Insurance companiesâ€™ chief executives are crying out for a long lasting solution to the menace of outstanding premium in the sector against the massive abuse of Section 41 of Insurance Act 2003.
Section 41 of the Insurance Act says: â€œWhere 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.â€
This section of the law has been extremely violated by insurance intermediaries and now, insurance companies are saying that the commission should force insurance brokers to pay underwriters their premium if it means that brokers need to borrow from the bank to pay insurers and later pay back after collecting the premium from their clients.
In spite of the 30 days period approved by the law and its sanctions on insurance brokers, underwriters claimed the force of the law has little or no significant value to the business practice.
The sanctions as it related to Section 41 states, â€œAn insurance broker who contravenes this provision is guilty of an offence and liable on conviction to a fine of N10,000, in the first instance, N25,000 for a second offence, and N250,000 for a third offence, in addition to the certificate of the insurance broker being cancelled.â€
Outstanding premiums have always been an issue between underwriters and brokers in the sector.
Troubled by huge outstanding premium and saga it created between insurance companies and the brokers, National Insurance Commission (NAICOM) force underwriters to make provision for outstanding premiums.
To drive home its decision, NAICOM resent any insurance chief executive to have a broking firm or loss adjusting firm of its own why still in service to insurance company.
The commission stated, â€œThis is unethical and it should not be encouraged. There are cases of chief executiveÂ of an underwriting firm having a broking firm, giving businesses to the company where he is CEO, yet there are issues of outstanding premiums,.â€
â€œThe success of the managing directorâ€™s privately owned companies depend largely on at least 80 per cent of his time and energy. He said this was clearly a case of conflict of interest and divided loyalty and it is unethicalâ€.
Henceforth, NAICOM said, â€œAny managing director that must own a broking firm or loss adjusting firm would be compelled to disclose this to the board of directors of the company where he is CEO so that if there are issues of outstanding premiums arising from such broking firm, the board would be able to know the source of their problemâ€.
Section 5 of 2010 operational guideline provides that in addition to other documentation, renewal of licenses is hinged on the certification by insurance companies that the applicant does not owe premium debt and that its management has no relationship with the managements of existing insurance or reinsurance companies in the market
Section 5.1 of the Operational Guidelines 2010 (Intermediaries) listed among renewal documents for insurance brokers â€œletter of clearance from underwriters on premium income remittanceâ€ as well as â€œpayment of any other insurance fee or penalty if applicableâ€.
The section also demands that insurance broking firms seeking to renew their operational licenses should make a â€œdeclaration that no director or partner is an employee of any insurer or reinsurerâ€.