NAICOM releases guidelines on rebates, commissions, return, refund premiums

Commissioner for Insurance Fola Daniel

Chuks Udo Okonta

The National Insurance Commission (NAICOM) today Tuesday released the guidelines that will help effectively monitor how insurance operators should henceforth treat rebates, commissions, return and refund premiums.

A circular signed by Deputy Commissioner (Technical) NAICOM Mohammed Kari, referenced NAICOM/CFIO/DCTICOM-CIR/2014/007 and entitled circular on commissions, rebates and returned premiums issued to all Insurance Institutions in Nigeria, the commission said "), in the exercise of its statutory powers conferred on it by the enabling laws, the circular was issued to provide guidance on Rebates, Commissions, Return and Refund premiums in order to effectively monitor same.

The Circular reads: “The National Insurance Commission (hereinafter referred to as "Commission"), in the exercise of its statutory powers conferred on it by the enabling laws, hereby issue this Circular for compliance by all insurance institutions in Nigeria.

“The Circular is issued to provide guidance on Rebates, Commissions, Return and Refund premiums in order to effectively monitor same.

“ Rebates and Brokerage Commissions: It shall be illegal for any Insurance Institutions to solicit, offer or allow commissions and/or rebates in the transaction of Insurance Businesses except as provided by the extant Insurance Laws and guidelines. For the avoidance of doubts, Over-Riding Commission, Business Acquisition fees and other similar fees not provided for by the Nigerian Insurance Laws shall not be solicited, deducted, offered or paid in respect of any insurance transaction in Nigeria.

“An Insurer, who grants or receives a rebate, offer, demand, pay or receive commission contrary to Section 53(1)-(3) of the Insurance Act 2003 may, in addition to the penalty prescribed by Sections 53(4) and 76 of the Insurance Act, 2003, shall be liable to other penalties as prescribed.

“Each Insurer shall submit a quarterly return on the rebates, brokerage commission and other fees paid out or payable on all its production during the preceding quarter to the Commission, not later than 14 days from the end of the quarter. The return shall be in accordance with format prescribed in form ICR2.3a.

“In addition to the provision of Section 41(1) of the Insurance Act, 2003, a Broker shall submit to the Commission a copy of his dedicated Client account, duly stamped and signed by the bank and a quarterly return of the brokerage commission received, receivable or deducted at source, taxes paid and rebates received during the preceding quarter on all businesses not later than 14 days from the end of the quarter.

On return or refund premium, NAICOM said: “For the avoidance of doubt and in line with Article 3(9) of the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Regulation 2013, no Insurer, broker or its agents shall charge or receive premiums in excess of the actual premium on an insurance policy that may result in refunding the excess amount paid or with the intent of returning the excess in any form, by cash or otherwise to the insured, its agents or any party thereafter.

“An Insurance Institution shall keep and maintain a register of return or refund premiums in hard copy, where transactions are to be entered on the day they are made. The register shall be presented in such a manner to include:- i) The date of transaction; ii) Policy number; iii) Name of client; iv) Name of insurer/broker/agent; v) Gross premium received with date; vi) Commission paid with date; vii) Net premium; viii)Excess premium returned/refunded; and ix) Reasons for the return or refund premium.

“Similarly, a register of policies cancelled or reversed after the receipt of premium or credit note from the broker must be kept and maintained by an Insurer. A Broker shall also maintain a register of cancelled businesses where the premium had earlier been received, notwithstanding whether it has been remitted to the insurer or not.

“All payments for returned premium which must be approved by the CEO of the Insurance company shall be made in the name of the original insured or proposer. An Insurance Institution shall submit to the Commission a monthly soft copy of the report of Returned or Refunded Premiums and cancelled/reversed businesses in 3.2 and 3.3 above by the 3rd working day of the succeeding month in the format provided herewith and a Quarterly.

“Report in hard copy not later than 14 days from the end of each quarter. The hard copy above must be signed by the Chief Compliance Officer and Head of Internal Audit of the Insurer and the Managing Director/CEO in the case of Brokers.

“Where there was no incidence of returned premium in any month, the Institution shall file a "Nil Return" in accordance with Section 3.5 above.

“Any unexplained payment or where the explanation, in the opinion of the Commission, is not satisfactory, such payment shall be deemed suspicious and subject to appropriate treatment under extant laws.”

The commission said any insurance institution that fails or omits to comply with the content of this circular shall be penalized in line with relevant provisions of the Insurance Act, 2003, the NAICOM Act, 1997,

It said regulations, guidelines and such other penalties as may be prescribed by the Commission from time to time.

On commencement of reporting, it noted that the first report as contained in 2.3, 2.4, 3.5 and 3.6 covering the quarter 1st April to 30th June 2014, shall be submitted not later than the 14thof July 2014, adding that strict compliance is required.