National Insurance Commission (NAICOM) and the Nigeria Insurance Association (NIA) are banking on the new code of ethics for insurance companies and the proposed market agreement between insurance firms to curb industry abuse and sharp practices among insurers. Last week NAICOM released a new code of ethics which became effective January 1st 2010 to guide insurance operators.

In addition to the code is the market agreement designed by NIA last year for its members and would soon become operational. The  market agreement addresses  issues such as underwriting, rates, discounts, ‘Consult the lead, large industrial risks and co-insurers.

The journey of the market agreement began in February eleven months back when the NIA, after a meeting of its  governing council,  wrote to its members on the areas highlighted above  and sought the contribution of its members saw the final agreement early this month.

Speaking of the imperative of the new code in the Commission’s quest to rid the industry of unethical practices, Mr. Samuel Ordu, NAICOM’s director in charge of Finance and Accounts, said that  that practitioners have no option but to practice the profession according to the laid-down rules and regulations in order to restore and heighten the confidence of the insuring public in the industry, adding that adherence to corporate governance by underwriting companies is the main focus of the commission towards turning the industry around.

He said stakeholders would have assurance that an enterprise has a good set of integrity and ethical values if the contents of the code were founded in good faith.

Ordu explained that the new code of ethics for the insurance industry stipulates that the Chief Executive Officers of the various firms must certify the validity of their companies’ quarterly and annual financial statements.

He said the commission had in the past taken staunch measure against abuse of market rules and regulations. “NAICOM has a range of actions available in order to apply appropriate enforcement or sanctions where problems are encountered such as restricting business activities; stopping the writing of new business; withholding approval for new activities or acquisitions; directing affected companies to stop practices that are unsafe and unsound; removing directors and managers and as far as revoking the license of an insurer.

“There is need to build trust, confidence through transparency, accountability, good corporate governance and robust infrastructure in order to thrive to create a level playing field for the emerging global market and at the same time, restore confidence in the system”.

He therefore said the industry Code of Good Corporate Governance is veritable instrument towards achieving the industry vision and therefore urged, “All stakeholders need to know limits and boundaries and when their activities may become unethical, improper, illegal or otherwise”.

The current development in the capital market and banking industry which points to the fact that shareholders were not carried along in the running of the institutions resulting in loss of confidence in the system is an eye opener, he said
Apparently, the ugly scenario made NAICOM to insist that under the new code of ethics, insurance firms must comply with accelerated quarterly annual and other period-filling deadlines backed with relevant disclosure requirements.

It is also aimed at warding off conflicts of interest among the board and management including any activity investment and association which interferes with judgment of the best interest of stakeholders in the company.

Commenting on the market agreement,  Mr Wole Oshin, Chairman, Nigerian Insurers Association,  said that, the market agreement is an important tool for insurance companies and its umbrella body that is required to contain potential challenge on best practice by pricing the business right and charging standard rates for risk underwriting in the market.

He said the association is in collaboration with brokers on moving the industry forward. “I am happy to report that last year; we initiated several meetings with the Nigerian Council of Registered Insurance Brokers (NCRIB) for the purpose of bridging the communication gap and fostering mutual co-operation and understanding.”

Oshin noted that implementation of the market agreement among players would commence soon, and hopes it would bring the needed sanity in the industry. Over time, industry players have indulged in some unethical practices, for example, rate cutting, which instead of helping the industry to grow, frustrated its growth process and earned bad image for the industry.

The implication is that when there is rate cutting, there is hardly enough reserve in the hands of the insurance companies after running cost and management expenses have been taken care of. To that extent, it becomes difficult to meet insurance obligations particularly claims payment when they arise.

The NIA chairman said the issue of rate cutting in the industry would henceforth be checked for sanity to prevail in the sector.

The NIA at this juncture 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.”