By Patience Saghana
The patience of National Insurance Commission and the Nigeria Insurers Association on insurance companies undermining rules and regulations in the industry appear to have run out as they read out the riot act to all unethical companies to repent or be dealt with, Patience Saghana writes.
The battle is on now to deal with insurance companies that are in the habit of undercutting rates and other unhealthy business practices, following the market agreement signed by insurance companies operating in this country. The agreement which came into effect on August 1, 2009 is being implemented alongside its stance measures against erring companies.
Apparently concern about the spate of unethical conduct in the insurance industry that took a new dimension in recent years despite strengthening of the regulatory framework to monitor the companies, the industry decided to come up with a market agreement.
Various strategies had been adopted by the National Insurance Commission (NAICOM) and the Nigeria Insurers Association (NIA) to curb the rising pace of unethical business practices in the sector with little or no success. The most recent is the market agreement signed by insurance companies that are also members of the NIA.
Although the agreement covers other areas but the high point of it has to do with doing the business with almost best practice which all members of the association contributed to and agreed upon.
The market agreement for members of the NIA as it is tagged, included treated issues such as underwriting, rates, discounts, â€˜Consult the lead, large industrial risks and co-insurers.
The journey of the market agreement began in February this year when the NIA rose from its governing council meeting and wrote to its members on the areas highlighted above and sought the contribution of its members which saw the final agreement early this month.
For insurance companies and its umbrella body, the market agreement is an important tool that is required to contain potential challenge on best practice by pricing the business right and charging standard rates for risk underwriting in the market.
In insurance, the premium rate is the rate per unit of exposure, and this depends on the average claim frequency/annum/unit of exposure. The present value of the average size of claim is also factored into premium rate determination. Generally, insurance rates are determined in relation to the nature, class, location and quantum of risk.
Mr. Wole Oshin, chairman, Nigerian Insurers Association, said the association is in collaboration with brokers on moving the industry forward. â€œI am happy to report that last year; we initiated several meetings with the Nigerian Council of Registered Insurance Brokers (NCRIB) for the purpose of bridging the communication gap and fostering mutual co-operation and understanding.â€ Oshin noted that implementation of the market agreement among players would commence soon, and hopes it would bring the needed sanity in the industry. Over time, industry players have indulged in some unethical practices, for example, rate cutting, which instead of helping the industry to grow, frustrated its growth process and earned bad image for the industry.
The implication is that when there is rate cutting, there is hardly enough reserve in the hands of the insurance companies after running cost and management expenses have been taken care of. To that extent, it becomes difficult to meet insurance obligations particularly claims payment when they arise.
The NIA chairman said the issue of rate cutting in the industry would henceforth be checked for sanity to prevail in the sector.
Over the years, there has been rate-cutting in the industry, the implication of which is that it gets a bad image and there is hardly enough reserve after running costs and management expenses have been taken care of. To that extent, it becomes difficult to meet insurance obligations, particularly claims payment when they arise.
He said the NIA would come out with memoranda this year, which would streamline operations and firm up rates for the benefit of the industry and the economy at large. One of the key strategies, Oshin noted, is that insurers would be back to â€œconsult the leadâ€ approach.
This is a situation where only the lead underwriter in any given account relates with the client, rather than all the co-insurers being involved in the process. As far as the NIA chairman was concerned, that approach would reduce unhealthy competition and bring honour to the business.
â€œBasically, insurance pricing, another name for rating, refers to the scientifically determined factor that is applied on the value of insurance to determine the amount of premium payable. It involves the determination of appropriate premium for a risk to ensure that a sound and equitable underwriting is always realised.
Mr Fola Daniel, Commissioner for Insurance said that the commission would not spare any company that is reported to it on unethical grounds. He admitted, â€œThere have been a lot of unethical practices in the industry. NAICOM had employed persuasion and other entreaties to make companies toll the right path but now the commission is going to start making scape-goats of companies that are proven to have abused the insurance system. Whenever we have a report of anomaly from any company, we are going to thoroughly investigate and if found culpable, we are not just going to bark but bite as wellâ€.
Regrettably, Fola Daniel lamented, â€œWe realise that insurance products are being given at ridiculous rates. For instance, fire insurance is being given next for nothing while operators grant 90 per cent discount on motor insurance plus free trackers and other cases like that in the industry. This is the main problem in the industry. We must do something very quickly to stop the unhealthy practices.â€
The NAICOM boss actually disturbed by the spate of unethical practices said, â€œMy worry is that the present global economic meltdown is an opportunity for the industry to exploit and increase our premium. Private individuals and corporate organisations who understand the importance and benefits of insurance as a shock absorber in the economy will always insure their assets.
Fola Daniel said in the latest plan of the commission to closely monitor the activities of operators in the industry, practitioners have no option but to practice the profession according to the laid-down rules and regulations in order to restore and heighten the confidence of the insuring public in the industry.
He reiterated that adherence to corporate governance by underwriting companies is the main focus of the commission towards turning the industry around.
Mr Remi Bablola, Minister of State for Finance while addressing insurance practitioners in Lagos recently affirmed that government is unrepentant on an efficient, open, competitive and innovative business environment and will do all that is necessary to ensure that this sector is reinvigorated and redirected from the much talked about unethical practices.
â€œI urge you as professionals and insurance practitioners to place ethics and international best practices at the fore of your businesses. It remains a key competitive advantage that can be deployed to place you ahead of your competition at all times. Most especially in your line of business, perception remains the reality in the marketplace and a key success factor.
â€œOur focus is for a balance between prudential objectives and ensuring that the insurance industry stays efficient, competitive and innovative,â€ he admonished the practitioners.
He stated that, â€œA key driver of our current reforms in the industry has been the desire to instil a new approach to prudential regulation and I charge you as insurers to embrace international best practice and good corporate governance. â€œThe reforms are intended to move us beyond the current highly prescriptive regime in the industry to one where the insurers would be free to deepen the scope and level of insurance penetration in the country by introducing innovative new products for the citizenryâ€.
Companies, he warned, â€œmust increasingly compete globally, especially in mature industries such as insurance. And to compete globally, companies must be lean and efficient, while offering an expanding array of products to ever more discerning and demanding consumersâ€.