By Ifeanyi Ugwuadu

A major agreement reached early this year among insurance companies to check price undercutting received a boost weekend at insurance firms’ CEO retreat when a fairly legal bite was given to the document. Company secretaries of member companies of Nigerian Insurers Association will now endorse the document to further commit both the board and management of underwriting firms to comply with its provisions.

The agreement aims to prevent the collapse of the industry which operators fear would come about through excessive price cuts and undermining competition. It covers Code of Practice on Premium Payment, the Code of Conduct on Prompt Claims Payment. In addition, rating of fire, motor and workmen’s compensation were all part of the agreement.

Originally, only chief executive officers of the over 50 member trade group signed the agreement.  However, reasoning that the aim of committing the organisations to self-regulation and best practices will yield little result if only the CEOs sign the agreement, it was resolved at the Ijebu Ode retreat to ask company secretaries to endorse the document alongside the CEO’s.

It is believed that the agreement  will compel companies to part with substantial premiums if they violate the deals or possibly face possible expulsion from a powerful group like NIA require board’s notification. As such, companies’ secretary signature became vital to the overall objective of the agreement, Vanguard gathered.

The agreement bars underwriters from paying to brokers commissions described as ‘overriding commission’ which slices off considerable premium written by insurers. Major operators agree that payment of  “off-the- records commission’ to brokers, discounts and up-front business acquisition costs constitute some of the greatest threats to the viability of insurance in the country.

Insurers also agreed not to pay claims on businesses that have not been underwritten. Payment of claims upfront before premiums are paid is interpreted as price undercutting by the provisions of the market agreement.

Aside recourse to ‘consult-the lead’ practice, insurers also agreed to give only such discounts as approved by the association or in case of compulsory insurances, only statutory rates approved by the industry regulator. Consult-the-lead is a practice where an insurer is required by practice to consult the previous underwriter of a risk to get more information on the risk and why the policyholder prefers another risk provider than the existing one.

In such instance, “where an intermediary or proposer insists on a rate below the stipulated minimum, the risk shall be decline”, the agreement stipulated.  Subsequently, the refusal to renew or assume the risk by the insurer must be communicated to the secretariat of NIA.
The rates in NIA rating manual are considered sacrosant and constitute only the minimum rates chargeable on specific rates.

It is not known yet how insurers will comply with the full disclosure requirement of the agreement as well as that demanded by the National Insurance Commission. However, all  players agree that the market cannot endure much longer the excess discounts given to policyholders.