Insurance companies in the country are feeling the heat from the National Insurance Commission (NAICOM) over infractions bordering on failure to comply with local content laws, issuance of blind covers, corporate governance breaches and other unethical practices.
The industry regulator has been imposing fines on insurance companies in its bid to sanitise the industry. Some insurance companies have been fined as much as N2 billion per infraction depending on the infraction or the currency of the business transaction, especially in oil and gas risks.
The latest fine, to the tune of $8 million (N2.88 billion), was slammed on a company for failure to adhere to guidelines on relationship with co-insurers, placement of risks, and premium remittance within allowable period, BusinessDay gathered.
The heavy fines have been coming from failure of some companies to adhere to local content development laws, which require that risks emanating from the domestic market, particularly oil and gas, be domiciled within Nigeria and not be taken away until local capacity is exhausted.
“We have seen situations where some insurance companies will secure risks, take the volume they want to retain, give some co-insurers what they want to give them, and take the rest abroad without getting permission from the commission,” a source in NAICOM alleged.
“This is where we come in with sanctions on such company. And there are even worse cases,” the source said.
Section 49 of the Nigerian Oil and Gas Industry Content Development Act, 2010 requires all investors in the oil and gas industry to insure all their insurable risks relating to the oil and gas business, operations or contracts with an insurance company through an insurance broker registered in Nigeria under the provisions of the Insurance Act as amended. However, Section 50 of the same Act specifies that where an operator desires to place insurance risk outside Nigeria, it can only do so with the written consent of NAICOM which shall ensure that Nigerian local capacity has been fully exhausted.
The local content regulations of the oil and gas industry seek to increase indigenous participation by prescribing thresholds for the use of local services and materials and promoting transfer of technology and skills.
NAICOM is in collaboration with the Nigerian Content Development and Monitoring Board (NCDMB) to ensure compliance with the provisions of the Nigeria Oil & Gas Industry Content Development Act 2010, Sunday Thomas, the commission’s deputy commissioner for insurance (technical), said at the 2019 business outlook for the insurance industry organised by the Chartered Insurance Institute of Nigeria (CIIN).
To achieve this, he said, it would become compulsory for all companies operating in the sector to insure their assets first with local insurers before seeking permission from the NAICOM to insure with a foreign firm.
But in an emailed response to BusinessDay inquiries on Monday regarding the heavy fines, Thomas said he was not sure which infractions were being referred to.
“However, whatever penalty that may have been imposed on any company must have resulted from a breach of known regulation or guidelines,” he said.
Thomas said with respect to the size of the penalty, any penalty imposed was known ahead of the breach, implying that operators must have weighed the cost of the infraction.
“Penalties are meant to deter misconduct, institute discipline and orderliness,” he said.
On the impact of the infractions on the industry, he said such penalised actions must have been considered as risks to the interest of policyholders, to return on investment, and to the growth of the industry.
Mohammed Kari, commissioner for insurance, said recently that NAICOM would up its ante in the area of supervision, warning that any operator that failed to comply with the rules of the market would pay commensurate penalties.
Speaking at a seminar for insurance correspondents, Kari said the commission had stepped up its regulatory action and there would be no sacred cows. He said any defaulting operator would be given opportunity to defend itself, but would be made to pay the price if found to have defaulted, adding that adequate warnings had been given to the operators.
Kari said operators were in the past granting blind insurance covers to clients without having information or data of the type of risks they were insuring, pointing out that the commission was trying to eliminate blind covers that had caused the industry a lot of trouble.
“For instance, insurers grant covers to government agencies and parastatals without knowing, or having the data of workers to be covered. But no company will dare do it again because we have issued circulars to them to stop such transactions from occurring again. They must not even insure the Ministry of Defence without having their information, otherwise insurance cannot be granted,” Kari said.
“There is nowhere in the world where blind covers are granted. We have stepped into it and have issued appropriate circulars warning the underwriters and we are sure they heard us very clearly,” he said.
Tope Smart, chairman, Nigerian Insurers Association (NIA), said, “We have advised our members to play by the rules so as to avoid these heavy fines because their impact is heavy on the bottom lines of the companies concerned.”
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