Towards the end of last year, the National Insurance Commission read the riot act to underwriting firms, warning them against providing insurance cover for their clients on credit.
This was to prevent the accumulation of premiums that used to represent about 50 per cent of the insurance companies’ transactions in a financial year.
With the introduction of the policy, NAICOM decided to enforce Section 50 of the Insurance Act, 2003, which the underwriters had largely ignored before then.
The section states, “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.”
Apart from the earnings from investments, insurance companies generate their main revenue from premium collection from the underwriting business.
The inability to get the premium on time has adverse effects on the companies’ operations and drag the industry backward.
Without getting the premium early, it is almost impossible for the underwriters to invest funds in their kitty in profitable ventures and also settle claims promptly.
Most clients have the habit of ignoring the payment of their premiums once the year elapses and no claim occurs.
However, experts say with regular flow of premium, insurance companies will be more liquid to plan on the available resources maximally and respond to claims promptly.
About eight months after the commencement of the ‘No premium no cover’ policy, the underwriters are already counting the gains.
The Managing Director, Anchor Insurance Company Limited, Mr. Ademayowa Adeduro, said people did not show much enthusiasm about the enforcement of the ‘no premium, no cover’ policy at its inception.
“We started the year with a pessimistic view about the issue of ‘no premium, no cover,’ everybody was a bit afraid; we did not know what would come out of the policy,” he said.
After reviewing the performance in the first six months, Adeduro said the experience had been a positive one for Anchor Insurance.
“It has increased our premium; it has improved our cash flow; and it has improved our liquidity; so, we feel that it is a positive development,” he said.
The Group Executive Director, Retail and Marketing, Royal Exchange Plc, Alhaji Auwali Muktari, said the policy was a good development initiated by NAICOM.
According to him, at the beginning of the year, it was tough for the industry because those who were used to delaying premium payment had to adjust to the new regime.
However, he said the policy was for the benefit of the entire insurance industry.
“For Royal Exchange, it is a welcome development, and at the end of the day, it is for the interest of the entire insurance industry,” Muktari said.
The insurer said that if the operators continued providing covers on credit, at the end of the day, they would be recording debts in their books, a scenario which might lead to the collapse of the entire insurance industry.
“With this development, we will have a bigger, better and recognised industry, not only in Nigeria, but Africa in general,” Muktari said.
The Group Managing Director, Mutual Benefits Assurance Plc, Mr. Akin Ogunbiyi, said the regime of ‘no premium no cover’ was already repositioning the insurance sector.
This, he said, had resulted in significant increase in productivity and profitability in the industry.
According to him, the policy is also giving the insurance industry a good recognition.
Ogunbiyi said the effort at ensuring that insurance firms would not provide cover without the payment of premium was vital to the industry and would be a lasting legacy for the younger generations.
A former Director-General, Chartered Insurance Institute of Nigeria, Mr. Adegboyega Adepegba, observed that the ‘no premium no cover’ policy had been in existence for long without being enforced.
He said insurance premium should be paid, just like other professional services are promptly paid for.
“It is also the standard practice. I expect that if other professions get paid for services rendered as at when a contract is entered into, then insurance should not be an exception,” he said.
With the insurers getting their money on time, Adepegba said the development would have a positive impact on all stakeholders.
The Chief Business Analyst, North Waterloo Farmers Mutual Insurance Company, Canada, Mr. Kehinde Borisade, said the ban on credit insurance was a commendable action.
He, however, added that there was room for improvement in order for the Nigerian insurance industry to attain international standards.
“A gap that needs to be filled by the Nigerian insurers is that they should abide by laid down code of ethics and corporate governance principles rather than paying lip service to those values,” he said.
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