The nation’s insurance industry is edging closer to ending the era of premium receivables which resulted in huge amounts of bad debts before the enforcement of the ‘No Premium No Cover Policy’ by the National Insurance Commission (NAICOM), BusinessDay investigations reveal.
Enforcement of this policy in the last three years has reduced premium receivables on insured risks on the books of insurance companies from about 60 percent in 2012 to less than 10 percent today, analysts say.
Wale Onaolapo, managing director, Sovereign Trust Insurance plc said the enforcement of policy
bared underwriting companies from recognising in their books premium receivables. “So, what you find are receivables that are within a period of 30 days which are business from insurance brokers and have been covered by credit notes,” he said.
Onaolapo further observed that the policy has been very helpful, having brought receivables to a negligible percentage.
“It has succeeded in cleaning up the books of underwriting companies, unlike what we had before the enforcement of the policy,” he added.
Chike Mokwunye, group managing director, Royal Exchange plc said “For me, enforcement of this policy is the best thing to have happened to the industry in the last five years.”
Mokwunye said the issue of unpaid premium is gone and there is a enough liquidity now to help operations and it has enhanced investment.
According to him, if an underwriter gets business from a client and after one month premium is not paid, the business is discontinued.
“The impact is that no insurance company can use one client’s long term credit for business as marketing edge for other companies.”
For me, it is a turning point for the Nigerian insurance industry, Mokwunye observed.
Bayode Samuel, managing director, NICON Insurance Limited said insurance companies make huge provisions for outstanding premiums in their books annually, and delays or non-payment of these premiums, invariably affect their ability to make profit, pay dividends to shareholders and attract investments to sustain growth.
He however said the policy of ‘No premium no Cover’ has impacted positively on the cash flow of underwriters and has drastically reduced, if not totally eliminated outstanding premiums that were hitherto written-off as bad debts.
NAICOM had on January 1, 2013 commenced the enforcement of sanctions against insurance operators who issue polices or grant covers in violation of section 50 (1) of the Insurance Act 2003, which stipulates 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 the insurance risk, unless the premium is paid in advance.”
The commission then noted that only insurance cover for which full premium has been received in advance, either directly by the insurer or through a duly licensed insurance broker, are recognised as insurance contract in the eyes of the law.
“Henceforth, no insurer shall grant insurance cover without having received full premium or premium receipt notification from the relevant insurance broker.”
This was followed with sanctions as well a new guidelines on remittance of returns to both underwriters and brokers, which further facilitated notices and availability of statistics to the Commission for effective monitoring of compliance.