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Notwithstanding that the rebasing of the national economy discounted the insurance industry’s contribution to the country’s Gross Domestic Product, stakeholders still believe the industry has huge growth potential. Nnamdi Duru writes
Nigeria's insurance industry has witnessed numerous reforms in recent times. Apart from the recapitalisation and consolidation programme mandated by the federal government in 1995, the industry has seen the enforcement of compulsory insurances, conversion to the International Financial Reporting Standards (IFRS), introduction of takaful and micro-insurance as well as the enforcement of the “No Premium No Cover” policy, among others.
The Commissioner for Insurance, Mr. Fola Daniel said these reforms were meant to develop the industry and improve general perception about insurance in line with the federal government’s vision 2020:20 goal of deepening insurance penetration and making insurance an industry of choice among emerging markets in terms of capacity, safety, transparency and efficiency.
In the last nine months, the ongoing insurance industry reforms have thrown up many issues and new developments in the industry. These include the increasing spate of consumerism, demand for bail out for the insurance companies and the protest against some of the obnoxious provisions in the Companies Income Tax (Amendment) Act (CITA), 2007.
Obnoxious tax laws
Insurance and reinsurance companies renewed their agitation against the regime of abnormal taxes being imposed on them by the Federal Inland Revenue Service (FIRS) in the last seven months. They are still protesting that FIRS has been imposing taxes even when they are making losses, a practice that negates the intention of tax laws.
Subsection 8 of section 14 of the CIT) (Amendment) Act, 2007 provided that “… for other reserves, claims and outgoings of the company an amount equal to 25 per cent of the total premium, so that, after allowance under the Second Schedule to this Act as may be restricted, has been allowed from any year of assessment; not less than an amount equal to 15 per cent of the total income of the company for tax purposes.”
Insurance companies complain that only 25 per cent of their total income, which is largely insurance premium, is taken as tax free expenses while imposing tax on the remaining 75 per cent not minding if the expenses in question are claims paid to unfortunate policyholders.
This rule, according to them, is injurious to their business because the amount of claims paid by any insurer in any given year fluctuates and could rise above its total incomes in particular year.
They argue that an insurance claim should be sacrosanct because it is not like any other expense incurred by a company. It is neither determined by the insurer nor the insured but by eventualities beyond the control of both parties and as such, they want government to amend relevant sections of Nigerian tax laws to reverse the above provision.
Calls for bail out
Earlier in the year, insurance and reinsurance companies in the country appealed to the federal government to extend financial bail out to them in the spirit of recent interventions in the economy. They said it is injustice and insensitivity on the part of government for it to bail out intermediaries in the capital market including stock broking firms and banks that lost little or nothing as a result of the capital market crash, leaving out insurers who suffered huge losses in their capacity as corporate investors and risk bearers.
“Many institutions and enterprises all over the world benefited from bailout plans by their government after the economic crisis and financial meltdown of 2008. In Nigeria, the banking industry, aviation and manufacturing industries benefited from the bailout by the Federal Government. Many insurance companies are still groaning from the losses suffered as a result of the crash in the stock market. Recovery has been difficult and returning to profit a herculean task. We appeal to the Federal Government to look towards the direction of insurers in this regard,” the immediate past Chairman of the Nigerian Insurers Association (NIA), Mr. Remi Olowude, had said.
Consumerism
Insurance consumers in the country were known for lamenting their losses since they had no protection from any quarter, not even from government.
Fraudulent agents used to abscond after collecting premiums from unsuspecting policyholders leading to the repudiation of otherwise good claims. Also, many policyholders lost their life savings when their life companies went under. Even where these liabilities have been formally transferred to other life offices, in line with relevant insurance laws, policyholders and beneficiaries are not contacted or told how to recover their investments.
However, the Insurance Consumers Association of Nigeria (INSCAN) has now come to their rescue and commits itself to the protection of the rights of the policyholders and beneficiaries. During the year, the association handed service providers an 18-points demand covering insurance contracts documentation, false and inexistent covers sold by insurers and claims related issues.
The association also asked the National Insurance Commission (NAICOM) to protect them the more, insisting that since the no premium no cover policy ensures that insurers get their premium as at when due, insurers too should be made to pay their claims promptly or “while the unfortunate insured is still crying over his loss.
” They also want the commission to prevail on insurers to publish in the national dailies a list of unclaimed insurance benefits and their beneficiaries as an addendum to no premium no cover.
INSCAN just last week launched a massive insurance awareness campaign to help deepen insurance penetration and enlighten both existing and potential insured on their rights and privileges.
Stricter regulatory regime
While some operators and their shareholders are complaining that NAICOM is over-regulating insurance business, the insurance regulator said operators should brace up for stricter regulations. The commissioner for insurance recalled that both the International Monetary Fund (IMF) and Standards & Poors (S&P) believed that the Nigerian insurance industry is being under-regulated, saying this contradicts what some stakeholders believe.
NAICOM said it is not comfortable with its rating by both the IMF and S&P and as such intends to redouble its regulatory effort and to plug identified loopholes going forward.
“It is public information the IMF gave an evaluation on our regulatory capacity in 2012 and we got an average which is not good but we are not satisfied because we should be above average. At least an evaluation has been done and we know our weak points and our strength so we are looking at the gaps and doing everything to block the gaps,” Daniel said.
Also NAICOM’s Chairman, Chibudom Nwuche, said that the era of laisser-fair insurance regulation was over and warned operators to play by the rule or get sanctions.
“The governing board will continue to resolutely support the resolve of NAICOM’s management to ensure effective supervision of the industry in order to protect policyholders and government strategic assets.
“Whilst NAICOM continue to operate within confines of all extant laws, all practitioners in the sector must operate with the rules and internal norms… I must emphasise that there should be no one or group to be excluded from compliance with the rules and regulations. Indeed, there shall be no sacred cows, as nobody will be allowed to be above the laws,” Nwuche warned.
Rebasing of the economy
Taking stock of the recent rebasing of the Nigerian economy, Daniel said the exercise rendered the Vision 20:2020 goals for the insurance industry obsolete and irrelevant.
The rebasing exercise, which made Nigeria the largest economy in Africa, also discounted the contribution of the insurance industry to the country’s Gross Domestic Product (GDP) by 14.29 per cent. This went down from 0.7 per cent before the exercise to 0.6 post rebasing.
He said most of the 20 goals that the insurance industry was set to achieve by the year 2020 under the Vision 20:2020 of the federal government have been rendered obsolete and irrelevant by the rebasing of the Nigerian economy.
“The recent rebasing of the economy made the Nigerian economy the largest in Africa and 26th largest economy in the world. This has placed enormous responsibility on the industry. With the old based economy, the sector barely contributed 0.7 per cent to GDP. With the rebasing, the contribution of the sector to GDP has been further weakened. This therefore, calls for more dynamic strategies to enable the sector make meaningful contribution to the GDP,” he said.
Notwithstanding the reduction in the industry’s contribution to the economy, the future of the insurance in Nigeria is looking up.
In this regard, the former Minister of State for Finance, Mr. Remi Babalola, said the Nigerian insurance market has adequate growth potential to push up its contribution to the country’s Gross Domestic Product significantly.
“The low penetration of this sector shows clearly the humongous growth potential. The regulatory environment is improving and hopefully best practice can be attained” he said.
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