Nigeria: Mandating coverage

More robust enforcement of mandatory insurance laws is set to increase Nigeria’s insurance penetration rate, which currently stands at less than 10%. In August, the National Insurance Commission (NAICOM), the regulatory agency for the sector, announced that starting this month it would implement compulsory insurance laws that have been on the books – but largely unenforced – for many years.

Between 1987 and 2004, some 16 types of insurance were made compulsory. Of these, six – group life, employers’ liability, builders’ liability, occupiers’ liability, motor third-party and health care professional indemnity – are capable of producing significant additional premium revenue. NAICOM identified enforcement of these six products as one of four “key issues” of the Development and Restructuring Initiative (MDRI), a sector-wide reform programme launched by the federal government in 2009.

NAICOM initially set a deadline of March 2011 for compliance with compulsory coverage, but this was delayed, in part due to preparations for the national elections. In early August Adamu Balanti, the director of research, statistics and information technology for NAICOM, announced at a meeting of the MDRI steering committee that enforcement of compulsory insurance would begin in September.

Chief Yemi Soladoye, a consultant on the MDRI project, added that enforcement teams, which will carry out nationwide inspections of organisations and property affected by the insurance laws, would be trained during August and September. According to earlier statements by Fola Daniel, the commissioner for insurance, these teams would include representatives from the Nigerian police, the Federal Road Safety Commission and the Council of Registered Builders of Nigeria, as well as federal and state town planning authorities.

Since the MDRI was launched in 2009, the federal government has made efforts to educate the public – both individuals and companies – on the importance of insurance. In October 2010, the regulatory agency organised a series of roadshows by local insurance companies in Lagos. The commission provided pamphlets and other information materials to be distributed to the public, with five groups of insurers covering different routes across the city.

Kola Ayanfenwa, a senior manager of marketing at NICON Insurance, told the local press that this type of awareness campaign should be carried out more often. “I am hoping that efforts will be made to carry it out on a quarterly basis to enable us to sustain the tempo we have already generated by this first outing,” he said.

However, despite these efforts, anecdotal evidence suggests that many people remain unaware of the laws. For example, according to research published in July by Business Day, a daily newspaper, many property owners and landlords are unaware that builders’ and occupiers’ liability insurance is mandatory. The report added that landlords with whom the newspaper spoke had yet to be approached by insurance agents or representatives of NAICOM. As a result, they understand neither the benefits of holding insurance nor the penalties for non-compliance, which can include prison sentences of up to three years and maximum fines of N250,000 ($1600).

Similarly, group life insurance, despite its being compulsory, remains under-utilised, although this may be more of an issue of unwillingness to pay rather than lack of awareness. According to the Pensions Reform Act of 2004, group life coverage is mandatory for any company with five or more employees, although the high cost of premiums has been a challenge.

As a result, insurance companies have sought to improve compliance through a number of ways. Earlier this year, Ikechukwu Emezi, the deputy general manager for marketing at African Alliance Insurance, called on NAICOM to adopt “name-and-shame” tactics to compel private sector employers to comply with the law

Emezi also noted that insurance services – unlike ordinary consumer goods – must be actively sold and not simply purchased. That is, even if insurance is beneficial, the customer must be persuaded to spend his or her money on it. “Naturally, all over the world insurance is sold, not bought. It is unlike other commodities where if your toothpaste is exhausted you can walk into a shop and buy one, but in the case of life or any other insurance product, you have to actually talk to people and convince them that it is very necessary that they should have it,” Emezi said.

To ensure that laws mandating compulsory insurance coverage are effective, there must be both meaningful penalties for non-compliance and a greater awareness of the benefits provided. In a country like Nigeria, where insurance penetration is still extremely low, this requires a significant effort on the part of not only NAICOM but the insurance companies themselves.