Reps pass Insurance reform bill, set minimum capital base

The House of Representatives on Wednesday passed the bill to reform the insurance sector in Nigeria, seeking the recapitalisation of insurance companies in the country, while providing stiffer penalties for defaulters.
The law, which recognizes two classes of insurance in the country (life and non-life insurance), increase minimum capital requirement across the various classes of insurance.
The bill, when signed into law, will repeal the Insurance Act 2004, the Marine Insurance Act, 2004, the Motor Vehicle (third party insurance) Act 2004, the National Insurance Corporation of Nigeria Act, 2004 and the Nigeria Reinsurance Corporation Act 2004
The bill which was passed by the Senate on December 17, 2024 will regulate the Insurance industry and protect the interest of policy holders, prospective policy holders and other stakeholders under insurance policies in a way that are consistent with the continued development of a viable competitive and innovative insurance industry.
It will also determine who carries out insurance business in Nigeria and requiring insurance operators, directors and management of insurance operators to meet certain suitability requirements.
The proposed law provides that anybody who wants to run an insurance business in Nigeroa must a minimum capital base stipulates for the segment or insurance.
For those involved in non-life insurance business, the law puts the capital at N15 billion or a risk based capital to be determined by the commission, while for life insurance, the person must have a capital base of N10 billion or a risk based capital to be determined by the commission, and reinsurance attracts a capital base of N35 billion.
It said further that in determining the risk based capital required, the commission shall take into consideration the capital for insurance risk, market risk, capital risk and operational risk and apply such capital charges on assets and liabilities as shall be determined from time to time.
It defined capital charges as the proportion of capital required to take care of the potential deterioration not the economic value of an asset and the uncertainty in estimating liability due to the occurrance of an adverse event.
According to the bill, operating an unlicensed business on the country will attract a conviction of N25 million or two years imprisonment for an individual and N50 million or ab imprisonment of two years for a company or both.
It also empowers the National Insurance Commission to cancel the license of any iNsurance company that failed to conduct insurance business in accordance with sound insurance practice or failed to satisfy the capital or solvency requirements as prescribed by the commission or has ceased to carry on the business of insurance and the primary purpose for which it was registered for at least one year in Nigeria.
Other conditions listed in the bill for cancellation of a license include having a judgement debt in relation to a judgement obtained against it from a court of competent jurisdiction in Nigeria and remain unsatisfied for 90 daysboe is carrying on simultaneously the insurance business with any other business which is detrimental to its insurance business.
Refusal to submit to an examination not it’s books as provided in the bill, failure to comply with the provisions of the bill relating to filing of returns with the commission, failure to maintain adequate reinsurance arrangements and treaties in respect of the category of insurance business which the insurer or reinsurance is authorised to transact are other conditions for the revocation of license.
According to the law, no insurance company is allowed to open or close any branch office or representative office anywhere within or outside the country without prior approval of the commission, adding that any insurer intending to close any of its branches or subsidiaries shall give notice in writing to the commission of its intention at least six months before the date of intended closure.
The law also state that anybody intending to commence insurance business in Nigeria after the commencement of the law shall deposit the equivalent of 50 percent of the minimum capital requirements with the Central Bank of Nigeria, adding that failure to deposit the statutory deposit shall constitute a ground for cancellation of the license.
Upon registration as an insurer, it said 80 percent of the statutory deposit shall be returned with interest not later than 60 days after registration, while in the case of an existing company, an equivalent of 10 percent of the minimum capital stipulated in section 15 shall be deposited with the Central Bank of Nigeria.
The law however empower the commission to approve the investment of the statutory deposit in treasury bills or other secured investment guaranteed by the Federal Government, while any withdrawal from the statutory deposit shall be made good within 30 days, failure which shall constitute a ground of suspension from business.
The law also says that no insurer shall appoint or change its principal officers except with the prior written approval of the National Insurance Commission, adding that insurer is expected to notify the commission of any change due to death, dismissal, redundancy or resignation of any of its principal officers.
Clause 35 of the bill states that an insurer shall not declare or pay dividend on nuts shares until all its preliminary expenses, organisationak expenses, commission, brokerage, amount of loses incurred and other capitalise expenses not represented by tangible assets have been completely written off.
It also said that “not withstanding the provisions in any other law, any amount payable as retirement life annuity including interest, dividends, profits, investment thereunder shall not be subject to tax and levies in any form.
The bill imposes a fine ot N500, 000 on anybody acting as an insurance agent without being licensed or an imprisonment of six months, and a fine of N10 million and N5 million on companies and individual respectively acting as insurance brokers without being registered to do so.
In addition, it states that “a person shall not construct or cause to be constructed any building of more than one floor without insuring his liability in respect of the construction risks that may be caused by his negligence not the negligence of his servants, agents, consultants or public authority which may result in bodily injury or loss of life to any person or workman working on the site or any member of the public”.
It also provide for insurance of all public buildings, government assets and employees, petroleum and gas stations and products in transit, import goods and machandise, professional idemnity for health care providers, among others.
It provides a penalty of N250, 000 or an imprisonment of 12 months or both for failure to have a third party motor vehicle insurance.
The law said “in relation to a vehicle carrying passengers for hire or reward, every fare paying passenger in the vehicle shall be insuree by the operators of the vehicle against death or bodily harm” while also providing for a. Compensation of up to N2 million or such higher sum as the commission may specify in respect of death or permanent disability.
Clause 99 of the bill establishes a Road Accident Victims Compensation Fund into which 0.5 percent of underwriting profit on motor insurance business shall be paid as well as a committee to oversee the management.
The law also establishes the Insurance Policy Protection Fund into which 0.25 percent of gross premium income of every insurer and re insurer shall be paid as well as 0.25 percent of balance standing in the security qbd insurance development fund as at 31st December of the preceeding year after meeting all financial obligations stipulated for the fund by the National Insurance Act for granted time being in force.