Deepening insurance penetration with compulsory insurances, by Francis Ewherido
By Francis Ewherido
One of the biggest challenges we have with deepening insurance penetration in Nigeria is the near absence of insurance culture. The insurance culture is either not there or not entrenched. We do not see insurance as a way of life that it is. But we live in a very uncertain socioeconomic and political clime, which makes insurances even more imperative. Insurance is life and ordinarily you cannot avoid insurance anymore than you can avoid living. But there are some classes of insurance that are even more important to life, especially lives of third parties. Consequently, government has made these classes of insurance compulsory. Perhaps we can start entrenching the insurance culture in Nigeria by strict enforcement of compulsory insurances. Ordinarily, you want people to take insurance out of conviction and on their own volition, but if third parties are involved and some classes of insurance have been made compulsory to protect them, then they should be enforced.
Compulsory insurances are about third parties, who might die, suffer bodily injuries or property damage as a result of actions, inactions, negligence or carelessness of the insured. The insured, on his own, might not have the resources to indemnify (compensate) the affected third parties in the event of an incident likely to lead to legal liabilities, so these insurances are made compulsory to ensure that affected third parties get compensation.
The commonest of these classes of insurance is Motor (Third Party) Insurance. This insurance protects the insured against third party legal liabilities for death, bodily injuries and property damage whilst using his vehicle on the road. There is no limit of liability for third party death and bodily injuries because life is invaluable, but underwriters (insurance companies) have parameters for calculating the benefits. Relatives of a deceased third party, who earned N1m per annum, for instance, cannot get the same compensation as relatives of a third party, who earned N12m per annum, in the event of death. The limit of liability for third party property damage is N1m, but an insured can increase the limit with payment of additional premium.
Motor (Third Party) Insurance premium is N5,000 for private vehicles and N7,500 for commercial vehicles. These sums should be within the reach of every vehicle owner. Unfortunately, it is alleged that only one in every eight motor insurance certificates in Nigeria is genuine. There were about 11.5 million vehicles on Nigerian roads as at 2017, according to the Federal Road Safety Commission. This means that if all motorists were to get genuine motor insurance, about 10 million additional Nigerians will automatically have genuine motor insurance and be added to the insuring pool. This automatically deepens insurance penetration.
Beyond frustrating efforts to deepen insurance penetration and revenue losses to government and the insurance industry, fake motor insurances defeat the purpose of compulsory Motor (Third Party) Insurance because third parties who die, suffer bodily injuries or property damage might not get compensation from the liable motorist because he does not have genuine insurance. To ensure that your motor insurance is genuine, please go the Nigerian Insurance Industry Database (NIID), enter your insurance policy number or vehicle registration to verify your motor insurance status.
The second class of compulsory insurance is Professional Indemnity Insurance. Professional Indemnity Insurance (PII) is a form of liability insurance that helps protect a wide range of professionals and companies from bearing the full cost of defending themselves against a tort claim made by a client and damages awarded in such a civil lawsuit in the conduct their business. Usually, professional indemnity is compulsory for doctors and medical practitioners, medical establishments, insurance brokers, lawyers, chartered accountants and some other professionals, but many of these professionals do not have this compulsory insurance thereby reducing insurance penetration.
In addition, Section 45 of the National Health Insurance Scheme Act of 1999 specifically requires all medical professionals, institutions and centres to have in place Professional Indemnity Insurance. The law makes provisions for compensation for the NHIS patients who suffer death, sickness, permanent disability, partial disability and injury from mistakes, negligence, errors of commission or omission of insured medical practitioners and institutions. Many medical personnel and establishment do not have this all-important compulsory insurance. And they get away with it because their patients have not held them accountable and nobody has made strenuous attempts to enforce it.
The third of the compulsory insurances is Occupiers’ Liability Insurance. Section 65 of the Insurance Act of 2003 requires the owners or occupiers of every public building to be insured against liability for loss or damage to property of third parties, and death or bodily injury to third parties caused by collapse, fire, earthquake, storm or flood. The Act defines a public building as one to which members of the public have access for educational, recreational, medical and commercial purposes. You can imagine the level of insurance penetration if all government buildings at the three levels of government, shops, malls, restaurants, offices and other buildings where members of the public have access were to take an Occupiers’ Liability Insurance. Beyond the penetration, so much wealth and so many jobs will be created.
