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2013: 10 Major Ways ‘No Premium No Cover’ Will Affect Insurance Companies

With effect from January 1, 2013, Insurance transactions in Nigeria will be on strictly “No Premium No Cover” basis analyses the implications of this on Insurance Companies (Insurers)

#1: No Premium No Document. 

Insurance Companies can no longer issue documents except premium is paid in advance. This implies that the practice where underwriters hold cover until final instruction is given by the broker is null and void except premium has been paid in advance.

#2: Outstanding Premium No Longer Recognized As Income

Unlike in the past where outstanding premium was recognized as income in the books of the insurer, from 2013, this is no longer possible. The huge level of outstanding premium reported in the financial statements of insurance companies has been a source of worry to the regulator and industry players

#3: Breach of No Premium No Cover Directive Sanctionable

It is illegal for any insurance company to grant cover without having received premium or premium notification from broker. Such insurer shall be liable to fine on N50,000 for each policy issued without collecting premium in advance

#4: Backdating of Cover Forbidden

It is the practice in the Nigerian Insurance industry for insurers to receive premium later in the  policy period (say June) for a cover which is assumed to have been incepted much earlier (say in January) in the same year. Most public sector insurance accounts are run this way and this encourages corruption and unethical practices. For instance, the Head of  Service Group life assurance scheme was concluded sometimes in August 2012 but cover backdated to January, 2012.  Part-payment was made in November, 2012 and balance premium still being expected. However, from January 1, 2013, this is no longer possible. Cover begins on the date of premium payment or the next day.

#5: Part-Payment or Installmental Premium Payments Not Allowed

NAICOM directive forbids premium payment in installments. Therefore, any agreement to pay premium in installments is null and void and sanctionable

#6: Insurer Must Disclose Penalties In Annual Accounts

All penalties imposed on an insurer must be disclosed in its Financial Statements and reported to the Shareholders

#7: Duty On Insurance Company In Co-Insurance Situation 

In the case of Co-insurance (where more than one insurer is covering a risk), the Lead Underwriter (insurer) must deal as a broker i.e remit premium to co-insurers within 30 days of receipt and must  must notify Co-insurers of premium received within 48 hours.

Failure to remit within 30 days to co-insurers is 10 times the amount of premium not remitted. Failure to Notify co-insurers is fine of not less than N250,000 in each case.

#8: Insurers To Render Quarterly Returns of  Un-remitted Premium to NAICOM

Insurance companies must, not later than 30 days after each quarter, render quarterly returns of all premiums which brokers notified having collected but yet to be remitted to insurers.

Failure to render this return, the insurer is liable to a fine of N5,000 for each day the violation continues

#9: Premium Remittance to Reinsurers

All premium Remittance must be in line with re-insurance contract and evidence of remittance must be shown to NAICOM. Also, premium remittance is a condition for Reinsurer’s admittance of liability

Facultative Reinsurance placement must be paid within 14 days of premium receipt from broker or insured

#10: Time on Risk Cover Allowed

Time on Risk can only be for short periods and by prior agreement.

In the past, underwriters could calculate Time on risk premium for cover for which part premium had been paid but due to some reasons, the balance premium is unpaid.

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