20 February 2013

Nigeria: Making Group Life Assurance Work in the Private Sector

While it took the Federal Government four year to comply with the group life assurance provision in the Pension Reform Act, 2004, eight years down the line, many employers in the private sector still think the provision is optional.

Life insurers are also doing very little in this direction. However, the National Pension Commission (PenCom) and National Insurance Commission (NAICOM) have jointly revived the interest of service providers and other stakeholders in this regard.

The Federal Government introduced pension reforms in the country nine years ago, a package that includes the mandatory group life cover for workers at the instance of their respective employers.

The Pension Reform Act, 2004 directed insurance companies to hands off the management of pension funds and opened a bigger business opportunity for them, making group life insurance for workers both in private and public sectors compulsory.

Section 9 (3) of the Act states that every employer must "maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee", observing that it seems that this important aspect of the law is being overlooked by the stakeholders.

Section 5 (2) of the Act, said that proceeds of a life insurance cover are to be paid into the deceased employee's Retirement Saving Account (RSA) to enable the Pension Fund Administrator (PFA) to apply the benefit in favour of the beneficiary under a will or the spouse and children of the deceased.

Unfortunately, the above provision seems to have been forgotten by majority of employers across the country. With the exception of the Federal Government and some corporate organisations many private sector operators seem to have overlooked the provisions on group life cover.

Compliance Requirements

Meanwhile, the Commissioner for Insurance, Mr. Fola Daniel, has thrown more light on the role of the employers with regard to employees' group life assurance.

"Each employer is expected to obtain an insurance certificate from the insurer accompanied with a schedule giving full details of the employees covered, premium payable, benefit payable, etc", he said.

"The employer must display it within its premises for the information of the employees and as an evidence of compliance with the law and send a copy of it to National Pension Commission (PenCom) and the employees' PFAs before the end of the first quarter of the year", Daniel added.

In the event of death of an employee or that he is missing, the employer is required to inform his PFA and PenCom immediately.

Daniel also warned that "an employer must not encumber the sums payable as death benefits or make any deductions from it".

Earlier Attempts at Enforcement

Previous efforts to enforce the group life provision include the Market Development and Restructuring Initiative (MDRI), an industry-wide marketing strategy introduced by NAICOM in the last quarter of 2008 to help the insurance industry actualise its dream of a trillion Naira insurance markets.

Between 1987 and 2004, 16 insurance products were directly or indirectly made compulsory by means of statutory provisions but the MDRI project tried to bring to the fore group life insurance for workers at the expense of their respective employers and four others.

Regrettably, the life insurers themselves seem not to be in a hurry to tap into this business opportunity, going by the fact that they were conspicuously absent during the on-site enforcement of MDRI in Ibadan some years ago.

Also to ensure that the business remained attractive, NAICOM pegged the upper limit for commission payable by life insurers to insurance brokers on group life assurance business at 8 per cent, noting that in their desperation, life insurers engaged one another in a vicious commission war to the advantage of insurance brokers and at the detriment of the whole industry.

"In line with section 53(1) of the Insurance Act, 2003, commission payable to an insurance agent, broker or any intermediary on group life assurance business shall not exceed 8 per cent of the premium," the commission directed.

Confirming regulatory efforts in this regard, the Managing Director of First Life Limited, Mr. Val Ojumah, said NAICOM is working with PenCom to enforce group life assurance.

"If you are applying for a government contract today; one of the requirements is group life certificate. If an employer is having anything to do with NAICOM, government or any parastatal, one of the certificates required is group life insurance.

"NAICOM and PenCom have a joint team and they are continuously requesting from all employers, annual certificate of compliance with group life insurance. In addition, they are doing periodical physical inspection to make sure that most employers are complying with the requirement," he said.

"They will carry out all these efforts but it doesn't mean all of them are complying. Most small and medium scale employers are or may not be complying. Most of them have nothing to do with government," he lamented.

Review and Amendment to Guidelines

The two regulatory bodies intensified their collaboration to ensure that major stakeholders, particularly service providers, move into action and market the cover aggressively.

Looking back to the review session on the guidelines that jointly hosted by the two regulatory bodies recently, the Acting Director-General of PenCom, Mrs. Chinelo Anohu-Amazu said:

"Section 9 (3) of the PRA, 2004 requires employers to maintain a life insurance policy for its employees for at least 3 times their annual total emoluments. While it is the mandate of NAICOM to regulate the annuity and life insurance market, it is the responsibility of PenCom to ensure that the modalities for the administration of ... terminal benefits involving group life insurance policy are strictly followed to guarantee payments as and when due."

The programme, according to her, afforded stakeholders the opportunity to review the implementation of the guidelines on the policy and understand the rudiments of the policy as well as their responsibilities in this regard. Also some of the challenges encountered in the course of implementing the guidelines which may warrant amendments were also addressed.

Highlighting some of the areas in the guidelines that need to be tinkered, NAICOM's Assistant Director, Inspectorate, Mr. Sam Onyeka, observed that the guidelines were made subject to review to cater for exigencies, adding that some issues arose in the course of implementing the policy for Federal Government employees.

To address some of these issues, he said NAICOM and PenCom jointly proposed a revision of Section 4.3 of the law to allow an insurance company or consortium once appointed, to be illegible to continue to underwrite the same policy for a minimum of three years subject to satisfactory performance, provided that no operator or consortium remains on the same policy for more than 5 years.

Also, with regard to Section 7 (4, 5) the two regulatory bodies, according to Onyeka, are seeking to make it possible that an insurer should not honour any claim reported after 24 months of the expiration of the policy except in the case of a missing person".

Stepping Forward

The major advantage of the group life insurance for employees is that it is a guarantee that if a worker was unable to accumulate significant amount in his retirement savings account before he dies, his estate would still get something tangible up to at least 3 times his annual salary.

This amount would go a long way to relieve the pain associated with the loss of a breadwinner even as the employer is relieved of the burden of making additional ex-gratia payment to the estate of the deceased.

Life insurers should put their acts together to ensure that the necessary capacity to underwrite the risk is in place and market the cover aggressively.

Employers too should obey the law and ensure that their workers are adequately protected by way of insurance because it is in their interest that workers are covered for death or getting missing on the job. It costs more to pay death compensation.

Workers should also put more pressure on their employers and report recalcitrant employers to the regulators, who have also promised to protect the identity of their informants.

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