….As broker doubt insurers’ compliance

Patience Saghana

As the market agreement signed by all insurance companies operating in the country takes effect from today, December 1, 2009, the Nigerian Insurers Association (NIA) is appealing to members to comply with the rule and regulations in the agreement.

The appeal by the association came on the heels of skepticism expressed by a broker sampled past agreement that was breached by insurance companies.

The NIA in a letter to all insurance chief executives dated November 11, 2009 signed by Mrs Olawunmi Idowu, Head (Technical/Legal) reads, NIA member companies as the ultimate risk bearers have seen the need to charge adequate rates to ensure solvency and survival of the industry.

We reiterate that our members should be firm in their resolve by complying with the provisions of the market agreement from the effective date, December 1, 2009, no matter what the external pressures they are exposed to. NIA members have to ensure the market agreement does not fail”

In line with Section 1.7 of the market agreement, you are requested to report any known or observed case of infraction of breach of terms of the agreement to the NIA secretariat for necessary action.”

A broker had written to the association that insurance brokers could not be scared by any circular from the NIA.
According to the broker, “We all witnessed some time in 2002 when all chief executives of insurance companies signed an agreement to protect the integrity of tariff rates, you and l know what became of that agreement”

The broker whose name was withheld said, “Until a holistic approach or step is taken by the National Insurance Commission (NAICOM) on market agreement, we will continue to experience inappropriate pricing”.

At this juncture, the NIA pleaded with its members thus, “We are appealing to our members to please adhere to and comply with the provision of the market agreement. The mail expresses the opinion shared by many detractors that the market agreement will not work”

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.

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.