NAICOM enforces 'no premium no cover' rule on insurance contract

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The guidelines introduced by the National Insurance Commission (NAICOM) early last year to check the problem of unpaid premium/bad debt in the insurance industry may have enforced the 'no premium no cover' rule this year, thus bringing to an end the underwriting of insurance contract on credit.



The Guardian gathered that at the close of renewal of insurance contract for the new year, which ended on December 31, 2009, all the insurance companies have complied with the provision and no insurance policy cover was issued without full payment of premium for the policy.



Industry chieftains confirmed that the new code of ethics made it mandatory, and no insurance policy would be renewed or issued this year, unless full premium was paid for the insurance cover, adding that no underwriting company would want to incur the wrath of the insurance regulator and the heavy penalty that non-compliance prescribed.



The commission had introduced guidelines on code of good corporate governance to stop unethical practices in the industry, required underwriting firms to make general allowance for outstanding premium and bad debt in the company's books.



For instance, outstanding premium/bad debt of up to three months and one year, the insurance company must make allowance of between 25 and 100 per cent in their book of accounts within the financial year, and must be written off in the profit and loss account when the extent of loss has been determined.  The impact of the new requirement, which came into force last year, could have accounted partly for operational losses recorded by all the underwriting companies in 2009.



Also, the commission relied on section 50 of the 2003 Insurance Act, which states that "the receipt of an 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 premium is paid in advance."



The chief executive officer of one of the old generation insurance companies told The Guardian that although the new policy is a welcome development that will impact positively on our operations in the long run, but this year, ability to pay premium is really a challenge in the insurance industry. It has seriously scaled down on renewal values.



He said: "Of course, the global economic meltdown, the difficulties in the economy as well as problems in the banking sector, have seriously affected renewal of portfolio of risks this year by policyholders. Mostly in this category are private individuals and medium scale businesses. As you are aware, we sell intangible products and insurance is always the last in the scale of preference of consumers."



According to him, the economic crisis one way or the other had impacted on our customers to the extent that some were dumping renewal of policy outright, while some have been adopting "wait and see" attitude.



Similarly, an industry chieftain said that policyholders should regard insurance as part of their lives. "Our belief is that in anticipation of risks that surround us every day in life, one should expect that losses and tragic events will take place, and the natural thing to do is to take insurance protection."



He explained that the industry has enlarged both human and financial capacity of the market to meet genuine obligations to policyholders. "What the regulator is doing now is actually in the interest of policyholders. I think it is good for Nigerians to take insurance as partner in progress. Insurance exists to help other businesses to grow", he said.



(Source: Guardian)

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