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Insurance chieftains escape EFCC by the whiskers

By Patience Saghana
The door of the Economic and Financial Crime Commission (EFCC) is beckoning on some insurance Chief Executives and Insurance Brokers to grace its cell as the spate of unethical business practices in the industry has taken a new dimension. The new sharp practices being employed by brokers is that of withholding or refusal to remit premium with some claiming they have used the premium or part of it for PR to get the business.

Some of these insurance chieftains and brokers have by a whisker escaped the hook of the EFCC on the intervention of the National Insurance Commission (NAICOM) over a business deal which premium was diverted by an intermediary but the broker was forced to cough out over N 100 million recently.

The business deal has to do with an account of a government institution which was negotiated from N 508 million to N 314 million and brokered by UTIB Insurance Brokers Ltd. The deal involves a consortium of 12 insurance companies led by NEM Insurance Plc.

Vanguard learnt that the co-insurers in the account include: UnityKapital Assurance Plc; Zenith General Insurance Company Limited; Staco Insurance Plc; Standard Alliance Insurance Plc; International Energy Insurance Plc; Intercontinental Wapic Insurance Plc; Fin  Insurance Company Limited; Consolidated Hallmark Insurance Plc; Aiico Insurance Plc;

The Universal Insurance Company Limited.
Though underwriters said the negotiation was not bad and that the pricing was OK but UITB Insurance Brokers claimed it used 50 per cent of the N 314 million as Public Relation to get the business thus stashing away half of the premium paid by the government agencies and meant for the insurance companies.

But for the right-on-time intervention of NAICOM which waded into the issue that could have landed some of the chief executives of the co-insurers and the broker in the dragnet of the EFCC, The broker, Vanguard investigations revealed, paid part of the other half of the premium to two insurance companies out of the twelve underwriters in the consortium whilst tricking the consortium into an agreement.

The way and manner the broker conducted the business degenerated into complaint from other insurance companies to the account which got wind of the premium shared to the two insurers in the consortium and blew the lid off the deal leading to an invitation from the  Economic and Financial Crime Commission EFCC, of the broker and the consortium for questioning.

The broker knowing what trouble it was into by the EFCC’s invitation went round the consortium to seeking to backdate the policy in order to justify its action at the commission but some insurance companies in the account blatantly refused to be swayed but for the intervention of NAICOM that ensured the whole money was recovered from the broker and shared accordingly to the 12 insurance companies.

The purchase of an insurance policy is made in anticipation that the insurance company will pay compensation to the insured in the event of a loss and by so doing help the client to fully maximize the benefit of the insurance policies. Insurance Brokers are professionals who render services between the insured and the insurance companies but some insurance brokers have abused that privilege with all manner of excuses to withhold premium paid to them by clients.

NAICOM had during the re-launching of Compulsory insurance in Abuja recently summoned all chief executives and managing directors of broking firms to a meeting where Mr Fola Daniel, Commissioner for Insurance sternly warned all the chieftains to be very careful and  to conduct their businesses in the best professional manner else they would have to account for their sins themselves.

All the insurance chief executives, according to Vanguard investigations were present except for three of three – Mr Oye Hassan-Odukale, Managing Director Leadway Assurance company who was said to be out of the country at that time and Mr Eddie Efekoha, Chief Executive of Consolidated Hallmark Insurance whose companies had a board meeting during that period and the President of the Chartered Insurance Institute of Nigeria (CIINN, Mr Sunny Adeda

The insurance commission, Vanguard findings revealed, read a riot act to all the chief executives present at that meeting warning that the commission would not be responsible for any operator or company that is jailed as a result of unethical business practice. The commission in order to drive home its point, Vanguard learnt, wrote directly to chairmen of insurance companies sounding its warning to them.

Some insurance Chief Executives who spoke to Vanguard on anonymity could not fathom why the commission did not publicly exposed the UTIB Insurance Brokers so as to serve as a deterrent to others, arguing that it would help insurance clients to know that their interest is well catered for.

