Insurers to drop profit as NAICOM stops banks, airlines from insurance products

There are strong indications that insurance companies in the country are set to lose billions of Naira as the National Insurance Commission (NAICOM) has suspended financial institutions, telecommunication companies and airlines from selling insurance products, unless these distribution agencies are licensed by the commission to do so.

As it stands, none of these agencies is registered with the commission.

Before now, Business247 News Online learnt that most insurance firms have partnership agreement with banks, airlines and telecoms, on Bancassurance, mobile insurance and so on which is already yielding the underwriters several millions of Naira on a monthly basis.

Moreover, investigation shows that the banks’ owned insurance companies, who rely much on the strength of their parent companies to sell their products, would be the main casualty of this new directive.

Moreover, companies who had partnered the big telecommunication outfits, such as Glo, MTN, Airtel, on mobile insurance will have to terminate such transactions that is generating the benefiting insurers several millions of naira on a monthly basis, a development that is currently leading to grumble among operators.

The consequence of this development, industry watchers said, is severe and could lead to a drastic reduction in premium generation for insurers if the situation is not urgently addressed adding that the multiplier effect of this policy is better imagined.

The Commissioner for Insurance, Alhaji Mohammed Kari had yesterday evening, said his commission was ready to sanction any of the 58 insurance companies in the country who use any of the aforementioned outlets, as channels to sell their products and services, unless these distribution agencies are licensed by the regulatory body.

The commissioner equally disclosed that all previous and current relationships of underwriting firms with the aforementioned agencies are no longer valid starting from yesterday.

He equally announced that the bancassurance arrangement between the banks and insurers has equally been put on hold.  He stressed that any insurer who goes against this directive would be heavily sanctioned by the regulatory body.

He stated that the commission had asked banks acting as agency or referrals of insurance firms to offer themselves for licensing by the commission, but got a letter from the Central Bank of Nigeria (CBN) last week, saying, NAICOM has no power to licence any institution within the purview of the CBN.

According to him, “Last week, we received a letter from CBN stating that NAICOM is not in a position to licence banks to do anything. And we feel referrals or any agency of insurance companies must be licensed. We cannot go ahead on bancassurance for now. We will continue to engage CBN on this to see the need to allow banks to enjoy referral option and earn commission from selling insurance products to their clients. However, as from today (yesterday), all relationship of insurance companies with telecoms or banks on referral option is no more valid.”

Insurance companies utilising or intending to utilize any institutions including banks to sell its products, he said, shall ensure that those agencies have been licensed by the commission ‘as we have resolved for strict compliance with this directive and we will give appropriate sanction on erring insurance firms.’

“This directive is the requirement of the law and it affects airlines, telecommunications companies and financial institutions. Referral agencies must be licensed because that is the law.  We have only released a draft guideline for the banking industry on the Bancassurance which is the one that is generating rancour but we will resolve it with the cooperation of relevant stakeholders,” he stressed.

Saying NAICOM, as a regulator, was going to strictly operate by the rule, he said the regulatory authority has allowed insurance distribution agents to operate in a bid to deepen insurance penetration, but that it is now time to conduct this business within the stipulated rules and regulations.

Stating the need to implement this rule, he said: “There is a bank and an insurance company that signed 10 years exclusive agreement and our proposal was that it must not be more than two years agreement, so that it can be renewed from time to time for the benefit of the consumers.

“We also got information of an insurance company that has already paid a bank, commission in advance. These are totally irresponsible on both parties, though we are not responsible for banks or any other institutions, but for the insurance companies who are licensed by us and that is what we are doing.”

Meanwhile, efforts of Business247 News Online to speak with insurance operators on this new directive, proves abortive as they declined to react on the matter, at least for now.