As the country celebrates independence, the federal government believes that the insurance sector is old enough to stand on its own. However, ROSEMARY ONUOHA writes that opinions are divided regarding government’s stand.

The independence anniversary gift, which the federal government recently gave to the insurance sector, was the announcement that it would halt budgetary allocations to the National Insurance Commission, NAICOM, the regulatory body for insurance practice in the country, from next year.

Although government has been the biggest buyer of insurance through the years, it has remained the biggest debtor of the insurance sector, by refusing to pay most of its premium. And if government succeeds in halting budgetary allocations to the insurance sector, the question agitating the minds of stakeholders is ‘can the same government make it up by paying her premiums promptly?

Through the years

The Nigeria insurance industry started in 1921. The first major step at regulating the activities of insurance business in Nigeria was as a result of the fallout of the report of J.C. Obande Commission of 1961, which resulted in the establishment of the Department of Insurance in the Federal Ministry of Trade. The Department was later transferred to the Ministry of Finance. The report also led to the enactment of the Insurance Companies Act of 1961, which came into effect on May 4, 1967.

Insurance business in Nigeria is regulated by two main Acts and supervised by the National Insurance Commission (NAICOM). The Insurance Act No. 1 of 2003 (1A), governs the licensing and the operation of insurers, re-insurers, intermediaries and other providers of related services. The second Act which is an omni-bus one – the Companies and Allied Matters Act (CAMA) 1990, governs all companies, except those that have their respective enabling Acts such as the National Insurance Corporation of Nigeria (NICON), and the Nigeria Re-insurance Corporation.

The National Insurance Commission Decree No. 1 of 1997 (NA), established NAICOM and vested it with the responsibilities of ensuring the effective administration, supervision, regulation and control of insurance business in Nigeria and protection of insurance policy holders, beneficiaries and third parties to insurance contracts.

Growth & development

Gross premium income of the insurance industry which represents about one per cent of the country’s Gross Domestic Product, GDP, grew from N105 billion in 2007 to N300 billion in 2013. The industry total assets have rose steadily to N635 billion.

It is worthy of note that NAICOM has embarked on series of reforms to re-position the insurance industry such as the enforcement of compliance with compulsory insurance in line with the Insurance Act 2003; the sanitization and modernization of insurance agency system; wiping out of fake insurance institutions; and introduction of risk-based supervision of institutions under the regulatory purview of the Commission.

The implementation of the National Roadmap on the implementation of the International Financial Reporting Standards (IFRS) by insurance companies, has also received the attention of the commission. In order to facilitate financial inclusion, NAICOM has created avenues to allow micro-insurance, agricultural insurance and Takaful to evolve.

The establishment of a complaint Bureau by the commission is with the primary objective of addressing genuine complaints from customers. A code of corporate governance has been in place to strengthen governance in the insurance companies. The commission has also embarked on public enlightenment campaign to educate the general public on insurance. NAICOM has equally strengthened its relationship with other regulators both abroad and within the country through the signing of MoUs and enhanced collaboration in pursuing mutually beneficial interests.

Sector challenges

Over the years, the major challenges confronting the sector are the very low level of insurance penetration and patronage; general apathy towards insurance, unwholesome practices of some insurance practitioners, slow pace of development of industry portal, unattractive remuneration of agents, dearth of adequate manpower and delays in enacting of bills.

As it is

Recall that the strategic objectives to be achieved by the insurance sector as articulated in Nigeria vision 2020 are to ensure insurance credibility and protect policy holders; embark on risk-based capitalisation of insurance companies; embed the governance and risk management framework for the insurance companies and to diversify and integrate insurance products into financial services for long term financing.

It was envisaged that the foregoing will lead to increased financial literacy and awareness, human capital development and attraction of expertise, integrated and linked IT systems, as well as improved legal and regulatory framework.

According to Managing Director of Risk Guard Africa, Mr. Yemi Soladoye, in considering the announcement on the one hand, it is safe to say that the federal government is on track to stop allocation to the insurance sector if NAICOM is to continue with its day to day routine of mere supervision of the insurance sector.

According to him, if NAICOM will remain the same autonomous agency that generates its funds from insurance operations alone just to oversee insurance activities, then the decision to stop allocation to NAICOM is on track.

Soladoye said that insurance contribution to GDP has remained at one per cent after all these years, even though NAICOM is doing a good work on market development in recent times, as such, the announcement could lead to more stringent supervision.

Soladoye however said that the task of developing the financial system of any country is always a federal government project.

“If government wants insurance to stimulate the growth of other sectors of the Nigerian economy as well as generating funds to other sectors and increase its contribution to GDP, then the sector should have a sort of national financial system project or plan that is similar to vision 20:2020.

“If government is not going to reverse itself, NAICOM should see the announcement as a positive challenge rather than a threat. The point of strength for NAICOM is that, the retail market is growing; also the percentage of levies which NAICOM can generate from insurers is unlimited and indefinite.

“But government itself must fund a financial market development plan or a long term fund for the insurance sector if it wants the sector to commit into mortgage financing and infrastructural development. This will help the sector to increase its contribution to GDP to over three per cent probably in the next six years. Hence, government must create a special fund for NAICOM.”

Managing Director of Linkage Assurance Plc, Mr. Gus Wiggle said that NAICOM is matured enough to stand on its own.

He said “I think it is a positive development because it will aid NAICOM to attract international agencies to support them. For the federal government to take such a decision, it must have found it necessary to do so.”