, anyone that flouts the provision on insurance for a building of more than one floor is liable on conviction to a fine of N5 million or imprisonment to a maximum term of 12 months or to both fine and imprisonment. Also, contravention of insurance on “public building” attracts a fine of not less than N1 million or imprisonment for a term not exceeding 12 months or to both fine and imprisonment.
“In 2025, we believe the insurance revenue will maintain the upward trajectory spurred by the uptick in compulsory insurance policies’ enforcement, increasing technology adoption in product distribution and recapitalisation activities. The increased spending on infrastructure development by the various tiers of government would also increase the revenue from underwriting the underlying risks,” Agusto & Co stated.
Under the new dispensation, companies who fail to settle genuine claims will now have to pay the insured interest on the claims from the date the insurer ought to have settled the claim while the insurance regulator, the National Insurance Commission (NAICOM) would also penalise the insurer with a fine of N500,000.
Specifically, Section 210 Subsection 7 on Claims Settlement states that: “An insurer who contravenes the provisions of this section is liable to a penalty of N500,000 and shall pay the claim amount with a monthly compound interest at the prevailing bank rate from the date she ought to have settled the claim within 60 days from the date of notification.
Another major highlight from the Bill passed is that the capital base for insurance and reinsurance companies in the Bill has been reduced by the National Assembly in the final draft passed.
In the Bill, the capital base for Life insurance companies has been reduced from the proposed N15 billion to N10 billion; Non-Life reduced from N25 billion to N15 billion; and Reinsurance from N45 billion to N35 billion as stated in Section 15 of the newly passed Bill.
The companies have up till 12 months with countdown from the day the Bill gets presidential assent to recapitalise.
Also, insurers will now be penalised if found to have created a new product without the approval of the regulator to the tune of N5 million from the first to the last day.
Section 18 Subsection 1 on Approval of new Insurance Products states that: “New product shall not be introduced into any class or category of insurance business without the prior approval of the Commission. Subsection 3 further states that an insurer who contravenes the provisions of subsection 1 shall be liable to a fine of N5million for each day the contravention subsists.
Also, operating companies are to contribute 0.25 per cent of their gross life premium income to create an Insurance Protection Fund, which would help to mitigate effects of insurer failure.
Other major development is that life annuity, one of the products in the industry has been classified as part of life insurance business and it may in the future be a sole business of a life insurance company.
Section 28 on Penalty in relations to investment states that: “An insurer who encumbers or disposes of investment or does any other thing which results in diminishing the security offered by any investment made under this Bill shall be liable to a penalty in such amount as may be prescribed from time to time by the Commission.
Section 29(1) on Statement of Accounts states that: “An insurer shall, not later than the 30th day of June of each year, submit in writing to the Commission a (a) duly audited financial statements of the insurer and its subsidiaries at the end of the preceding year before presentation at its annual general meeting; (b) revenue account applicable to each, category/class of insurance business for which the insurer is required to keep separate account of receipts and payments; and (c) statement of investments representing the insurance funds and shareholders’ fund.
Also, Section 29(3) states that: “An insurer who fails, neglects, delays or refuses to file the returns and accounts under this section is liable to such penalty as may be prescribed from time to time by the Commission.
Section 17(1) on Operation of Insurance Company states that: “The policy document in respect of a contract of insurance shall be delivered to the insured not later than five working days after payment of premium or 30 working days in respect of special and industrial risk insurance.
Section 21(1) on Provision of unexpired risks and claims (Insurance Reserve) states that: “An insurer shall establish and maintain, as may be applicable in respect of each class of insurance business (a) provision for unearned premiums; (b) provision for unexpired risks; (c) provision for outstanding claims; and (d) such other provisions as may be prescribed from time to time by the Commission.
Section 22 on Reserve for Life Insurance Business states that: “An insurer carrying on a life assurance business shall (a) maintain a reserve fund which shall be based on an annual valuation conducted by an actuary; and (b) the valuation approach shall consider the risk-based capital regulations.
On Capital Adequacy, Section 24(2) states that: “An insurer carrying on insurance business in Nigeria shall at all times maintain the capital adequacy ratio of 100 per cent.
Section 62(2) on Payment of Insurance Commission states that: “An insurer shall not pay, by way of commission to an insurance broker or any other intermediary, except in accordance with regulations issued from time to time by the Commission, an amount exceeding (a) 10 per cent of the premium in respect of group life assurance; Caveat – Provided that the commission payable in respect of single premium annuity and periodic premium annuity shall be as agreed between the insurer and the intermediary without eroding the value to annuitants.
Section 211(1) speaks to Restriction of loans to Directors and it states that: “An insurer shall not grant loans to a non-executive director of the insurer directly or indirectly except a loan (a) on life policies issued to such person by the insurer; or (b) normally forming part of the terms and conditions of service of such person.
Section 211(2) states that: “An insurer who grants, and a non-executive director who receives any loan other than as provided for in subsection (1) of this section is liable to a penalty of a sum of 2 times the amount of such loan.
On Penalty, Section 17(2) states that: “An insurer who contravenes the provisions of this section shall be liable to a fine of not more than five per cent of the premium received and such other penalties as may be prescribed in regulations issued by the Commission from time to time.
