CHALLENGES OF INSURANCE OF PUBLIC BUILDINGS

PAPER DELIVERED AT THE NIGERIAN COUNCIL OF REGISTERED INSURANCE BROKERS FEBRUARY 2014 MEMBERS EVENING

 

 

Tuesday 18^th February 2014

T A Braithwaite Events Centre

Insurance Brokers House

58, Moleye Street

Alagomeji, Yaba, Lagos.

 

 

PROTOCOL

The President/Chairman-in-Council of The Nigerian Council of Registered Insurance Brokers, Members of the Governing Council here present, CEO’s of Brokerage firms, Members of the Council, Gentlemen of the Press, Distinguished Ladies and Gentlemen.

Let me express the appreciation of my Company to the President and the Executive of the Council for the partnership of this event.  Niger Insurance Plc is noted for its great respect for the Brokerage industry and shall continue to nurture this relationship for the betterment of the Industry.

Let me also seize this opportunity to appreciate the leadership and entire members of NCRIB on this edifice.  It is a testimony of how well the industry has come.  And to the brand new President, I say congratulations once again, on your ascension of the mantle of leadership.  May the Lord grant you the wisdom and good health to make a difference.

This evening, I wish to share my thoughts on the challenges of insurance of public buildings. In doing this, I shall be looking at the scope of the Act, the optimism of business generation, the reality of implementation and its challenges, and my view as regards the way forward.

The essence of this discussion is to elicit more views which at the end of the day should assist the regulator and the industry to come up with a position that would assist in achieving a common objective.

SCOPE OF PUBLIC BUILDING INSURANCE

The Insurance Act of 2003 made provisions for a number of compulsory insurances amongst which is the insurance of public buildings. Section 65 of the said Act provides thus:

“Every public building shall be insured with a registered insurer against the hazards of collapse, fire, earthquake, storm and flood”

The Act defines public buildings as including:

a. Tenement house

b. Hostel

c.  Building occupied by a tenant, lodger or licensee

d. Building where the public have ingress and aggress for the purpose of obtaining educational or medical services or recreation or transaction of business. This would include eateries, restaurants, internet cafes, shopping malls etc.

 

Note:  The Lagos State Building Control Law of 2010 also defines a public building as any building which is not used 100% by the owner for residential purposes.

The Act further identifies possible insured which could be either the owner or occupier of premises. The risks which should be covered under this insurance include:

a. Loss or damage to property

b. Injury and death suffered by any user of the premises or third parties.

Punishment for non-compliance with this provision is stated as either a fine of N100,000 and/or imprisonment of one year.

For a better understanding of this provision, it is worthy to mention that the risks covered under the public building insurance is similar to those covered under a standard fire policy. The difference being that the fire policy does not cover the risk of spontaneous collapse. The form of collapse covered under the standard fire policy is collapse as a direct result of fire, earthquake, etc.   Therefore, the insurance of public buildings is different from a standard fire policy and therefore risk factors to be considered in the former exceeds those of the latter.  For public building insurance, the mode and quality of the building vis-a-vis the probability of collapse is an essential factor.

On the face of it, this provision should provide a lot of benefits to Nigerians taking into cognisance the incessant collapse of buildings nationwide especially in Lagos State. This is often accompanied by fatal consequences together with human and material losses. Likewise, incidences of flooding recorded in Lagos, Ibadan and some other parts of the country. Insurance of public buildings is meant to provide an avenue for compensation to third parties and users of damaged properties. As with all compulsory insurances, it provides a socio-economic function in the society. However, despite all efforts by the National Insurance Commission (NAICOM), the regulatory authority saddled with the implementation of the Act including the launching of the Market Development and Restructuring Initiative (MDRI), not much has been achieved in the implementation or enforcement of this provision. This confirms the opinion of experts on compulsory insurance that it should be restricted to areas where a need is generally felt and in sectors where supervision is possible at a reasonable cost.

Nevertheless, it is important to stress that problems associated with the insurance of public buildings cannot be divorced from the general problems of the Nigerian Insurance Industry, though some peculiar challenges are identified.

NAICOM, in its Corporate Strategic Plan 2011-2015’ (pg. 21) had listed  ‘poor compliance culture’, ‘inadequate legislative and legal framework’, ‘poor public perception of NAICOM as a regulator’ and ‘public resistance to insurance’ as threats to the industry. Therefore, the challenges which I would like to address at this forum are basically the following: ineffective legal framework, poor compliance culture, lack of awareness on the part of the public, and finally, ineffective implementation of strategy adopted by NAICOM.

INEFFECTIVE LEGISLATIVE FRAMEWORK

Generally, the legislative framework for insurance practice in Nigeria is inadequate and ineffective. Often times we find the law making unenforceable provisions which though good on paper is almost impracticable without strong enforcement provisions. The law makes provisions for NAICOM to enforce the insurance laws against insurance companies through the inspectorate division in the Commission but provides no means of enforcement against the public in general. The Commission has no power of arrest irrespective of the fact that there are sanctions provided in law. How would arrest and legal action be taken to ensure sanctions are meted out to individuals in breach of the law? 

It is pertinent to note that before the Insurance Act of 2003, there were compulsory insurances in place such as the third party motor insurance and the workmen compensation policy (now abolished). They had separate enactment for them such as the Motor Vehicle (Third Party Insurance) Act 1945 and the Workmen’s Compensation Act of 1990.

