February 28, 2022

How regulatory lapses fuel non-settlement of insurance claims

How regulatory lapses fuel non-settlement of insurance claims

By Rosemary Iwunze

The story of Alika Lauretta Romma, and others who have been waiting for more than two years to collect their claims from three cash strapped insurance firms mirrors the negative customer experience that discourages millions of Nigerians from patronising the industry.

Insurance penetration in Nigeria stood at 0.7 per cent of Gross Domestic Product, GDP, below the global and sub Saharan African average of 7.20 per cent and two per cent respectively.

A major factor responsible for low insurance penetration in the country is a culture of non settlement of claims by insurance companies.

A former staff and customer of the Niger Insurance Plc, Alika Lauretta Ronma has insurance policy No: PO9651 from Niger Insurance Plc with outstanding claims of N374,416.64 since January 2019.

According to her, the company has been under lock and key since 2020.

READ ALSO: Non-Claims Payment: Why we can’t revoke license of weak insurers — NAICOM

She said: “Till today, when I go to the Anthony branch where I bought the policy, I don’t even see anybody there.

“When I got to their head office, the security personnel told me that there was nobody to answer me and that all the staff were working from home.

“I worked with Niger Insurance before I resigned to work for another company and I picked some policies for some clients of mine.

“But when I resigned, I picked the policy for myself, so even my own claims and that of some other clients that I picked for are still pending.”

Pending claims

Further investigations showed that the list of customers going through the same experience with Niger Insurance include:  Mrs. Arymson Adeola Olufunke with policy No: PO6590 and N372,637.77 claims since March 2018;  Stephen Tiamiyu Olanrewaju with policy No: PO9648 and N383,536.64 as claims since January 2019;  Patricia Lucky Ikehi with policy No: PO11610 and N231,600.00k since August 2019;  and Obaro Agalabri Oghroro with policy No: PO13446 and N749,834.94k since November 2020.

Standard Alliance Insurance and IGI Insurance are also examples of companies failing in their obligation to settle insurance claims.

Mr. Tope Awe, a retiree has a life policy SIP/14/0005402/IKJ with Standard Alliance Insurance. The policy matured in 2019, the discharge voucher to settle the claims has been given to Awe, but the money has not been released.

“My discharge voucher has been signed since 2019, but I have not seen any money. Standard Alliance hasn’t yet paid me. I have called tirelessly but to no avail. I am an old man, do they want me to die and leave my entitlements behind?” Awe told Vanguard.

Vanguard investigations further revealed that there is no end in sight to the waiting of Awe, Alika and others, as the three insurance companies, though acknowledge their indebtedness, said they are cash strapped and their ability to pay is dependent on how soon they can attract fresh funds from investors or through sale of some of their assets.

Speaking for IGI, the Corporate Affairs Manager, Mr. Steve Ilo said that the company is on the verge of selling off some assets to have some cash flow. According to him, once the cash is available, the outstanding claims will definitely be settled.

For Niger Insurance, Head of Marketing, Mohammed Garba said that the company is working round the clock to pay its claimants and it is hopeful that the company will bounce back very soon.

For Standard Alliance, a top director in the company, who pleaded anonymity, told Vanguard that the company is making moves to recapitalise and once they get new investors to pump in money into the firm, all outstanding claims will be settled.

Industry response

However, the Nigeria Insurance Association, NIA, the umbrella body of insurance firms in the country, considers the explanations of the three firms unacceptable. Hence, six months ago the Association suspended the three troubled firms from its membership.

In the same vein, the Nigerian Council of Registered Insurance Brokers, NCRIB, the umbrella body of insurance brokers, directed its members to stop further business with the affected companies.

According to NIA, the expulsion became a necessity on the back of default obligations to policyholders, thus negating the principles of insurance.

Chairman of NIA, Mr. Ganiyu Musa noted that the Association would continue to take measures against erring members in order to reinforce the stand of the organisation and insurance generally, on the importance of claim payment.

He said: “We have to be very harsh, as it were, now. We have an active committee on discipline and conflict resolution. The committee has been strengthened and empowered. We now go beyond the usual refrain or chastisement to taking active steps to discipline erring members.

“We believe it is very important to send the message to our members that when you carry the NIA badge, it should count for something.

“There is no amount of marketing that you can do, if the experience of the insured public is bad, then we cannot make progress in the insurance industry.

“We believe that after cleansing ourselves of bad image, we can go back to the public to say all the good things that insurance stands for,” Musa further said.

