By Henry Uche
Insurance experts are optimistic about the future of Nigeria’s insurance sector following the Senate’s passage of the 2024 Nigerian Insurance Industry Reform Bill.
The legislation, described as a game-changer, consolidates various outdated insurance laws, aims to overhaul the regulatory landscape, enhance the industry’s competitiveness and foster growth.
By addressing long-standing issues such as insufficient penalties for defaulting insurers and introducing a risk-based supervision model, the bill, experts note, is poised to create a more dynamic and modern framework for insurance businesses in Nigeria. Stakeholders believe that the reform will unlock new opportunities, drive innovation and ensure the sector’s contribution to the nation’s economic growth.
The path to the passage of the bill follows the adoption of the report by the Committee on Banking, Insurance and other Financial Institutions, which was presented by the committee’s chairman, Sen. Abiru Adetokunbo (APC-Lagos), at plenary last week.
In the report, Adetokunbo explained that the bill, which was read a second time on July 18, seeks to consolidate various existing laws regulating insurance businesses in Nigeria. He listed the relevant laws to include the Insurance Act 2003, the Marine Insurance Act, the Motor Vehicles Third Party Insurance Act, the National Insurance Corporation Act, and the Nigerian Reinsurance Corporation Act. A major objective of the bill, according to Adetokunbo, is to create a robust legal and regulatory framework for the insurance sector, enabling it to contribute positively to Nigeria’s financial landscape.
The senator had earlier affirmed that, having surpassed a two-decade mark, the existing Insurance Act lacks provisions that can adequately address contemporary challenges and support growth and innovation within the insurance industry.
Among other things, the bill proposes the need to review the penalties for defaulting insurers, as those prescribed in the existing laws are inadequate and not sufficiently deterrent. It also aims to create a comprehensive legal framework for the regulation and supervision of all types of insurance businesses in Nigeria, as the current laws are outdated and have hampered the industry’s potential to compete globally. More notably, it seeks to scrap composite insurance businesses.
He emphasised the need for effective risk-based supervision in the insurance sector, arguing that the current rule-based regulatory system has become obsolete. Adetokunbo noted that during the public hearing, stakeholders widely supported the bill, highlighting that the existing laws no longer meet the evolving needs of the industry.
“The current insurance legislation is over two decades old and lacks provisions to address contemporary challenges and foster growth and innovation,” he said.
The senator also pointed out that legal obsolescence had led to regulatory inefficiencies, hampering the industry’s global competitiveness. He urged the Senate to pass the bill, which would provide a comprehensive framework for the regulation of all types of insurance businesses in Nigeria.
Meanwhile, Sen. Jimoh Ibrahim (APC-Ondo) raised concerns about the proposed minimum capital requirement of N45 billion for reinsurance businesses, suggesting that the status quo should be maintained due to the current economic situation.
Jibrin emphasised that the passage of the bill was necessary to align the insurance ecosystem with contemporary economic realities, which would ultimately benefit the country.
“This Act, once it receives concurrence from the House of Representatives and assent from the President, will significantly contribute to shaping our economy for the better,” he said.
“Economies are dynamic and constantly changing, so it is incumbent upon the authorities of every nation to update their legislation to align with contemporary realities.”
He added that he was confident that Nigeria would benefit immensely when the president finally gives assent to the bill.
“This is precisely what the passage of this legislation aims to achieve: to restructure the entire insurance ecosystem in line with current realities.”
Meanwhile, the regulator, the National Insurance Commission (NAICOM), in a statement, warmly welcomed the passage of the new Insurance Consolidated Bill by the Upper Chamber of the National Assembly, saying it remains optimistic that the legislation will unlock growth, prosperity, and potential in the insurance sector.
NAICOM maintained that the passage of the bill marked a significant milestone in the country’s efforts to revamp the insurance industry after nearly two decades.
The commission believes the bill is a game-changer for Nigeria’s insurance industry and will have a profound positive impact on the contribution of the insurance sector to the country’s GDP and economy as a whole.
By consolidating existing insurance laws, the new legislation marks a new era in the ongoing efforts to strengthen Nigeria’s insurance industry. The bill provides a comprehensive framework for regulating all types of insurance businesses and ensuring a more robust and effective industry.
“Passage of the Bill marks a significant triumph for Nigeria’s insurance industry, tackling the long-standing challenge of low insurance penetration in the country. The new legislation addresses the industry’s need for a more robust legal and regulatory framework, enabling it to compete favorably in the African insurance market and globally,” a statement from NAICOM affirmed.
The regulator added that the newly passed bill introduces several pivotal provisions aimed at fortifying Nigeria’s insurance industry. According to the commission, key highlights of the legislation include, but are not limited to:
Enhanced Capital Requirements: New minimum capital requirements for insurance companies, ensuring they are adequately capitalized to underwrite risks and protect policyholders.
Risk-Based Supervision: Consolidation of the risk-based approach to supervision, enabling regulators to more effectively monitor and manage risks within the industry.
Strengthened Consumer Protection: Improved consumer protection requirements, safeguarding the interests of policyholders and promoting transparency and fairness in insurance practices.
Streamlined Regulatory Framework: An enhanced regulatory framework, providing clarity and consistency in the regulation of insurance businesses, and facilitating a more efficient and effective supervisory process.
The achievement comes after years of operating with laws that have failed to keep pace with the country’s evolving economic landscape. Unlike other sectors that have undergone multiple phases of legislative reforms to reflect current economic realities.
Reacting, an insurance consultant and risk management expert, Mr. Raymond Akalonu, confirmed that it’s a welcome development, having clear penalties to ensure consistency and fairness.
“Penalties in the bill are more stringent and in tune with current realities, unlike the current Act, where some prescriptions are outdated. Some insurers, weighing the penalties, would prefer to commit the infraction and be penalized. The new penalty regime is a stronger deterrent that will result in a fair, stable, and competitive market.”
Akalonu stressed that, aside from changes in capital, classification, and operational guidelines, the fundamental change embedded in the bill is that it provides the much-needed flexibility to deal with issues evolving from the dynamism of the insurance business, unlike the 2003 Act. The provisions of the current Insurance Act 2003 are too specific and prescriptive, making it rigid and not amenable to change to meet the dynamics of the insurance market. It is the provisions that largely prevented NAICOM from embarking on initiatives that could have positively impacted the sector.
The provisions in the bill are crafted as framework legislation that provides for minimum or basic requirements, while the details would be spelled out in regulations and policy directives. This arrangement allows for ease of amendments and adjustments and substantially limits the need for a review of the law. It also allows for timely intervention for the purposes of protecting policyholders and ensuring financial stability. This also aligns the Nigerian insurance sector with international best practices. Moreover, the new bill makes provisions for fast-tracking the process of managing weak companies, thereby strengthening the commission’s distress management mechanism.
He added that the provisions of the bill, when passed, will have a far-reaching effect on the regulation and supervision of the insurance business, strengthening various sections of the Insurance Act 2003: statutory framework, regulatory bodies, licensing requirements and tenure of licenses for brokers, policyholder protection, and dispute resolution mechanisms.
