Insurance regulators and fight against unethical practices

Despite the success of the ‘No premium, No cover’ initiative of the National Insurance Commission (NAICOM), the insurance industry is still confronted with age-long unprofessional practices which has now brought division among operators in their opinions on the continued existence of such practices.

Among others, rate cutting and overriding commission are some of the unethical practices which many ‘desperate’ insurance agents and brokers engage in so as to get businesses.

Overriding commission in insurance is a commission paid by an insurer to an agent or managing general agent for premium volume produced by other agents in a given geographic territory. In reinsurance, it is a commission paid to an intermediary in return for placing a retrocession of reinsurance.

While rate-cutting is a decision by underwriters to reduce its main interest rate, usually to influence rates charged by other companies.

These practices are basically responsible for the inability of many companies to pay claims as at when due.

While some industry operators posited that rate-cutting is still high in the industry, especially among insurance brokers, to the extent that perpetrators now corner businesses belonging to ethical brokers, industry leaders, especially the regulatory body argued that given their strict supervisory role, the problem of rate-cutting and overriding commission no longer exists in the industry, instead they say operators now complain of over regulations.

A former president of the Chartered Insurance Institute of Nigeria (CIIN), Dr. Wole Adetimehin, said that the issue of rate-cutting in the industry is debatable.

In his judgment, Adetimehin, believed that rate-cutting can make a firm to continue to record underwriting losses when it is not generating enough premium and needs to pay claims.

In charging rates, he cited that if in a particular year, there were huge losses, which could destabilise the insurance pool, what the insurers should ideally do was to raise the rates the following season.

Claims experience, he added, would help to ascertain if a particular class of insurance was good or not, and if the rate should be reviewed upward or downward.

Also, Mr. Kehinde Borisade, Chief Business Analyst, North Waterloo Farmers Mutual Insurance Company, Canada, said rate-cutting was not prevalent in North America because it was a mature and evolving market that operated within an organised structure where regulation and code of ethics were taken very seriously.

According to him, flouting the law can lead to severe sanctions.

“An insurer has to seek rate change approval from regulatory authorities and adequate notice and reasons for rate changes must be given to the brokers and affected clients before changes are effected,” he said.

Borisade pointed out that Nigerian Insurance Association (NIA) in conjunction with all stakeholders could play a leading role in overhauling the rating system and structure of premium rating by creating a rating bureau.

The bureau, he added, would collect loss information, which could then be analysed to ensure premiums were adequate to cover losses, expenses, allow for profit and also maintain insurers’ solvency.

“NAICOM, NIA, Nigerian Council of Registered Insurance Brokers, CIIN and other stakeholders, as part of their code of ethics, can also establish whistle-blowing policies to expose errant companies,” Borisade said.

Meanwhile, Mr. Fola Daniel, Commissioner for Insurance, said that the problem of overriding commission had abated in the industry.

Daniel, who spoke at a 2-day retreat organised by the National Insurance Commission (NAICOM), noted that instead of overriding commission, what the industry complain about now is over regulation and too much inspection.

He mentioned that last year, the commission inspected some companies’ books over six times including the big players in the industry.

The commissioner said the regulator was so thorough in its inspection that once it sees any big business transacted in the accounts book of any firm, it would screen to see if there is any big amount paid out by the same company at the period.

He explained that once it discovers such payment, it must probe beneath the surface to trace the recipient of such amount and the insurance firm in question will be interrogated on what the amount was paid for.

“At Annual General Meetings, you hear them complaining that NAICOM is slamming penalties on them. I remember that in one of the forums we had with the chief executives, we apologised to them saying sorry, we have been slamming you with penalties that are not deterring you from misbehaving and they said sorry, we have repented, we will not do it again, but they are still doing it”, the commissioner stated.

Expressing the determination of the commission to severely punish the industry offenders who engage in  unprofessional misconduct this year, Daniel  said since NAICOM started, it had not fined any company up to N10 million but last year, the commission fined a company N62 million.

The NAICOM boss insisted that as people are becoming hardened in breaking the law, the commission is also re-strategising on how to effectively deal with them.

He said in doing this, the commission does not wish to kill the industry but is trying to restore sanity in the system.

Also, speaking on behalf of brokers in the country, Mr. Ayodapo Shoderu, President of the Nigerian Council of Registered Insurance Brokers (NCRIB), lamented that the trend is “killing” to the brokerage profession and that it must be condemned in its entirety.

Shoderu mentioned that it is the intention of the Council to always promote high ethical standards, adding that it is the only way the present generation of professionals could bequeath a sound and solid profession to the coming generation.

He said: “I am distressed to again address one of the unpleasant trends that have continually affected our operations as insurance brokers, and this is the pervasive incidence of rate cutting. You will recall that at the inception of my tenure, my team visited the Commissioner for Insurance who warned brokers that indulged in collecting Overriding Commission from insurance companies to desist from the act, warning that the Commission will not hesitate to sanction such unethical players.

“This and sundry issues we were to discuss more intensively with the Nigerian Insurers Association. It was our belief the forum should be a good platform to initiate steps towards upward review of the existing brokerage commission.

“Unfortunately, the meeting is yet to hold from the NIA end. It is more regrettable that the Council has continued to receive an avalanche of complaints about some ethical brokers losing businesses to those who continually cut rates or quote uneconomic rates.

“This trend is “killing” to the brokerage profession and must be condemned in its entirety. It is the intention of the Council to continually promote high ethical standards, seeing it as the only way the present generation of professionals could bequeath a sound and solid profession to the coming generation.

“Anything short of this is unacceptable. Also, I must stress that it will be most difficult for me or the Governing Board henceforth defend any member that violates the law or directive on insurance broking operation. To be fore warned is to be fore armed!”