National Insurance Commission (NAICOM), the regulator in the insurance industry, has set an upper limit for commission payable by underwriters to insurance brokers on group life assurance business at 8 per cent.
This move was in response to the controversy that rocked the group life assurance scheme for employees of the Federal Government in the 2010 fiscal year 2010.
The Commission communicated this decision to the operators in the 2011 Operational Guidelines for insurance and reinsurance companies issued by the regulatory body recently. It recalled that Section 9 of the Pension Reform Act, 2004, made it compulsory for employers to take out group life cover for their employees.
“Employers shall maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee.
“In line with Section 53(1) of the Insurance Act, 2003, commission payable to an insurance agent, broker or any intermediary on group life assurance business shall not exceed 8 per cent of the premium,” the Commission stated.
Life assurance policies are to be effected through the purchase of a life policy issued by a Nigerian registered insurance company, licensed and authorised to conduct life assurance business by NAICOM under the Insurance Act, 2003.
Worried by the unethical practice with regard to group life cover, life offices in the country called on the regulator to intervene to bring an end to the rate cutting and unhealthy competition among the operators underwriting the Federal Government’s group life business.
The Chairperson of the Life Offices Committee (LOC) of the Nigerian Insurers Association (NIA), Mrs. Yetunde Ilori who made the call in Lagos, noted that apart from the fact that companies were not patronising the group life scheme, widespread rate-cutting and unhealthy competition among the companies on the group life assurance business were weighing negatively on the business.
She regretted that since 2009 insurance companies underwriting group life assurance for Federal Government have been cutting rates indiscriminately and perpetrating other unethical things.
Meanwhile, Chairman of NIA, Mr. Olusola Ladipo-Ajayi, who regretted the controversies that trailed the Federal Government’s group life assurance business last year, threw more light on how life assurance premium rates are determined.
“Life assurance rates especially are based on actuarial computations and once those computations are wrong, it will be obvious to everybody. In the whole world, Nigeria offers one of the softest insurance markets and it is not borne out of sophistication. It is borne out of unhealthy competition.
“There was a price war in Nigeria. It is not that our experience is so big as to support the rate we charged. It was clearly an embarrassment because there were other extraneous issues that came up. I am sure the anomaly has been discovered,” the NIA Chairman assured.