AN OVERVIEW OF MICROINSURANCE GUIDELINES
Being a paper presented
by
Leo Akah (Deputy Director) NAICOM
During the Microinsurance Stakeholders’ engagement workshop in Lagos
November, 2013.
Table of contents
Introduction
Registration requirements
Products
Prudential Standards
Supervisory requirements
Market conduct
Corporate governance
Fines & Penalties
Exit/Suspension/Cancellation
Q & A
Introduction
The Commission relying on the powers conferred on it by S. 7 of NAICOM Act 1997 is empowered to establish uniform set of rules, regulations and standards
Objectives
Provide minimum standards for the conduct of microinsurance in Nigeria
Ensure consumer protection
Establish general features of microinsurance products
Establish duties & responsibilities of microinsurance operators and service providers
Establish conditions for entry and exit from the market
Introduction (cont’d)
Concept of microinsurance
For the purpose of this guidelines, microinsurance is defined as
"insurance that is accessed by the low income population, provided by licenced institutions, run in accordance with generally accepted insurance principles, and funded by premiums"
Introduction (cont’d)
Features of microinsurance products:
SUAVE
Simple - terms and conditions must be simple
Understood – easily understood
Accessible – must be accssible to the target market
Valuable – matches need, fair price and coverage
Efficient – delivery channel must be efficient to both the insurer and the policyholders
Introduction (cont’d)
Scope of microinsurance:
Microinsurance policies shall excude special risks, motor insurance (except tricycles and motor cycles), professional indemnity and other pecuniary risks with sum insured higher than N1,000,000. All third party liability risks with sum assured above N1,000,000 are also excluded.
Registration requirements
Eligibility for Microinsurers
Specilized microinsurer
Conventional microinsurer
Market structure
Operators
Licensed insurance institutions are eligible
II. Specilized microinsurance underwriter
Brokers/Loss Adjusters
Market Structure (cont’d)
Service provider/Agents:
Cooperative Societies
Microfinance institutions
Non-Governmental Organizations
Postal Agencies
Mobile Payment Systems
Telecommunication Companies
Faith based organizations
Etc
Microinsurance Products
All microinsurance products, terms and conditions must first be submitted for approval by the Commission before introduction into the market
File and use after 30 days of filling is allowed
Different distribution channels are encouraged
Prudential standards
Minimum paid-up capital requirement
All specilized microinsurer shall have a provisional minimum paid-up capital requirements as follows:
Life microinsurance business N150,000,000
General microinsurance business N200,000,000
2. Statutory deposit
Maintain 10% of the minimum capital requirement with CBN at all times
Prudential requirements (cont’d)
3. Reinsurance
Evidence of adequate and valid reinsurance arrangement must be submitted to the Commission on or before 31st December of the preceding year
4. Product bundling
A microinsurer carrying on general insurance business may offer general and life microinsurance products and vice versa
Prudential requirements (cont’d)
5. Risk management
All microinsurers shall comply with the "Guidelines for Developing a Risk Management Framework for insurers and Reinsurers in Nigeria" issued by the Commission, except for the purpose of section 2.7(b) of the Risk Management Framework, the equivalent of an AGM shall suffice.
Prudential Standards (cont’d)
6. Rate of Commission:
Life insurance business – not more than 10% (single premium policies) and 20% for (non-single premium policies)
Non- life insurance business – not more than 15% of the premium
Prudential Standards (cont’d)
7. Premium payment
The receipt of insurance premium shall be a condition precedent to a valid microinsurance contract
An insurance premium collected by a broker/agent/service provider in respect of a microinsurance business transacted through the broker/agent/microinsurance service provider shall be deemed to be premium paid to the microinsurer involved in the transaction.
Prudential Standards (cont’d)
The Service Level Agreement (SLA) shall contain premium collection notification clause.
8. Liquidity Status
A microinsurer shall, in respect of its non-life business, maintain at all times a 50% liquidity margin being the excess of the value of its admissible current assets in Nigeria over its current liabilities in Nigeria
Prudential Standards (cont’d)
9. Solvency margin
A Microinsurer shall, in respect of its non-life business, maintain at all times a margin of solvency being the excess of the value of its admissible assets over its admissible liabilities in Nigeria. The solvency margin shall not be less than 15% of the premium income or the minimum capital requirement whichever is higher.
Prudential Standards (cont’d)
General Reserve (life funds)
A microinsurer shall, in respect of its life business in Nigeria, maintain a general reserve fund which shall be credited with an amount equal to the net liabilities on policies in force at the time of the actuarial valuation and additional 25% of the net premium for every year between valuation dates
Prudential Standards (cont’d)
11. Contingency Reserve
A microinsurer shall maintain a contigency reserve fund which shall be credited with an amount equal to:
1% of gross premium or 10% of the net profit (whichever is greater) and the amount shall accumulate until it reaches the amount of the minimum paid–up capital, with respect to its life microinsurance business in Nigeria, or
Prudential Standards (cont’d)
3% of the total premium or 20% of net profits (whichever is greater) and the amount shall accumulate until it reaches the amount of the minimum paid-up capital or 50% of the net premium (whichever is greater), with respect to its non-life microinsurance business in Nigeria.
Prudential Standards (cont’d)
12. Actuarial valuation
A microinsurer transacting life insurance business shall in respect of its business once in every period of 3 years, cause an investigation to be made into its financial position by an Actuary appointed or secured by the insurer. The investigation shall include:
A valuation of assets and liabilities of the microinsurer
Determination of any excess over those liabilities of the admissible assets representing the funds maintained by the microinsurer.