In the case of the compulsory third party Section 17 Motor Vehicle (Third Party Insurance) Act, police officers are empowered to ask anyone driving a motor vehicle to produce his/her certificate of insurance. Similarly, Section 40 of the Workmen’s Compensation Act gave the minister of labour power to enforce the compulsory insurance provisions of the Act. This position was reinforced in the Insurance Act of 2003. Therefore, the police force and the ministry of labour ensured compliance with these provisions respectively.

Unlike the above two, there is no separate enactment for compulsory insurance of public buildings. This inadequate legal framework makes it completely difficult to enforce the provision considering the fact that legal provisions on compulsory insurances have never been enforced against the public by NAICOM or any regulatory body at their inception.

Consequently, rather than have new compulsory insurances such as for buildings under construction, occupier’s liability, and insurances of public buildings lumped under the Insurance Act, it would have been more pragmatic to have a separate Act of parliament for each and every one of them. Each of these Acts would then provide relevant enforcement agencies though the benefits on the long run accrue to the insurance industry in form of increasing   patronage and growth. In the case of the insurance of public buildings, all States physical planning authorities should be empowered to enforce the provisions of the Act.

It is equally important to note that the provisions for insurance of public buildings even as they are in the Insurance Act are quite confusing. The law provides that either the owner or the occupier of the premises can insure public buildings. The policy is meant to cover legal liabilities of either owner or occupier. At what point in time does the occupier have legal liabilities or insurable interest in the building he or she is occupying? This is considering the fact that where the tenancy agreement does not transfer liability of collapse or damage to the tenant, insurable interest may not exist on the part of the occupier. Similarly, an occupier of a building may not be the legal tenants. Also, where there are multiple tenants, e.g. in a multi-storey building where we have a hospital, a restaurant and hostel on different floors, how would liability or insurable interest be determined among the tenants.

It is common knowledge that the principles of insurable interest and indemnity are important aspects of a valid insurance contract. No one can insure a building for which it has no insurable interest i.e. a financial relationship recognised at law. Similarly, indemnity is often dependent on the level of insurable interest an insured has in a building. More legal clarification would be required to ensure that a chaotic situation does not arise in the implementation of the provision on insurance of public building.

POOR COMPLIANCE CULTURE

The Act came up with good intention and introduced penalties for non-compliance but created a gap as regards enforcement.  The implication is that in an environment where insurance is not too popular, coupled with low level of disposable income, it becomes very difficult to realise the objectives of the Act.

 

INEFFECTIVE IMPLEMENTATION STRATEGY BY NAICOM

As earlier noted, there are no enforcement provisions for NAICOM regarding the insurance of public buildings. However, NAICOM did make attempts at implementation which is quite commendable despite the inadequacies of the provision. These involved advertisement and awareness creation programs in all the geographical zones of the country. It also included mobilizing, training and sensitisation of relevant agencies such as the fire service and the police force.  Members of the Insurance Consumers Association of Nigeria (INSCAN) were also involved. Fliers conveying information on the product and the benefits available were also distributed.

All these efforts cost a lot of money but did not yield positive results. It may have been more beneficial to use persuasive approach through the registered associations of businesses which the law listed as requiring insurance of public buildings. These are associations of businesses offering medical services, educational services or recreation services. It could also involve landlord associations in various communities.  These associations would be a more effective and efficient means of reaching out to these individuals and businesses about the requirement of law and the implications of a breach. NAICOM can through this means hold talks or seminars on how to comply and possibly facilitate a platform for cooperation between insurers and these various groups and businesses. This would ultimately help secure more insurance penetration in other sectors of the economy and possible market and product development for different segments of the insurance market.

In conclusion however, the practise of compulsory property insurance or insurance of public building is not wide spread in the world so it is innovative and therefore, may require innovative steps in order to accomplish its objectives.

Countries that have followed in Nigeria’s steps include Ghana through its Insurance Act of 2006.

However, its experiences do not differ from that of Nigeria. Nevertheless, a few lessons could be learnt from Ghana. There, consultations were made with reinsurance and insurance companies which led to the adjustment of policy wordings of a standard fire policy to accommodate the provisions of the law. The Ghanaian National Insurance Commission (NIC) also set the limit on third party liabilities in respect of this cover. While not campaigning for the adoption of Ghanaian methods, it may be worthwhile to consider their experiences in finding a solution to the challenges of insurance ob public buildings business here in Nigeria. On the other hand, Kenya is also proposing this law!

The Korean situation is also worthy of note. Here the law differentiates between legal liabilities of the owner and the tenant. The liability for fire is placed on the tenant while that of bodily injury and death is placed on the owner of the building.

In view of the above, a multi-dimensional approach would be necessary for the resolution of challenges associated with the insurance of public buildings.

THE ROLE OF NIGER INSURANCE PLC

Mr. President, Niger Insurance Plc, is willing to partner with key stakeholders like NAICOM and NCRIB in addressing the challenges enumerated above and ensuring the workability of the policy all with the aim of creating a better business prospect for the industry.

We have continuously worked on our service delivery mechanism, improved our ICT process that makes business interaction seamless between us, brokers and customers, while enhancing the manpower capacity of our personnel, all with the primary purpose of fulfilling our vision of becoming the insurance Company of first choice.

 

The President/Chairman-In-Council, distinguished brokers in the house, gentlemen of the press, ladies and gentlemen.  What I have attempted to do is to share my thought on this very important aspect of the business that holds so much opportunity for the industry but is being affected by systemic issues that need to be resolved if we are all to benefit.  I hope all stakeholders, i.e. the insurance industry, the legislature, the building industry and the general public will work together in order to make this policy work.

 

 

THANK YOU FOR YOUR ATTENTION!