Insurance firms back out of govt business over premium issues

 By: Modestus Anaesoronye

Following the enforcement of the credit policy of "No Premium, No Cover" in the nation’s insurance industry and the inability of government to comply, insurance companies operating in the country have decided to back out of government businesses for the year, BusinessDay investigations have revealed.

The action of the companies has become necessary to avoid being sanctioned by the industry regulator, the National Insurance Commission (NAICOM), who has warned operators against taking any business in their books to which premiums were not paid up front.

With government accounts, aside the Nigerian National Petroleum Corporation (NNPC) and other joint venture projects contributing about 20 percent of total industry premium, insurance companies will be losing over N50 billion at the end of the year, should government fail to respond.

Total industry premium at the end of 2012, according to the Nigerian Insurers Association (NIA), stood at N250 billion, while group life insurance alone accounts for about N13 billion.

Sunday Thomas, director-general, NIA, who spoke with BusinessDay, said "for the first time the industry is taking the decision to face the reality and dare the consequences.

"We have decided to take the bull by the horns, so that with government as an example other corporate clients will know that we are serious with our business."

According to Thomas, we cannot continue to sell our services on credit and when claims come we pay; that is not a good business because we need to invest the money today to be able to pay claims tomorrow.

Gus Wiggle, managing director, Linkage Assurance plc, said "we cannot continue to pretend. The situation is that bad. The operators have decided to join hands together to make this policy work, because insurance in Nigeria has to be like what operates in other jurisdictions."

Olusola Ladipo-Ajayi, managing director, LASACO Assurance plc, aligning with this policy and supporting its full implementation, said "this is the last chance to rescue the sector and make it a professional business." The industry across board must take advantage of the relationship with the regulator to make this policy work, because insurance in Nigeria had been driven by lack of knowledge as a result of competition among players, Ladipo-Ajayi noted.

"We must take advantage of our relationship with NAICOM to make it work because it is for our own advantage, and so anybody that is not supporting this policy is undoing the industry and we must not allow this to happen," Ladipo-Ajayi said.

According to him, the industry’s loss ratio has been enormous as a result of product pricing and subsequent provision of cover without collection of premium, which has resulted to huge unpaid premiums.

"A company-to-company analysis of this trend reveals that we have all shot ourselves in the leg, meaning that we have been running our businesses with shareholders fund, and so we must begin to address this going forward. Loss ratio here means we have been using our shareholders fund to support businesses that are not yielding profit," Ladipo-Ajayi further said.

The NAICOM on January 1, 2013, commenced enforcement of "No Premium, No Cover" where Section 50(1) of the 2003 Insurance Act stipulates that "the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of the insurance risk, unless the premium is paid in advance."

NAICOM in January warned that any insurance company found in its book unpaid premium for policy granted to clients would be sanctioned or licence revoked on extreme cases.

Source: BusinessDay