Contrary to the belief that the enforcement of ‘No Premium No Cover’ would pose great challenges to insurance operators in the passing year, the policy turned to be a blessing for them. However, the challenge of conversion from the Nigerian Generally Accepted Accounting Principles (NGAAP) to the International Financial Reporting Standards (IFRS) seemed too much for many of the operators to handle. Nnamdi Duru writes At the beginning of the year, many insurance operators and stakeholders were highly pessimistic over the possible outcome of the full enforcement of the ‘No Premium No Cover’ policy in the industry. They feared that insurance companies would lose many customers who before then insured their risks on credit with the resultant huge outstanding premium in the books of all insurance companies.
However, many other issues took precedence over this policy during the year, relegating it to the background. These include the challenges associated with conversion to the International Financial Reporting Standards (IFRS) and the renewed focus on micro-insurance and takaful insurance among other things. ‘No Premium No Cover’ NAICOM commenced the enforcement of no premium no cover in the industry at the beginning of this year. In its ‘Guidelines on Insurance Premium Collection and Remittances’, the commission directed that “all insurance covers shall only be provided on a strict ‘no premium no cover’ basis. Consequently, only cover for which payments have been recovered directly by the insurer or indirectly through a duly licensed insurance broker shall be recognisable as income in the books of the insurer.” “...Irrespective of the period of insurance, insurers shall ensure that at any point in time, they have received directly or indirectly through the insurance broker, the full premium in advance for the cover bring granted,” the commission said. It was expected that insurance companies would post lesser premium incomes this year and make smaller provisions for premium debts, if any at all. It was also expected that “the almighty insurance brokers” would be made accountable for all the premiums collected on behalf of insurers.
However, the policy turned out to be a blessing as most insurance consumers demonstrated their ability to pay upfront for insurance services. “I will say it is a blessing to the industry. No premium no cover has enabled us to plan in terms of cash flow, investment and we are all the better for it in the insurance industry,” the Managing Director of Sovereign Trust Insurance Plc, Mr. Wale Onaolapo, said. IFRS Conversion NAICOM in 2011 directed insurance and reinsurance companies under its supervision to convert to IFRS fully last year. The regulator said it was committed to the adoption of IFRS not only because it is one of the initiatives of the insurance industry under FSS 2020 programme, but alsobecause it is an imperative for the recognition of insurance operators in the country. IFRS are principles-based standards, interpretations and framework adopted by the International Accounting Standards Board (IASB). Its overall objective is to create a sound foundation for future accounting standards that are principles-based, internally consistent and internationally converged. Reviewing the exercise, the Director in charge of Supervision at NAICOM, Mr. Nicholas Opara, said many insurers had issues with conversion to IFRS from the Nigerian Generally Accepted Accounting Principles (NGAAP). He threatened that the regulator would blacklist audit firms that endorse fraudulent reports for insurance companies under its supervision, adding that blacklisted auditors would not be allowed to audit the books of any other insurer in the country after reporting to the Institute of Chartered Accountants of Nigeria (ICAN) and the Financial Reporting Council (FRC). “In other jurisdictions, once an Auditor puts its stamp on an account, that account is accepted as credible. We shall begin to ask auditors questions on why the accounts submitted to NAICOM were not correct,” he said.
NAICOM also reacted to the complaints by some quoted insurance companies that they were paying huge fines to the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) for not submitting their 2012 financial reports in time. “We are not making excuses neither are we apologising to those companies whose accounts are still pending. They refused to do the right thing. The NSE and SEC are aware of what we are doing and they are supporting us,” the Commissioner for Insurance, Mr. Fola Daniel, said. Micro-insurance NAICOM believes that micro-insurance is a veritable tool for deepening insurance penetration and increasing the industry’s contribution to Nigeria’s Gross Domestic Product (GDP). This informed the renewed focus on micro-insurance, a specialised platform for the provision of insurance services, particularly to the poor, low income and non-salary earners, which has truly pushed it above other issues in the insurance market globally. This type of low-cost insurance covers the life, health, crops and property of the most vulnerable and poor people. It is also provides social protection to victims of natural disasters such as flooding and drought. Because of the peculiarities of the market, micro-insurance products are to be designed to take care of the unbanked population as well as non-salary and low income earners. In pursuit of the development of micro-insurance in the country and relying on Section 7 of NAICOM Act 1997, NAICOM issued guidelines on micro-insurance to help operators develop their businesses along this line and to set the minimum standards for the conduct of micro-insurance business in the country.
Also with a view to protecting the consumer and establishing the general features of micro-insurance products, the guidelines sought to strengthen collaboration between insurers and micro-finance banks, helping traders and artisans and other low income earners to access loans underwritten by participating insurers. Expectedly, it will help deepen the retail market and take insurance to the grassroots across the country and established duties and responsibilities for micro-insurance operators and service providers and set conditions for entry and exit from the market. NAICOM also inaugurated the Micro-insurance Steering Committee to develop an action plan for micro-insurance implementation in the country, identify and make recommendations to NAICOM on issues that affect its implementation and recommend possible improvements that could be made on the regulatory and operational framework in addition to any other assigned duties.Takaful Insurance also to deepen insurance penetration and raise insurance contribution to GDP, NAICOM put in place the necessary framework for the take-off of takaful insurance, a platform for the protection of lives and properties based on risk sharing, in line with the principles and practice of Islam as against risk transfer as in conventional insurance. Contrary to the situation where a few operators get approval to sell a few takaful products, the commission created a separate platform for companies to do takaful insurance as it is practiced in other markets and not as single product offerings. “Takaful is not a product, it is a concept. It is not about religion really. It is about a way of sharing risks and not transferring risks. Takaful is a kind of community risk sharing, it is fantastic, people will take it. It does not matter whether they are Christians or Muslims,” Daniel said.
Unlike conventional insurance, takaful complies with Shariah principles of compensation and shared responsibilities in the community. It has been expanded to cover general risks, health and family (life) plans for Muslim communities. In takaful, the policyholders are joint investors with the insurer (takaful operator), who acts as manager for the policyholders. Policyholders share in the pool’s profit or loss. NAICOM and Full Autonomy To drive home its demand for full autonomy, NAICOM said it is no longer interested in taking annual subventions from the federal government starting from next year. It reasoned that it would be unreasonable to ask for subventions and full autonomy and expect government to grant both requests at the same time. “We want money and government support but we want autonomy like the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC) and the Nigeria Deposit Insurance Corporation (NDIC). So we cannot ask government for money and at the same time ask for autonomy,” Daniel said. Demonstrating the self-sufficiency of the commission Daniel said “we are happy to be self-sustained. In NAICOM, we feel we should also be contributing to the national treasury... We can fund ourselves.” “In 2012, we remitted over N1 billion into the government treasury. The government’s decision is a good thing for us because the government has many responsibilities pressing for attention. We believe that the resources being allocated to us can be channelled elsewhere,” he added.
NAICOM rakes in income from the one per cent statutory levy imposed on the gross premium income of insurance and reinsurance companies as well as gross commission raked in by insurance brokers and gross fees earned by loss adjusters. Other sources include income from investments and money borrowed from such sources as may be approved by the board, fees and penalties payable by insurance institutions and other persons as well as all sums of money accruing to the commission by way of gifts, testamentary dispositions and endowments and contributions from any other source whatsoever. Meanwhile, as 2014 inches closer, stakeholders would be looking forward to the licensing and commencement of business by micro-insurance companies and takaful insurers to see their impact on the insurance industry and its contributions to the nation’s GDP.