Despite all the opportunities open to the Nigerian insurance market, there are still flood of threats militating against the growth of the sector. Worse off is that majority of these threats are self inflicted mainly by insurance brokers and underwriters quick-win approach to business thus throwing ethics of the business and profession to the wind.

The problem of outstanding, un-remitted and withholding  premiums have continued unabated in the insurance industry despite the fact that Section 50 of the Insurance Act 2003 provides that insurance companies should desist from granting insurance covers if the required premium has not been paid. Section 50 of the Insurance Act states 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.”
Though, Nigerian insurance market is described as the brokers market because brokers control over 80 per cent of the premium income, leaving less than 20 per cent in the hands of agents and direct marketing channel by insurance companies. Over 80 per cent of industry premiums are controlled by this large group of brokers as corporate accounts in particular are often and only secured with the involvement of a broker. Brokers have leveraged on that position of strength to dominate the industry.

Brokers’ dominance ordinarily is to ensure that premium payments by corporate customers and individual clients are paid through them to underwriters yet the premiums are hardly ever received on time if at all they are paid to insurers thus crippling industry premiums receivable ratio. This has been the pattern since the industry failed to take advantage of a section of the 2003 Insurance Act requiring that “No Premium No Cover” thus making it a common practice in the sector for insurance companies to carry risks on their books for which premiums are yet to be received, and may never be received from the hands of brokers.

Chief Dede Ijere, president of the Nigerian Council of Registered Insurance brokers (NCRIB) had pointed out that certain underwriters deliberately pad their books with false premium figures to deceive the market regulator, the National Insurance Commission (NAICOM) that the outstanding were actually collected but not remitted by brokers. The practice by underwriters, Ijere said was not only a cheap blackmail but disgusting and unacceptable, adding that “We have, therefore, complained to NAICOM and the Nigerian Insurers Association (NIA) for urgent attention.”

NCRIB president apparently tried to exonerate the brokers from accusation of withholding of premium meant for insurance firms, stated that the NCRIB has begun moves to verify accounts with the insurance companies. In the light of this, the NCRIB has had series of discussions with the Nigerian Insures Association (NIA), the umbrella body of insurance companies 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.

Ijere said it has also been suggested that insurance companies should be made to present Certificates of Reconciliation to authenticate of outstanding premium against any given broker. NAICOM in a letter to all insurance companies signed by Ms Laide Benson-Onashokun, Director, Supervision of the commission titled Special request for the schedule of outstanding premium asked companies to furnish the commission with details of age analysis of outstanding premium, name of premium debtor, contact address of the premium debtor and telephone number of the premium debtor which companies have responded to.

NAICOM before then had sent warning signals to that effect, threatening to sanction any defaulting company. In a memo to chieftains of underwriting, brokerage and loss adjusting firms, the commission said it was ready to take punitive measures that may include removal of the managements, cancellation of registration and prosecution of the Chief Executive Officers (CEOs) of companies involved in unethical practices in the conduct of insurance business.

The commission is now purposefully beaming its searchlight on some insider abuses which include rates that insurers use for pricing risks, the 30-day rule whereby brokers must pay premium collected from clients, outstanding premium/bad debt and payment of one per cent compulsory levy to the commission, among others.

Besides, the Commission is to enforce the guidelines in the financial year, which require underwriting companies to make general all current allowances for outstanding premium and bad debts.

For instance, in the case of outstanding premium/bad debts of up to three months and one year, the underwriting company must make allowance of between 25 per cent and 100 per cent in its book of accounts within the financial year. Also, it must be written off in the profit and loss account when the extent of loss has been determined. The commission is ready to enforce the law on payment of premium to insurers. Section 41 of the Insurance Act says: “Where an insurance business is transacted through an insurance broker, he shall, not later than 30 days of collecting the premium, pay to the insurer any premium collected by him.

It is in this light that the Commission appointed more inspectors and consultants in all classes of underwriting for the periodic return to monitor operations and evaluate compliance with guidelines, rules and regulations in order to enforce international best practice, as well as better corporate governance in the industry.


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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.