On Credit Life Insurance, Section 91(3) states that Credit Providers/ Lenders are obliged to mandate borrowers who take out loans exceeding N10million to obtain credit life insurance. This insurance shall cover the remaining balance of credit obtained if the borrower dies or becomes permanently disabled. The cost of the insurance shall be transparently disclosed to the borrower, and the lender shall be designated as the beneficiary in the policy to settle the outstanding debt in the event of the borrower’s death or permanent disability.
Chairman, Nigeria Insurers Association (NIA), Mr. Kunle Ahmed spoke on the concerns of some of his member companies on the short timeframe of 12 months given to recapitalize.
Ahmed who is also the Managing Director of Axa Mansard Insurance Plc said the bill has not been sent to the presidency for assent thus companies have more than 12 months period to start recapitalizing early.
He said: “My charge to my colleagues will be for us to start the process now. We should not wait till when the Bill is signed. What the Bill says is that we will have 12 months from when it is signed and when we should have the new capital. Additionally we can also appeal to NAICOM to see what they can do from a regulatory side to assist us in the process.
“From the 2023 financials of most companies, I think about 40 companies or 40 per cent of companies in the market already have a new capital. So for me, yes, the capital required is a lot but it is not a capital level that most of my members cannot work with”, he noted.
He also said that he believes very strongly in the establishment of the Insurance Protection Fund as it is necessary and required.
He stated that NIA has been inundated with calls from customers of African Alliance Insurance Plc which is struggling to meet its obligation to pay their claims because the company is one of their members.
He said if they have had a protection fund in the past, it would have been deployed to assist African Alliance to meet its short-term obligations.
He stated that the only area that that some see as contentious which they are discussing is around how they should calculate the contribution of each company to the fund.
He said: “I agree 100 per cent that the fund is necessary and I agree with the structure that has been deployed. It will be like our own Nigeria Deposit Insurance Corporation (NDIC) which is what the banks use to insure their customers. So, in the event of something happening to an insurance company, the fund would assist in meeting policyholder’s obligations.
“The only thing that we are discussing is around how we should calculate the contribution of each company and that is the only thing that some of us see as contentious. But for me it is not contentious in anyway because NAICOM is aware of the provision and what they need to do to ensure that things are properly structured.
“Each company is to contribute 0.25per cent of their gross premium but there are several rules guiding it and people need to be educated by this fact. The fund will be managed by a committee that also includes companies in the industry. Also, the contribution is not going to be forever. We are to stop contributing to the fund when we reach a particular threshold”.
When asked why individual companies cannot be held by the regulator to commit to full reinsurance arrangement of their risks rather than make performing companies contribute money from their hard earned income, Ahmed said there are several levels of protection.
“When you talk about reinsurance, it covers the insurer and all of the risks reinsured and paid premium for. If you don’t pay premium for reinsurance, reinsurance will not protect you. I will regard this protection fund as a second layer of cover for policyholders. This money to be set aside is meant for the policy holders and not just about saving a failing company.
“We are also not going to dash the company. The clause does not say we are going to dash the company. It’s like borrowing the company. So that when the company is able to come out of whatever challenges they have they will pay back”, he said.
A top female industry chieftain commended the introduction of Section 210 Subsection 7 on Claims Settlement.
She said: “This is a good development. Before now, NAICOM doesn’t penalize us. They can warn us to pay but they don’t really do anything except when it gets very bad and they move to withdraw the license of the company in default.
“For me, anything that will make companies to pay claims is good. Claims payment is very important and anything that will make the industry sit up to ensure that pay claims is very important. The companies that fail in their obligations of claims payment are damaging the image of those that are paying and doing well. So it is high time that the regulator goes tough on companies who fail to settle genuine claims”, she added.
A CEO who spoke on condition of anonymity said some of them are not happy with some parts of the Bill passed with a major one being the protection fund policy.
He said this is because they had few issues with the bill which they all reviewed but were surprised that it was different to the one that has been approved by the House of Reps and Senate.
“There were some issues that we insurers still have problems with. We had issues with NAICOM like NAICOM putting a establishing a protection fund that insurance companies should be contributing to and the idea is to have a fund for companies that fail. The fund is an additional task on us.
“Many of us are not happy with this because why should we be contributing money for companies that fail. More so, NAICOM is saying the percentage to be contributed should be from life premium. Life premium is not our money as it belongs to life annuitants and others. So, you can’t take any percentage from it because what this means is that you are transferring the cost to the insured. We believe they should rather hold each company responsible and accountable.
Another CEO said one of the other issues is on recapitalization which states that companies must comply in one year but that was not what they agreed with NAICOM before the passage by the National Assembly.
“We agreed that the timeframe for recapitalization exercise should be two years or 18 months. However, we have agreed that it is not a deal breaker and we can decide to overlook it. But we will still engage our regulator”, he added.
Another CEO said: “The capital base has been reduced at the time of final passage. The reduction is fine in order not to muzzle out the small but efficient insurance companies”.
On claims payment, he said it is a function of prudent investment management, risk selection and reduction of expenses on business procurement and discipline, noting that more need to be done on business stand point
“On the other hand, annuity needs to be segregated from life business when it is becoming large. Five years after the bill becomes law, life business will be separated from general business meaning that there won’t be composite insurance again. Similarly annuities need to stand alone as a company or subsidiary for prudent management”, he added.
