‘Why No Premium, No Cover Law is Being Violated’

The National Insurance Commission (NAICOM) has confirmed that it is easy for the insurance operators to violate Section 50 (1) of the Insurance Act 2003 concerning payment of required premium because the law did not stipulate sanction for defaulters.

Section 50 (1) of the Insurance Act provides 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".

In spite of this provision of the law, insurance companies have continued to grant cover when the required premium has not been paid and this has resulted in huge accumulated premium being owed the industry.

Speaking on the issue during a chat with the correspondents in Lagos recently, the Commissioner for Insurance, Fola Daniel, said it is unfortunate that sanctions are not stipulated for violators of this section of the Insurance Act.

Daniel, who doubles as the chief executive of NAICOM, pointed out that this omission and other deficiencies of the Act have been identified and that this necessitates its review being carried out by a committee at present.

As Section 50 (2) states, "An insurance premium collected by an insurance broker in respect of an insurance business transacted through the insurance broker shall be deemed to be premium paid to the insurer involved in the transaction," the insurers and brokers have been at loggerheads over payment of premium.

While brokers often claim that the premium has not been paid, insurers are in the habit of saying that brokers have collected the premium and that it is the brokers who are refusing to remit it to the insurance companies.

The Nigerian Insurers Association (NIA) stated in 2009 that it would be compiling list of insurance brokers that have not been remitting premium collected on behalf of insurance companies to the insurers as required by law. The association actually sent circulars to its member companies to furnish it with names of insurance brokers that have been found wanting in the area of remittance of premium.

However, the Nigerian Council of Registered Insurance Brokers (NCRIB) has condemned the practice by some insurance companies who indulge in the habit of filling the books with false premium figures as a ploy to deceive the industry's regulator.

The NCRIB pointed out that certain underwriters deliberately pad their books with false premium figures to deceive the market regulator, NAICOM, that the outstanding were actually collected but not remitted by the brokers.

The brokers noted that such a practice is not only a cheap blackmail but disgusting and unacceptable, adding, "We have therefore complained to NAICOM and the Nigerian Insurers Association (NIA) for urgent attention."

To exonerate the brokers of accusation of withholding of premium meant for insurance firms, the NCRIB informed it has begun moves to verify accounts with the insurance companies.

In the light of this, the NCRIB has been discussing with the NIA, the umbrella body of underwriting firm in the country, to encourage its member companies to always reconcile their premium accounts periodically with brokers and report only the reconciled and certified figures.

The NCRIB also said it has given further backing to NAICOM to enforce the no premium no cover provision in the Insurance Act 2003 to prevent a situation where insurers will continue to allege that brokers are not remitting the premium due to them.

In the same vein, the NCRIB has cautioned against the proposal that premium should be paid directly to insurance companies by the insured, as against the popular practice of payment through the insurance brokers.

The NCRIB warned that such a practice of bypassing brokers to deal with the insurance companies directly would not augur well for the insured.