Similarly, Vanguard investigations reveal that the NCRIB has taken a stand that it will not jeopardise the trust customers have on the broking fraternity by taking any business to the companies that were suspended by NIA.

According to a source who spoke on the condition of anonimity, it is the duty of the NCRIB to protect the interest of the insured public.

Regulatory Inaction

Notwithstanding these developments, the insurance industry regulator, National Insurance Commission, NAICOM, has not intervened to ameliorate the sufferings of Alika and other customers waiting to collect their claims from the Niger Insurance, Standard Alliance and IGI Insurance.

Rather than imposing regulatory measures that would compel the cash strapped insurance firms to settle their indebtedness to the policy holders, NAICOM has allowed the firms to continue to operate and sell new policy to members of the public.

NAICOM however blamed its inaction on the law regulating the industry, explaining that the law does not mandate it to impose any specific sanction on insurance firms that failed in their obligation to pay insurance claims, except where the liabilities of such firms exceed their assets.

Vanguard investigations show that the assets of Niger Insurance as at the end of 2020 exceeded its liabilities by N2.2 billion.

“The company’s financial statement showed that total assets stood at N22.1 billion at end of December 2020, down from N22.7 billion in 2019, while total liabilities stood at N19.9 billion in 2020, up from N18.9 billion in 2019.

Similarly, Standard Alliance’s assets as at the end of 2020 exceeded its liabilities by N3.9 billion. The company had total assets of N11.3 billion at end of 2020 down from N13.5 billion in 2019. Total liabilities stood at N7.4 billion in 2020 down from N8.1 billion in 2019.

IGI’s assets as at end of 2014 exceeded its liabilities by N10.7 billion. The company had total assets of N31 billion at end of December 2014 down from N32.7 billion in 2013. Total liabilities stood at N20.3 billion in 2014 up from N19.2 billion in 2013.

What the law says

According to the NAICOM Act of 1997, section 41,  “Where an insurance institution informs the Commission that it is likely to become unable to meet its obligations under the Insurance Decree 1997, or it is about to suspend payment of claims to any extent, or it is insolvent; or where, after an examination, inspection, investigation or intervention under this Decree or otherwise howsoever, the Commission is satisfied that an insurance institution – is of an unsound condition so that its method of transacting its business is such as to render its continued operation hazardous to its policy-holders and potential clients.

“The Commission may by order in writing under subsection (1) of this section – prohibit the insurance institution from transacting any further business for such period as may be set out in the order, and make the prohibition subject to such exceptions, and impose such conditions in relation to the explanations as may be set out in the order, and from time to time, by further order similarly made, extend that period.”

NAICOM’s defence

But in spite of this regulatory lacuna, NAICOM officials have come to the defence of the troubled insurance firms, blaming their failure to settle claims on the economic situation of the country.

Speaking in this regard, Commissioner for Insurance, Mr. Sunday Thomas said: “The insurance law does not give us the power to grant a bailout to ailing insurance companies. However, through supervisory practises, either through on-site and off-site reviews, we take a look at certain indicators that an insurance firm could hit insolvency, and we assist in an advisory capacity”.

He explained that the Commission had several times given marching orders to failing companies to pay up agreed claims on which discharge vouchers had been issued but noted that the general state of the economy has prevented the firms from selling their assets to liquidate their obligations.

He noted that many of the firms have good and valuable assets but their problem is  about liquidity while efforts to dispose off some of these assets to pay their clients have been fruitless.

The regulator therefore stated that it cannot revoke the operating licence of such firms as they still have the opportunity to sell off some assets and settle outstanding claims.

Similarly, Head, Governance and Complaint Bureau of NAICOM, Mr. Ahmed Adamu, while speaking to Vanguard on the sidelines of a seminar for journalists in Lagos, said that some of the companies defaulting in claims payment are having liquidity challenges.

He said: “Some insurance companies defaulting in claims settlement have assets in the nature of buildings that they intend to sell. However, to get appropriate buyers has been very difficult.

“We have long given them the approval to sell off some assets for the purpose of meeting their liabilities since they don’t have liquidity, but buyers have not been forthcoming.

“So if you gauge them on the issue of solvency, based on the true position of the law, the companies can be said to be solvent because they have sufficient assets to meet their liabilities.

“As a regulator, we are committed to making these companies have cash injections that will meet the liabilities.

“In the last recapitalization exercise in 2007, substantially what some companies achieved was more non-cash recapitalisation in the form of buildings.

“This has continued to pose a challenge to these companies.”

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