Prudential Standards (cont’d)
13. Investments
A microinsurer shall at all times, in respect of the insurance business transacted by it in Nigeria, invest and hold invested in Nigeria assets equivalent to not less than the amount of policyholders’ funds in such accounts of the insurer.
Prudential Standards (cont’d)
The policyholders’ funds shall not be invested in, except the followings:
Shares of limited liability company
Shares in other securities of a co-operative society
Loans to building societies approved by the Commission
Loans on real property, machinery and plant in Nigeria
Loans on life policies within their surrender values
Cash deposits in or Bills of Exchange accepted by licensed banks
Such other investments as may be prescribed by the Commission from time to time.
Prudential Standards (cont’d)
A microinsurer transacting either General and /or Life business in Nigeria shall not invest:
More than 10% of the policyholders’ funds in real-properties
More than 5% of the policyholders’ funds in unquoted equity
More than 40% of the policyholders’ funds in quoted equity
More than 5% policyholders’ funds in Equipment leasing
Prudential Standards (cont’d)
Policyholders’ funds in any subsidiary
More than 25% of the Shareholders’ funds in Associates, subsidiaries and related companies
More than 20% of the total equity investments in the security of one company
More than 25% of the total current balances and bank placements in any one bank
In its parent company
Supervisory requirements
Product performance
All microinsurers shall submit quarterly returns which shall contain the following information:
No of policies underwritten
Name(s) of policyholders
Total premium generated
Commission due, paid and outstanding
Claims due, paid and outstanding
Reasons for non-settlement
Any other relevant information
Supervisory requirements (cont’d)
2. Statutory returns and Accounts
A microinsurer shall, not later than 30th June of each year, submit its Annual Returns and Accounts to the Commission in accordance with the provisions of sections 26 to 29 of the Insurance Act 2003
Conventional insurers underwriting microinsurance shall maintain and submit separate returns on microinsurance transactions.
Supervisory requirements (cont’d)
3. Inspection
The Commission may cause an inspection of the office and records of any microinsurer, service provider or intermediary at any time if it is deemed necessary by the Commission.
Supervisory requirements (cont’d)
4. Service Level Agreement
A microinsurer shall prior to appointing a service provider execute a Service Level Agreement. The agreement shall contain the following minimum standards:
Rights and obligations of either party
Premium collection notification clause
Claims settlement administration
Commission payment and/or other deductions.
Records management
Any other requirement as the Commission may from time to time prescribe
Supervisory requirements (cont’d)
A microinsurer shall submit to the Commission for approval, a draft copy of the Service Level Agreement between the operator and the Service providers
The microinsurer shall be held liable for act or omission of the Service provider(s) in the discharge of its obligations.
Market Conduct
Claims Administration
The terms and conditions of microinsurance contract shall contain a claims settlement clause. The clause shall provide the maximum period within which claims must be settled or declined after notification.
Claims payments may be made through the broker/service provider where premiums are paid through them.
Market Conduct (cont’d)
2.Conflict Resolution
All cases of disagreement involving the stakeholders in respect of microinsurance policy should be referred to a three-man arbitration to be constituted.
3. Consumer Protection
All proposal forms shall contain a declaration to be signed or accepted electronically by the proposer that the terms & conditions of the contract have been explained and understood by the proposer.
Market Conduct (cont’d)
4. Complaint Management
It shall be the responsibility of the microinsurer to put in place policies and procedures for quick resolution of clients’ complaints
The microinsurer shall submit a quarterly report to the Commission in respect of its handling of complaints/grievances against the microinsurer and service providers.
Market Conduct (cont’d)
5. Know your Customer requirement (KYC)
A microinsurer shall conduct minimum KYC on the insured in order to minimize the risk of fraud.
6. Capacity building
Every microinsurer shall conduct a minimum of two days training per annum for each of the staff of the Service providers involved in microinsurance marketing.
Market Conduct (cont’d)
7. Advertisement
All microinsurers shall submit to the Commission advertisement specimen. If after 30 days of filling, the Commission does not object or require additional clarification, the applicant may commence the advertisement.
Where the advertisement is to be carried out by a third party such as a Service provider, it shall be the responsibility of the microinsurer to file such with the Commission.
Corporate Governance
Microinsurance operations shall be subject to the provisions of the Code of Good Corporate Governance issued by the Commission. However, the principle of proportionality shall apply where necessary
The Chief Executive Officer shall have a minimum of 7 years post qualification working experience for Associates of the CIIN or its equivalent.
Corporate Governance (cont’d)
For Non-Associates of CIIN, or its equivalent, a minimum of 10 years working experience in the Technical Department of an insurance institution may suffice.
The Head of Technical Department shall have a minimum of 5 years post qualification working experience for Associates of CIIN or its equivalent. For Non-Associates members of the CIIN or its equivalent, a minimum of 7 years working experience in the Technical Department of an insurance institution may suffice.
Directors must be fit and proper persons.
Fines and Penalties
Any contravention of the Guidelines shall attract appropriate sanction in line with the provisions of the extant laws.
Exit/Suspension/Cancellation
A Microinsurer who intends to exit from the market shall be subject to the relevant provisions of the 2003 Insurance Act
The licence of a microinsurer may be suspended or cancelled where it has contravened specific provisions of the law
Q & A
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