Home Insurance Digest Why some insurance companies can’t pay dividends—NAICOM

Why some insurance companies can’t pay dividends—NAICOM

National Insurance Commission (NAICOM), has refuted allegation that fines and penalties it imposed on some insurance companies were responsible for the zero returns on their investments.
Federal Commissioner for Insurance and Chief Executive Officer, National Insurance Commission (NAICOM), Mohammed Kari who made the clarification in a key note address at the 2015 Champion Newspaper Insurance Day/Luncheon held on Monday, at Sheraton Lagos, blamed the precarious positions of the companies on alleged gross financial mismanagement. The theme of the event was “Sustaining Insurance Growth amidst Unfolding Mass Events”
According to a recent  media report ,  shareholders of insurance companies put  the blame on the inability of their companies to pay them dividends squarely on the 1% insurance development levy and then fines and penalties paid to NAICOM.
Kari said: “We have refrained from joining issues with the shareholders on the pages of Newspapers because we want to believe that they are deliberately being misinformed, misled and used as stooges by management of some insurance companies to cover up their gross financial mismanagement of these companies.”
He stated that NAICOM has never charged insurance institutions any levy outside the law that governs its operations, even as he challenged the management of all insurance companies to make public the charges they had incurred from NAICOM which is outside the extant laws governing the sector.
“I also dare them to make public the sum total of charges each company has paid to NAICOM at the end of a financial year in relation to their Gross Premium Income that has culminated in their inability to pay dividends to their shareholders.
“On the issue of one per cent insurance levy, it is imperative to note that this is a statutory provision of the law and not a regulation of NAICOM. For the avoidance of doubt, part IV, section 16 subsection (1b) of the NAICOM Act 1997 mandates all insurance institutions to remit one per cent of their gross premium to the Commission as insurance development levy. This system of funding of Regulators applies to most sector Regulators in Nigeria – The FIRS, CBN, SEC, NDIC, PenCom, among others.
“It may also interest the shareholders and indeed the general public to note that insurance is a regulated business. Operators who choose to play in the sector must be prepared to do so in strict compliance with the extant insurance laws.
“Fines and sanctions for any default/infraction by an operator are clearly spent out in the respective laws to the knowledge and understanding of the operators. The law may not be perfect, but as much as it remains the law, its provisions must be complied with and it is the responsibility of NAICOM, as the statutory regulatory agency of the sector to ensure every operator play by the rule”, he said.
He advised  shareholders of insurance companies to demand explanations from their respective managements to ascertain reasons they continue to incur sanctions from the regulator; incur high management expenses; fail to take advantage of the huge potentials in the market and as well, the various market development initiatives introduced by NAICOM to expand their businesses, grow their revenue income and improve on their bottom-line to guarantee enhanced dividend pay out to their shareholders. We are looking at these details and may be making them public in due course.
On the part of the Regulator, and beyond providing leadership and a sane regulatory environment for insurance entities to operate, NAICOM , Kari said, has continually introduced market developmental programmes and initiatives aimed at increasing penetration and assisting insurance institutions enhance their premium revenue generation and, by so doing, increase the industry contribution to the nation’s Gross Domestic Product (GDP).
He recalled that  the Commission embarked on the full implementation of the No Premium No Cover as enshrined in the Insurance Act 2003 at the beginning of 2013, as part of  efforts to forestall the insistent poor cash flow position of most insurance operators and the attendant inability to settle claims and other operational liabilities,
“Without mincing words, this initiative has significantly increased the cash flow of the insurance industry thus, enhancing its ability to settle genuine claims and other operational liabilities including, payment of dividends to shareholders.
“The Commission has also recently embarked on the sensitization of Ministries, Departments and Agencies (MDAs) of government on the compelling need for adequate insurance of their assets. We have equally canvassed the engagement of insurance professionals to handle their insurances to ensure they procure proper insurance policies.
“We have advocated the need for the MDAs to ensure adequate budgets for the insurance of their assets as well. We have entered into collaboration with relevant government agencies to enforce compliance of certain classes of insurance made compulsory by extant laws in the country.
“We believe that these drives are capable of providing the much required boost in the growth of the industry, he said.
In a lecture titled:”Issues in Insurance Penetration: Government and Private Sector [Partnership”, the Group Managing Director , Royal Exchange Plc, Mr Chike Mokwunye listed factors responsible for low insurance penetration in Nigeria  to include ; poor disposable income and a relatively weak economy; lack of awareness; competition through pricing/mispricing of risks; poor image due to lack of trust/perception about insurance by the general public (often given too much premium) and nature of insurance business and benefits, among others.
He said:  “In Nigeria, households, businesses – especially the small and medium scale enterprises and the informal sector – demonstrate low level of financial literacy.
“They often lack sufficient awareness of the risks to which they are exposed, the ability to correctly assess these risks and the knowledge of insurance products that are designed to mitigate the insurable risks.
“With the structure of the Nigerian economy where agriculture and the informal sector are growth drivers and contribute substantially to the GDP, and the participants in these sectors constitute a larger percentage of the working population, the integration of these sectors into the financial system and the development of insurance products and channels to the market that would cater to their needs are a necessity if reasonable insurance penetration is to be achieved.”
“The insurance industry has experienced rapid growth in premium income especially in the last decade; however, the impressive growth rate has not been accompanied by meaningful insurance penetration, which remained low at 0.30per cent  as at 2014.
“To resolve the problem of low insurance penetration, government must demonstrate genuine interest in the industry. Government actions should go beyond regulatory effort but should extend to providing structural and institutional framework required for insurance to strive in the economy.
“Government should partner with insurance companies, insurance institutions and other stakeholder to promote the development of insurance.”

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