Insurance Legislations That Have Shaped The Industry

By WILSON ASEKOMHE

The insurance industry has evolved over the years to its present level one of the areas which has helped this growth is the various legislations from 1981 till date.  The Commissioner for Insurance, Mr. Fola Daniel, at a meeting with the financial services group of the Lagos Chambers of Commerce and Industry (LCCI) analyzed the various legislations.

With the increase in the number of insurance players in the economy, it was inevitable that government had to enact various legislations in order to ensure order and discipline in the insurance market and to protect the interest of policy holders and insuring public.
On the balance, government’s intervention has contributed positively to the advancement of insurance awareness, increase in overall capacity and help to eliminate most of the imposters and charlatans from the market.
According to the NAICOM boss, the first of such a legislation that has helped to propel the insurance industry forward is Insurance Companies Act 1961-
This Act was enacted by the newly independent Nigerian Parliament, and made provisions for the licensing or registration of insurance companies with the Federal Ministry of Trade.  Hitherto, anyone who was inclined could go ahead and do business in any class of insurance as far as he does not infringe of any of the basic laws of the country.  The law also prescribed capitalization of insurance companies as follows:
Life £25,000 (N50,000)
- Non-life  £25,000    
- and Composite £50,000 (N100,000)
The second most prominent Act was the Marine Insurance Act 1961 which was enacted to regulate business of marine insurance in the country.
Insurance Decree 1976
This Act was to repeal the Insurance Companies Act 1961.
Other areas it addressed set the all embracing stage for the effective regulation and supervision of insurance business in Nigeria, marked a major land mark in the development of the Nigerian Insurance market.  The Act also, made provisions for Statutory deposit of 50 per cent of capital base with the CBN this was done as additional security to protect the public.  It also raised minimum paid up capital as follows:
-Life         N500,000
-General    N300,000
-Composite      N800,000
- Reinsurance     8,000,000
Insurance (Special provisions) Decree No. 40 of 1988.
This law addressed specific issues omitted from the 1976 decree in relation to:
- Insurable interest
- Assignments of life insurance
- Named beneficiaries to be stated in life insurance documents
- Disclosure requirements
Insurance Decree 1991
This consolidated all enactments between 1976 and 1988 and also increased minimum paid up capital to:
-General     N5m
-Life        N5m
- Composite     N10m
- Reinsurance     N50m
Introduced the security and development fund to be managed by the insurers Trade Association and instituted the No premium, no cover provision.
Insurance Decree 1992
This Act set up the Insurance Supervisory board and made provision for funding of the supervisory activities of the Board through contributions from operators.
National Insurance Commission Decree No 1 1997
This was the decree that set up the commission it also defined the objects, powers and functions of the regulatory authority and also gave very extensive powers to the commission.
Presently, a bill with the National Assembly seeking to review certain sections of the Acts.
The next was the Insurance Decree No 2, 1997.
This provided for new capital requirements as follows:-
- Life         N20m
-  General    N20m
- General & Special risks N70m
-  Composite     N90m
- Reinsurance     N150m
Under this provision capital deposited with CBN is predicted on solvency margin
Insurance Act 2003
This Act repealed the Insurance Act of 1997 and also increased the paid up share capital of insurance companies to the following:
-  Life        N150m
-   General    N200m
-   Composite     N350m
- Reinsurance     N350m
In addition, the commission was empowered to increase the minimum paid up capital from time to time as economic realities dictate.  This Act also made for the classification of insurance business into life business and general business in addition to giving immense powers for better supervision and control of the insurance industry in Nigeria.
The commissioner for insurance explained further that all these legislations have in once form or the other improved upon and ensured a healthy, viable and efficient insurance industry.
These laws have continued to impact positively on the industry and would continue to do so.
As a general rule, government intervention has been limited to:
Ensuring that the business is conducted in accordance with sound insurance principles, that insurance organizations are managed by competent and qualified officers, and that the insurance companies are viable and adequately capitalized so that they are able to meet their financial obligations to the insuring public.
He said the insurance industry of yesterday in spite of all the efforts of government could not be said to be perfect and was characterized by a lot of debilitating factors amongst which are:
ØBasic and unimaginative product
ØPoor service standards and practice and
ØPoor claims settlement records others are
ØPoor market orientation
ØLow quality customer contact staff and
ØUnder-capitalization and technically weak companies.
The NAICOM boss stated that these were further compounded by an unsupporting external environment characterized by: other factors.
He explained these factors to be poor economies (inflation, poverty and declining purchasing power) Socio-cultural beliefs (religious beliefs, culture of distrust and poor ethics)
Weak regulatory supervision and Absence of positive insurance culture resulting in low level of insurance awareness.
The constant regulation also led to the recapitalization exercise which was concluded last year.
The Act stated that “The commission may increase from time to time the amount of minimum paid-up capital stated in the section”
Going by the provisions of that Act the minimum capital base now became;
- Life      N2 billion
-   General     N3 billion
-   Reinsurance N10bilion
According to the commissioner, some of the major reasons adduced for the reforms in the industry are:-  that increase in capital base of insurance companies would enhance capacity retention of the risk generated in the country. It was also intended to position the industry to meet the challenges of the 45 per cent local content policy of the government in the oil and gas sector of the economy and also to engender confidence in the insuring public. Others are to increase pubic awareness of people about insurance and to facilitate local market that will attract direct foreign investment.
At the conclusion of the consolidation on February 28, 2007, out of the existing 104 insurance companies and four Reinsurance Companies, 49 Underwriters and two Reinsurers scale through.