05 Feb Overview of the Nigerian Insurance Industry
Insurance is the financial protection from contingent or uncertain loss. It includes a contract represented by a policy in which an entity or individual is reimbursed against losses such as bodily injury, loss or damage to property. Insurance encourages investment by minimizing funds or capital that entities need to have at hand for protection from unforeseen circumstances. It is one of the determinants of a successful economy.
Insurance in Nigeria is regulated by the National Insurance Commission (NAICOM). It is the body in charge of establishing standards for the conduct of insurance business in Nigeria and also in charge of approving standards, conditions and warranties applicable to all classes of insurance business.
There are two main classes of insurance by virtue of the Insurance Act 2003, Life Insurance Business and General Insurance Business.
Life Insurance is classified into three, namely;
- Individual Life Insurance
- Group Life Insurance and
- Health Insurance Business
General Insurance Business is classified into
- Fire insurance,
- Motor vehicle,
- Marine and aviation,
- Oil and gas,
- Bonds credit guarantee and suretyship insurance, amongst others.
Below are some of the insurance policies that are statutorily mandatory to individuals in certain circumstances in Nigeria;
- Motor Third party Liability Insurance (Section 68, Insurance Act, 2003)
This policy is compulsory for owners and drivers of vehicles, motorcycles and other special type of vehicles. It protects the insured from liabilities including death, damage to property or bodily injury of a third party arising from the use of the insured vehicle. In other words, it does not cover the individual or the car involved, instead it covers the liabilities arising from damage caused to a third party by the Insured.
- Employee Compensation Scheme Insurance (Employee Compensation Act 2010)
The Employee Compensation Scheme was established to guarantee adequate and prompt payment of compensation to employees and their dependents for injury, disability, disease or death associated with the employees’ employment. Every employer is required to make a minimum monthly contribution of 1% of total monthly payroll into the Employee Compensation Fund (“the Fund”) established for this purpose.
- Employee Group Life Insurance (Pension Reform Act 2004) PRA
All private sector employers with at least 5 employees are to participate in the scheme by making contributions to the employees’ retirement savings accounts (“RSA”). The employer is required to make a minimum contribution of 10% of the employee’s monthly emoluments whilst the employee contributes a minimum of 8%. Under the PRA, the employer is also required to maintain a group life insurance policy for employees for an amount representing the minimum of three times the annual total emolument of such employees.
- Occupiers Liability Insurance (Section 65 Insurance Act 2003)
This policy relates to a tenement house, hostel, building occupied by tenant, lodger or licensee and any building to which members of the public have ingress and egress for the purpose of obtaining educational or medical service or for recreation or transaction of business. It is a mandatory insurance policy for owners or occupiers of premises. It covers their liability with respect to the use of the premises by third parties which may result in injury, loss or damage to property, or even death.
- Health Care Professional Indemnity Insurance (NHIS Act 1999)
This protects professionals against liabilities that may arise as a result of neglect, error or omission committed in the course of rendering services to their clients. It includes professionals such as medical doctors, lawyers, accountants, inter alia.
- Builders Liability Insurance (Section 64(1) Insurance Act 2003 & Lagos State Building Control Law 2010)
This policy relates to contractors and owners of buildings with more than 2 floors. It requires the provision of compensation to workers or members of the public in case of injury, loss of life, or damage to property at construction sites arising from the negligence of the owner or contractor or their servants, agents or consultants.
Although, there are provisions for these policies, there is still a low insurance penetration level in Nigeria due to the lack of trust and confidence in insurance companies as well as the limited knowledge of the public relating to same. Drivers such as emerging economic trends, regulatory developments including tax reforms and the emergence of new risks and technology are some of the changes affecting the insurance industry.
However, it is important to note that these changes may bring disruptions but they may also be used as opportunities for competitive advantage and the reposition of businesses for the future. Thus, development of insurance in Nigeria is imminent.
Legal advice on the financial position and regulatory compliance of the companies is also very crucial and must always be addressed before any form of penalties are incurred.
Berkeley legal is capable of advising on the above and other legal areas relating to the insurance industry.
The information provided in this article is for general informational purposes only and does not constitute legal advice. If you require specific legal advice on any of the matters covered in this article please contact email@example.com