Insurance companies in the country who fail to pay genuine claims, risk losing a substantial part of their cumulative N30 billion statutory deposits, while managing directors of the underwriting firms will also face removal, this was revealed by reliable inside sources.
Findings revealed that the 58 registered insurance companies in the country have cumulative statutory deposits of about N30 billion warehoused with the Central Bank of Nigeria (CBN).
Following numerous complaints from the insuring public about failure by some underwriters to pay claims, Nigeria’s insurance industry regulator, the National Insurance Commission (NAICOM), has now commenced the process of settling these genuine claims from the statutory deposits of the erring insurers warehoused with Nigeria’s Central Bank.
Statutory deposits represent amounts deposited with the CBN in accordance with section 9(1) and section 10(3) of the Insurance Act 2003.
The cash amount held is considered to be restricted cash, as the insurers do not have access to these sums in their day-to-day activities.
According to the Insurance Act, 2003, in the case of existing companies, an equivalent of 10 per cent of the minimum paid-up share capital shall be deposited with the CBN.
To this effect, any company whose statutory deposit is used to settle claims also faces a negative portrayal of its image as the regulatory body has vowed to publicly name the affected companies.
Moreover, the managing directors of such firms will lose their jobs to serve as a deterrent to other companies engaged in the act of not honouring genuine claims.
findings further showed that rate-cutting is partly responsible for why some underwriters are unable to pay genuine claims, as they fail to charge appropriate premiums on policies, but rather engage in rate cutting below the industry standard in a bid to attract more business than competitors.
Rate cutting arises in the industry as a result of unhealthy competition among insurers in the process of chasing business prospects.
It was learnt that when premiums commensurate with a policy are not charged, claims would become extremely difficult for such insurers to pay, hence, this is the major reason many insurers fail to compensate clients.
Insider sources revealed that in some cases, policy rates are cut by 100 per cent, as underwriters compete for the same business and when payable claims arise, these Companies throw up various reasons to avoid honouring their obligation.
The inability to pay claims by these insurance companies seriously dents the image of the insurance industry as a whole, necessitating the punitive action of the regulatory body in order to rescue the sector from collapse.
Confirming the development, the commissioner for Insurance, Alhaji Mohammed Kari, said the regulatory body is alarmed by the incessant complaints of failure of insurance companies to settle genuine claims and discharge claims to policyholders.
“These sad failures include companies inability or refusal to settle inter-company balances. These claims and balances have risen to an unacceptable level where again we are now required to withdraw the self-regulation option given operators to total enforcement of the law”, he said.
Addressing the operators, he noted: “Our persistent self-inflicted failure has distracted investment from our industry. It has increased skepticism in our consumers and most tragically it has attracted ‘clever and ingenious people’ into our assumed professional undertaking.”
Speaking on why insurance firms must, as a matter of urgency, pay claims, the managing director, Anchor Insurance Company Limited, Mr. Mayowa Adeduro, said, “Insurance is to ensure that an indemnitee regains her former status after the occurrence of the insured incident. This is our first obligation to our clients.”
This article was earlier posted here
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