By Favour Nnabugwu
Insurance companies and the broking firms prefer to bank with commercial banks having learnt lessons from wonder banks and finance houses. They learnt their lessons the hard way with the consequence of not being able to recover their monies for which a good number of the companies were not alive to tell their stories today.

In 2008, the so-called wonder banks infiltrated the banking sector in the country, promising quick and mouth-watering returns on depositors’ funds, only to bring ruin to individuals, and bankruptcy to business concerns. This, the insurance commission insisted, must be avoided.

Also, wonder bank operators collect money from members of the public on agreed tempting terms, such as 200 per cent monthly returns on deposits to the extent of adding incentives on interest and principal that could be rolled over as many times as possible.

Some insurance companies fell prey to the terms of wonder banks and enticement of the finance houses to deposit policyholders’ monies and that led to their demise and extinction from the system. Aside that, the National Insurance Commission (NAICOM) has mandated companies to ensure that they bank with Central Bank of Nigeria-certified commercial banks and not in mortgage banks or finance houses.  While clients’ funds shall not be invested anywhere, NAICOM further specified that the only permissible outgoings from clients’ bank accounts shall be identifiable payments to insurers and reinsurers, broker’s commission and bank charges.

The commission also made it illegal forthwith for any insurance intermediary to request for or grant rebates in the transaction of insurance business except as stipulated by law or generally agreed by the industry and acceptable in practice. Any insurance intermediary who requests any rebate contrary to the provision above may, in addition to the punishment provided by any law in force for the time being, be liable to suspension for a period not less than six months. This is in addition to the provision contained in the guidelines requiring all insurance brokers to keep and maintain a register of returned premium. NAICOM made it clear that failure to comply with the provisions above shall be a ground for cancellation of the operating licence of the erring broker.

Similarly, in order to minimise the differences arising from account mismatch and associated problems, all insurance brokers are required to keep clients’ account as distinct from their own operating records such that a separate balance sheet can be extracted from the clients’ account. Brokers are also not allowed to carry premium receivable and premium payable as assets and liabilities respectively in their own balance sheet.

Every mandate for clients’ account must specify that the account is a client’ account while also stating that the funds in the account can neither be used as collateral for any facility nor offset against any liability.