The Insurance Act 2003 repealed the Insurance Decree No. 2 of 1997 while reenacting many of the provisions of the former law, it has several other new provisions. This report highlights some of the areas of differences between the former law and the new law.
Application of the Act
The former law exempted in Section 2b PENSIONS FUNDS AND PROVIDENT FUNDS from Insurance control law. Pension businesses are now included under Section 2 (2) (b) as a category of life business.
Classification of Insurance Business
Life business is categorized into three in Section 2 (2 a-c) of the 2003 Act as follows:
- Individual life business
- Group life insurance and pension business
- Health insurance business
Life business now includes new additions of pension business (Section 2b), health insurance business (Section 2(c). General business was reduced from 11 to 8 categories in Sections 2(3a-h).
The Act has reclassified Insurance business in Section 2 (1) (a&b) into the traditional two major categories i.e. Life Insurance business and General Insurance business and has removed the special risks business introduced by the Insurance Decree 1997.
Authorization to do Insurance Business
Under Section 4 no insurer can commence insurance business without prior registration with the National Insurance Commission (NAICOM).
Registration As Insurer - Section 6
Section 6g Requirement for Promoters interview
This is an additional requirement aimed at ensuring that only credible people are by law authorized to control insurance and financial institutions.
Cancellation of Registration - Section 8
The new law in Section 8(m) modified the aspect on claims. The Commission must have received and verified not less than 5 complaints of failure to pay claims promptly.
Minimum Paid up Share Capital - Section 9
The Act increased the minimum paid up share capital significantly.
Life Insurance business was increased from N20 Million to N150 Million
General Insurance business was increased from N20 Million to N200 Million
NAICOM published the list as required in Section 9 (3) (b) titled “List of Approved Insurers/Reinsurers in various dailies on March 24, 2004.
- Total number of reinsurance companies - 4
- Total number of companies registered for Life business - 5
- Total number of companies registered for General business - 50
- Total number of composite companies - 48
The enhanced capital has increased the retentions of underwriting companies and claims settling ability.
Section 9 (4) gives the Commission powers to increase the minimum paid up share capital without the need for an amendment of the law.
The Commission imposed additional requirements. One of such was the requirement of 1% “recertification fee” which is now the subject of dispute between the NIA and NAICOM.
SHARE CAPITAL TO BE DEPOSITED WITH CENTRAL BANK - SECTION 10
STATUTORY DEPOSIT FOR INSURERS INTENDING TO COMMENCE BUSINESS
The above requirement differs for an insurer intending to commence insurance business. In this case the insurer will pay 50% with the Central Bank - Section 10 (1) and after registration 80% of the statutory deposit shall be returned with interest not later than 60 days after registration with interest - Section 10 (2).
In the case of existing companies an equivalent of 10% of the minimum paid up share capital shall be deposited with the CBN - Section 10 (3).
Appointment of Chief Executive subject to the approval of the Commission - Section 13
The new act dispenses with the requirement of recognized professional qualification for Chief Executive officers.
Delivery of Policy Documents - Section 15
Policy documents must be delivered to the insured not later than 60 days after the payment of the first premium.
Approval of New Products - Section 16
Records to be kept by the insurer are listed in Section 17 and has been extended to include domestic or management report by external auditors.
Section 20 is in respect of provisions for unexpired risks and claims in respect of its general business
Sections 21 - 23 deals with reserves to be kept
Section 21 - dealing with contingency requires an insurer to establish and maintain contingency reserves to cover fluctuations is securities and variation in statistical estimates.
The Act in Section 24 (13) has enumerated what constitutes assets for the purpose of calculating solvency margin.
Section 22 is in respect of reserves for life insurance business.
Section 23 - Reserve of reinsurers
Section 24 deals with maintenance of margin of solvency in respect of other businesses other than life business being the excess of the value of its admissible assets in Nigeria over its liability in Nigeria.
Section 24 (13) lists the various admissible assets.
Section 26 states and list statement of Accounts which must be submitted in writing to the Commission not later than 30th June each year.
Section 27 deals with Life Insurance Accounts.
Section 29 requires an insurer transacting life insurance business to carry out an actuarial valuation once every three years.
Part vii i.e. Sections 34 - 49 of the Act deals with the registration and regulation of Insurance Agents, Insurance Brokers and Loss Adjusters.
Section 51 places restrictions on general increases in premium charged with respect to classes of insurance business made compulsory by law except with a prior approval of the Commission.
Section 52 empowers NAICOM to appoint an ad hoc committee to deal with matters relating to any class of insurance business made compulsory by law.
Part x i.e. Section 56 – 63 deals with insurable interest.
Section 64 makes mandatory the insurance of buildings under construction where more than two floors are envisaged. The insurance must cover the liability of the owner of the building in respect of the negligence of his servants, agents or consultant.
Section 65 makes the insurance of public building mandatory.
Public buildings are defined in Section 65(2) of the Act.
Section 65 (4) specifies that 0.25% of the premium collected is to be paid into a Fire Services Maintenance Fund to be administered and disbursed by NAICOM for the purpose of providing grants or procurement of equipment to institutions engaged in fire fighting services in the country.
Section 65 (7) of the Act stipulates that a person who intends to insure a Nigeria based asset has to place the risk with a Nigerian registered insurer. Any reinsurance of such risks is to be placed within the country and can only be ceded where the local capacity is inadequate.
Section 68 (2) - Liability arising from Insurance of third party property damage was increased to N1 Million.
Section 72 (2) Lists the various classes of domestic insurance businesses.
Section 73 deal with the protection of one interest of beneficiaries of retirement and pension schemes.
Section 99 Repealed Section 4 of the NICON Act 1969 and also terminated legal cession hitherto collected by Nigeria Reinsurance Corporation.