Business News of 2014-06-11

NIC’s ‘No premium, no cover’ plays up smoothly

The National Insurance Commission (NIC) is reporting encouraging response to its directive to insurance companies to only provide cover for risks which have been fully funded or paid for.
The Head of Supervision at the NIC, Mr Michael Kofi Andoh, told the GRAPHIC BUSINESS, in an interview that the compliance rate had been very good so far, in spite of a few teething challenges.
“For the clients, a few of them complained initially but they have come to understand what it is all about; that it is in their own interest to do it and I’m sure that at the end of the day, we are all going to be better off,” Mr Andoh said. The NIC from April, this year, started enforcing its cash and carry system when it asked all insurance companies to provide cover for only indemnities that had been fully paid for.
The measure meant that for all types of insurance, especially non-life insurance, customers had to pay premiums upfront to receive cover for the risks they have insured against.
The directive became necessary following several moral suasion moves in the past to get insurance companies to eschew price undercutting, lofty discounts, as well as provide insurance cover on credit, a phenomenon where many customers took advantage to refuse the payment of outstanding indebtedness to insurance companies once they had consumed the service.
The situation has led to a huge outstanding premium debts standing on the books of many insurance companies. That threatens their liquidity and solvency, and hence prompt payment of claims. Although figures for 2013 were still being compiled, the situation is not expected to be largely different.
Mr Andoh said with such a staggering figure, the NIC had to put its feet down to correct the anomaly and also save the insurance industry. The benefits of the cash and carry system include adequate and prompt payment of claims. Insurance agents will also get commensurate commissions, while re-insurers will receive premiums with every player down the value chain getting healthier.
So far, the NIC has had cause to bear its teeth at recalcitrant insurance companies. It has sanctioned about four companies to various sums of fines to whip them in line with the directive.
The Chairman of the No Premium, No Cover Implementation Committee, Mr Larry Jiagge, told the GRAPHIC BUSINESS, last month that the committee recommended penalties paid by any insurance company which failed to comply with the claims payment. It also proposed that all insurance companies were required to collect those outstanding premiums by December 31, 2014, or write them off, and thereafter maintain books devoid of premium debts.
Insurance penetration is currently low in the country, valued at about 1.8 per cent of total productivity of the economy (GDP). Besides aggressive and coordinated sensitisation and education of the general public, another means of deepening the insurance business is prompt payment of claims.
“Most non-life companies have huge premium debtors on their balance sheets. These are premiums that are due from policy holders and have not been collected by the insurance companies. This creates serious challenges for the insurance company,” Mr Andoh explained.
He said that situation would create liquidity and solvency problems for the insurance companies, saying that the “No premium no cover” policy, which required paying insurance premiums upfront in full, was the preferred approach to insurance. “The insurance companies invest those monies so that in the event of a claim, which is multiples of your premium, the insurance company will find the money to pay the claim,” the head of supervision at NIC said.
He added that doing insurance on credit would undermine their ability to pay claims and that would affect the confidence of the public in the system. “Once insurance companies begin to pay claims adequately, promptly and willingly, then people will understand the essence of insurance because the essence, from the policy holder point of view, is to get claims in times of trouble.”
The NIC has also issued guidelines on micro insurance to enable the insurance companies to reach out to people in the informal sector, who are normally not covered by the conventional insurance products. The NIC is also working on agricultural insurance since the sector was until recently the biggest sector in the economy. An ‘agric insurance’ will also help to hasten insurance penetration in the country.
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