Insurance: “No Premium No Cover” 10 Years After

No premium no cover,” which is a market conduct reform of the National Insurance Commission is now ten years in its implementation. Ebere Nwoji reports that the policy has been described by insurance operators as ruse due to negative activities of insurance brokers towards its implementation.

The National Insurance Commission (NAICOM), 10 years back, precisely on January 1 2013 announced its implementation of “ no premium no cover” policy as one of its market conduct reforms targeted at transforming the insurances government industry to a trillion Naira premium market from N260 billion annual premium income the insurance sector recorded then.

The policy was in accordance with section 50 (1) of the Insurance Act 2003, which 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 an insurance risk unless the premium is paid in advance.” Invariably, the law presupposes that no insurance cover shall be granted by any insurance company without having received the premium.

Operators’ reaction

Operators and stakeholders in the industry hailed the commission for the policy implementation, saying it was the best thing that could happen to the industry.

This is because, prior to the announcement, insurance sector was enmeshed in huge outstanding premium that littered their annual reports and which they kept carrying over and over every year with out single record of recovery.

The quantum of outstanding premium in the annual reports of insurance firms at that time was so huge that NAICOM at a point insisted that every insurance firm must make provision for every figure reflected in its annual report. 

On their part, insurers were very happy saying that the policy would put more physical cash in their volt and strengthen them to pay claims timely.

Insurers vowed among themselves to ensure that the policy worked so that the era of operating business on paper figures would give way to business operation based on physical cash.

 But an insurance broker who did not want his name in print told the media at that time that the only thing that would slow down the success of the “no premium no cover” policy was unhealthy competition among insurers.

It is now exactly 10 years since NAICOM launched the “no premium no cover” policy and THISDAY took a critical review of its implementation and impact on the payment system in insurance industry.

Indeed, a critical look at the industry regarding sales of policy and premium payment reveals that “no premium no cover” policy has not been as successful as one had thought.

Checks by THISDAY reveal that whereas NAICOM and other stakeholders in the industry celebrated the success of the policy, in practical reality, the policy was described as a ruse.

The brand and business development manager of one of the new generation insurance firms in Lagos confided in THISDAY that the “no premium no cover” policy was not working because of dubious activities of insurance brokers.

The manager who do not want his name in print because brokers would feel exposed and stopped giving his company business lamented that the policy would have been a very beautiful policy capable of redefining the face of insurance sector but for the brokers’ attitude.

He said whereas the “no premium no cover” policy stipulates that every business placed by brokers must be paid for within the maximum period of 30 days, many brokers place business with insurance firms collect money from the clients and hold back the money for as long as one year and when he sees that there was no risk occurrence, he would pocket the money .

He said the brokers would place the business, issue credit note to the insurer but will not pay the premium.

Asked why the underwriters would condone such brokers and will not report them  to the regulator, he said because if you do, they would blacklist your company and would not want to give  your company a business in future.

He said this explained why in most insurance companies’ books you see so many premium debts written off because it is obvious it will not be paid.

He lamented that if not the brokers’ attitude the “no premium no cover” would have drawn insurance firms out of doldrums.

He however said with direct business, aviation class of business, and some class of oil and gas business, the policy is working perfectly.

He also said insurance agents remit their premiums without delays.

Operators

THISDAY recalls that during the flag off campaign on implementation of the  “no premium no cover”, the commissioner said the implementation of the law was expected to significantly improve the cash flow of insurance institutions in the country, adding that it was expected that the positive turn of events in the implementation of the “no premium no cover” law would impact on the capacity of operators to settle claims promptly, thus removing a major sore point in the relationship of insurance consumers and service providers.

The policy is now 10 years, being introduced in January 2013 but contrary to their expectation that it would bring to an end the lingering problem of huge outstanding premium, which has been plaguing the industry for many years, insurers are yet to heave   a sigh of relief on the menace of premium seizure by brokers.

Insurance underwriters lament that while they keep writing off huge outstanding premium owed by insurance brokers, such brokers are busy buying houses in GRAs with insurance premium paid to them by the clients.

He added that the brokers’ activities are aided by lack of cooperation among underwriters.

He said when an insurance underwriter tries to shun a brokers’ business because of bad experience in the previous business he placed, within the same period another underwriter, a bigger and more robust player will invite the broker and sign the contract without stress.

Querying whether this is how the insurance industry would build the much talked about trillion Naira market, the insurers called on NAICOM to review the “no premium no cover” policy and monitor adherence by brokers.

At the initial implementation of the “no premium no cover” policy, its beauty inspired neighbouring countries like Ghana to adopt similar policy in their country.

As operators step into a new business year with new business strategies and ideas, industry watchers said it is high time insurance underwriters in their various management retreats, and trade union meetings should put heads together and decide to get the brokers do the right thing by insisting on the “no premium no cover “policy implementation.

The industry watchers said it was time  insurers should in their periodic meetings with the regulator draw the commissioner’s  attention to what the insurance brokers were doing with the “no premium no cover” policy to get the commissioner call them to order.

Insurance underwriters’ attitude

THISDAY recalled that at a press briefing organised by the management of a leading insurance firm recently, the managing director of the company said he had instructed his staff to get every available business at all cost irrespective of the market agreement,

He argued that he was answerable to the business owners and not to the association; therefore, has to do everything possible to  bring  in more money into the company.

His line of reasoning towards the market agreement was later followed up by other operators who initially believed that the agreement was the best thing that could happen to the industry. Today nobody talks about the agreement as every insurer behave the way that will enable him generate premium.

Similar thing happened in the implementation of compulsory insurances, especially insurance of building and building under construction. Initially when it was launched, insurers rolled out their drums in celebration of huge premium that would accrue from it. Insurers estimated that they would make at least N10 billion premium annually from the policy but since after the launch and enforcement of other compulsory insurances, only the usual Motor Third party insurance has remained popular while others have remained as dormant as they were.

In the case of no premium, no cover which the industry operators and investors   have so much celebrated, the fear of reduction in the number of business renewals by various firms, has compelled operators to allow brokers have their way in destroying the regulator’s beautiful idea that would have repositioned the insurance sector.

Analysts’ opinion

Analysts said it is left for NAICOM as the industry regulator to mount serious surveillance on the operators and ensure re-launch and of the no premium no cover policy with heavy sanction on any broker or underwriter who would violet the rules.

On their part, the operators should acknowledge the fact that every step taken in the enforcement of no premium no cover by the regulator is in their own best interest. They should therefore ensure that the implementation of the policy continues to succeed .The operators should not look at the immediate effect but should look at future gains in the implementation of the policy. They should not allow the prevailing lull in business on account of their compliance with the policy to discourage them.

No premium no cover is one of the market conduct reforms of the National Insurance Commission. The Commission commenced the implementation of the policy on January 1. 2013. It was in accordance with section 50 (1) of the Insurance Act 2003, which 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 an insurance risk unless the premium is paid in advance”.

The commissioner said proper implementation of the law would significantly improve the cash flow of insurance institutions in the country, adding that it was expected that this positive turn of events in the implementation of the no premium no cover law would impact on the capacity of operators to settle claims promptly, thus removing a major sore point in the relationship of insurance consumers and service providers.

Former NIA Chairman NIA Mr. Gaius Wiggle said though proper implementation and enforcement of the no premium no cover policy would make the year a mixed issue year of challenging and rewarding, it is a good platform for a better tomorrow therefore has to be sustained.

According to him, with the introduction of the policy and other similar reforms put in place by the commission at that time, the insurance industry was compelled to be learning too many things at the same time.