The fourth compulsory insurance is Insurance of Buildings Under Construction. The Insurance Act of 2003, Section 64, requires every owner or contractor of any building under construction with more than two floors to take out an insurance policy to cover his liability arising from construction risks such as his negligence or that of his servants, agents or consultants, which may result in death, bodily injury or property damage of workers on site or members of the public. This insurance policy also covers liability for collapse of buildings under construction. A census of buildings of three floors and above under construction has shown that many owners and contractors of these buildings do not comply with this compulsory insurance. Meanwhile, some of such buildings have collapsed over time and third parties who suffered bodily injuries and families of those who lost their lives had minimal or no compensation. Enforcement this compulsory insurance will certainly deepen insurance penetration.
The fifth compulsory insurance is the Group Life Insurance for company employees. Group Life Insurance gained traction since the PENCOM Act of 2004 as amended in 2014 made it compulsory for employers of labour in the private and public sector to provide a group life cover for their staff. Since then the number of companies with Group Life Insurance has quadrupled. Beyond being mandatory for companies under the PENCOM Act, you cannot bid for government businesses and those of some big companies without a Group Life Policy for your employees. This has really helped in deepening insurance penetration and growing the insurance industry in terms of premium income and creation of employment. It has also helped to drive the argument that other compulsory insurances will also gain traction if there are government policies to compel potential policy holders to have these compulsory insurances. But there is still a long way to go for even group life insurance because many companies still do not have Group Life Policy for their employees.
Finally, though no longer under the purview of insurance companies, is the Employers Liability Insurance. Employers Liability Insurance, as stated by the Employee Compensation Act of 2010 (which repealed the Workmen Compensation Act of 1987), requires every employer, within the first two years of the commencement of the 2010 Act, to make a minimum monthly contribution of 1% of the total monthly payroll of employees to the Employee Compensation Fund. The fund is designated to pay adequate compensation to employees or their dependants for any death, injury, disease or disability arising out of or in the course of their employment. The Nigeria Social Insurance Trust Fund (NSITF) is saddled with the power to implement this act.
If all these compulsory insurances are strictly implemented, the insurance penetration in Nigeria will move from the current 0.7 per cent to over 1 per cent, while gross premium income of all Nigerian underwriters will cross the N1trillion line thereby contributing more to Nigeria’s Gross Domestic Product. According to National Pension Commission sources, there were 7,823,911 registered contributors to the pension scheme as at November 30, 2017. This represents 4.34 per cent of a population of 180 million Nigerians. Meanwhile only 0.7 per cent of Nigerians have insurance, of which pension used to be a part! Aggregate premium income of all insurance companies in Nigeria was N380b in 2016; meanwhile pension fund as at December 2016 was N6,164.76bn!
Specific government action and support are needed. Until 2004, the pension fund of all underwriters put together was less than N1trilion. Then in 2004, government enacted the PENCOM Act. The act took pension away from underwriters, which was a heavy blow to the insurance industry, but that is not the point here. The point is, since 2004, pension fund has grown to N7.5t as at the fourth quarter of 2017. This could not have been possible without specific action from the government. These pension statistics bring to fore the inherent potentials of the Nigerian insurance industry even if only compulsory insurances are enforced.
When specific actions are taken on compulsory insurances, it will be a win/win situation for everybody: government gets more revenue via company and other taxes, state government get more revenue via PAYE, the insurance industry grows in terms of premium income and number of employees, more Nigerians enjoy the benefits of insurance, while third parties who die, suffer bodily injuries or property damage get adequate compensation.
The insurance industry also needs to do more; we need a multi-pronged approach to redress this appalling and embarrassing situation. The various professional bodies within the Nigerian insurance industry, especially the Nigeria Insurers Association and the Nigerian Council of Registered Insurance Brokers, more than ever, need to pull human and material resources together. The regulatory body, the National Insurance Commission (NAICOM) also needs to be actively involved and, in fact, lead the charge in the enforcement of compulsory insurances.
Mr. Francis Ewherido, the Managing Director of Titan Insurance Brokers Limited, wrote from Lagos.