Insurance companies in the country who fail to pay genuine claims, risk losing substantial part of their cumulative N30 billion statutory deposits, while managing directors of the underwriting firms will also face sack, LEADERSHIP can exclusively reveal.
Findings revealed that the 58 registered insurance companies in the country have cumulative statutory deposits of about N30 billion kept with the Central Bank of Nigeria (CBN).
Following numerous complaints from the insuring public that some underwriters are not paying claims, insurance industry regulator, the National Insurance Commission (NAICOM), has now commenced the process of paying those genuine claims from the statutory deposits of the erring insurers kept with the apex 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 the balances in its 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 pay claims also faces negative image as the regulatory body has vowed to publicise the names of the affected companies.
Moreover, the managing directors of such firms will lose their jobs to serve as deterrent to other companies fond of not honouring genuine claims.
LEADERSHIP findings further showed that rate-cutting is partly responsible for why some underwriters could not pay genuine claims, as they are not charging the right premium on policies, but instead cutting the rate below the standard in a bid to get that business from their competitors.
Rate cutting arises in the industry as a result of unhealthy competition among insurers in the process of chasing the same line of business.
It was learnt that when premium commensurate with a policy is not charged, claims would become extremely difficult for such insurers to pay, hence, the reason why some of them are not compensating their 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 claims arises, they are always fond of giving unnecessary excuses for why they would not honour claims obligation.
The inability to pay claims by these insurance companies is denting the image of the insurance industry, necessitating the punitive action of the regulatory body 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 complains of failure of insurance companies to settle genuine claims and discharge claims to policyholders.
“These sad failure 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 indemnity regain her former status after the occurrence of insured incident. This is our first obligation to our clients.”