By Rosemary ONUOHA

A premium no cover’ s the ‘no directive of the National Insurance Commission, NAICOM, gathers steam, stakeholders are of the opinion that the buy-in of oil majors is vital to its success.

The oil and gas sector all along, has been the main stay of the Nigerian economy. However, activities in the oil and gas sector are yet to translate into a significant growth of the insurance industry. This is because the statutory requirement that insurers must underwrite 70 per cent of oil and gas risks emanating from the energy sector is yet to be achieved.

Although insurers are yet to achieve the 70 per cent coverage, stakeholders are of the opinion that the ‘no premium no cover’ mandate will impact positively on oil and gas risks underwriting if the oil majors adhere to it, irrespective of the capacity level of insurers.

According to experts, oil majors must pay insurance premiums in advance and not in installments, because they are not exempted at all from the ‘no premium, no cover policy.’

The new premium regime

Since the new premium regime took effect from January 1, this year, it has received the support of the government, as all ministries, departments, agencies and stakeholders have been advised to ensure strict compliance.

It will be recalled that the Ministry of Finance issued a circular to Federal Government’s Ministries, Departments and Agencies (MDAs) to adhere to the implementation of ‘no premium, no cover’ policy.

NAICOM, had late last year issued a circular stating that from January 1, any underwriting firm that provides insurance cover without collecting the premium would be liable to a penalty of N500, 000 or lose its license.

According to the circular, all insurance covers shall only be provided on a strict ‘no premium no cover’ basis and that only cover for which payment has been received, directly by the insurer or indirectly through a duly licensed insurance broker, shall be recognised as income in the books of the insurer.

It said irrespective of period of insurance, insurers shall ensure that at any point, they have received directly or indirectly, through the insurance broker the full premium in advance for cover being granted.

NAICOM noted that all brokers should within 48 hours of receiving premiums on behalf of any insurer, notify the insurer in writing in each case, of the receipt of such premium, adding that all such notification shall be accompanied by the broker’s credit notes, acknowledging indebtedness to the insurer.

It said upon the receipt of such credit notes, the insurer shall issue cover and forward the policy documents along with the related debt notes to the broker, adding that any broker who fails to notify the insurer of any premium received on his behalf shall be liable to a penalty that is not less than N250,000 in each case of failure to notify.

NAICOM further mandated insurers to notify it, not later than 30 days from the end of every quarter, of all premiums acknowledged as having been received by brokers or lead insurers, but not remitted to them, adding that any insurer who fails to render such return, shall be liable to a penalty of N5000 for each day of default.

Insurers and brokers were asked to reconcile their accounts not later than March 31, 2013 and brokers and lead insurers are to notify the commission of premium received and un-remitted to insurers, not later than 30 days from the end of every quarter.

Expectations from oil majors

To give bite to its bark, NAICOM said that the oil majors have no reason not to adhere to the new premium regime, adding that previous court’s rulings would aid its legal strength to push the new premium regime to success.

Commissioner for Insurance, Mr. Fola Daniel, said that settled Appeal Court cases on the issue of insurance premium are clear indications that anything short of full payment at the commencement of an insurance contract renders such transaction null and void ab initio.

Daniel said “The Provision of Section 50 (1) of the Insurance Act 2003 which states that, ‘The receipt of insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance’, is indeed in the interest of the insured, going by decided cases on the issue by competent court of law.