History of Insurance and Insurance regulations in Nigeria

The modern history of Insurance began in 1921, when an English outfit, Royal Exchange Assurance Company opened its first branch in Lagos.

It enjoyed a monopoly over the industry market for almost two decades before several other outfits follow suit and also set up their insurance business.

In fact, by the time Nigeria gain independence in 1960, there were about 25 insurance companies already in place.

Despite this increase in the number of insurance Companies, the insurance industry remained largely unregulated until 1961, when the Insurance Companies Act was enacted

But before then, the Motor Vehicles Act of 1945 was in place in Nigeria. The Motor Vehicle Act made it compulsory for every motorist to have an insurance policy covering third-party legal liability for accidents.

However, the first insurance regulation after independence is the Insurance Companies Act of 1961.

Let us look at the Insurance Companies Act of 1961 in detail.

The Insurance Companies Act, 1961

The key highlight of this act is that it distinguishes between locally-based and foreign-based insurance companies existing in Nigeria.

The insurance company Act require that a local-based insurance company should have a paid-up capital of not less than £25,000(N50,000) while a foreign-based insurance company should have a paid-up capital of not less than £50,000(N100,000).

Aside from the paid-up capital, the Act also required all insurance companies to register with the newly-created Registrar of Insurance.

However, despite this positive contribution, the Insurance Companies Act of 1961, had several shortcomings, which are explained below:

• The Act completely omitted the control of the operations of insurance intermediaries
• The power granted to the Registrar of Insurance was not enough to effectively check the excesses of insurance companies
• The Act omitted the regulation of the management of insurance companies. This resulted in the management of insurance companies by Incompetence Professional

To ameliorate these shortcomings, the Insurance (Miscellaneous Provisions) Act was enacted in 1964.

Insurance (Miscellaneous Provisions) Act, 1964

The Insurance (Miscellaneous Provisions) Act, of 1964 introduced the Investment of Insurance funds.

The Act stipulated that every insurance company operating in Nigeria should invest at least 40% of its funds in profitable Nigerian Investments as specified by the Act.

Another provision of the Act is that insurance of risks within Nigeria must be underwritten by Companies incorporated In Nigeria.

Although the Act was enacted in 1964, it was not until 1967 that it became operational.

In 1976, another Insurance legislation was enacted. This legislation was called the Insurance Act, of 1976.

The Insurance Act, 1976

This Act repealed the previous legislation. It added the requirement of registration, which is already contained in the Companies and Allied Matters Act.

The Act gave the following conditions to register as an insurer:

• The insurer must recruit professionally qualified personnel for management positions
• The insurer must deposit the sum of N250,000 or 150,000 with the Central Bank of Nigeria depending on whether he is a life underwriter or non-life underwriter. Life underwriters were expected to deposit N250,000 while Non-life underwriters were expected to deposit N500,000.

The Act also gave conditions for the registration of Insurance intermediaries( Insurance brokers, agents and loss adjusters).

It also specifies the nature and scope of investments and the corporate reserves of an insurer.

The Act also specified the time for settlement of motor accident claims.

Despite its many specifications, the Insurance Act, of 1976 had one shortcoming: It could not prevent an individual from having the controlling shares in an insurance company and this resulted in an individual with majority shares utilizing the assets of an insurance company in a way inconsistent with its interest.

To counter this shortcoming, the Insurance Decree(NO 58) 1991 was made.

The Insurance Decree(NO 58) 1991

This decree specified many provisions. Perhaps, the most important provision is the provision that “no one can hold more than 25% of the shares of an insurance company”.

Other provisions of the the Insurance Decree(NO 58) 1991 include:

• All insurance companies must be incorporated in Nigeria
• To register an insurance company, there must be evidence to show that the business would be conducted in accordance with sound insurance principles and that the management of the business was in competent hands
• To register as a life insurance company or non-life insurance company, one must have a minimum paid-up capital of N5 million, but a company must have 50 million as paid-up capital before it can register as a reinsurance company.
• The above paid-up capital must be deposited with the Central Bank of Nigeria.
• The director of Insurance has the power to cancel the certificate of an insurer or an insurance intermediary on the grounds of non-compliance with the provisions of the decree
• An unstamped copy of an insurance policy must be made available to an insured within 30 days of payment of premium
• Insurance with unpaid premiums shall be rendered illegal and void
• Solvency margin for non-life insurance business must not be less than 15% of the gross premium, income of the company, in the preceding year.
• Life insurance companies must file actuarial reports every three years.
• More than 35% of the asset of an insurance company was to be invested in securities specified under the Trustees’ Investment Act, of 1962.
• All motor accident claims must be settled within 90 days. However, if the claim was repudiated, it must be communicated within 90 days of notification of the claim

Six years after the enactment of The Insurance Decree(NO 58) 1991, the Insurance Decree No 2 0f 1997

The Insurance Decree No 2 of 1997

This decree categorizes insurance business into two main classes; life insurance business and general insurance business.

The Decree further subdivided life insurance business into two, namely; individual life insurance business; and group life insurance business.

Similarly, the Decree categorized general insurance business into 11 types:  fire insurance business; railway rolling stock insurance business; railway rolling stock insurance business; oil and gas insurance business; contractors “all risks” and engineering risk insurance business; marine and aviation insurance business; motor vehicle insurance business; workmen’s compensation insurance business; accident insurance business; credit Insurance, bond and suretyship; and miscellaneous insurance business.

The Decree also increased the paid-up capital for life insurance and general insurance business to N20 million, while also increasing that of reinsurance business to N150 million.

Also included in this decree is the requirement that “an advance copy of the draft (unstamped) policy document evidencing the contract of insurance shall be delivered to the insured not later than 30 days after payment of the first premium.”

Finally, the decree required that insurance Intermediaries (insurance agents, Insurance Brokers, and Loss Adjuster) must be certified by the Chartered Insurance Institute of Nigeria.

National Insurance Commission Act 1997

True to its name, this Act established the National Insurance Commission(NAICOM).

In Section 6, the Act gave NAICOM the mandate ‘to ensure the effective administration, supervision, regulation and control of insurance business in Nigeria’.

The Act also gave NAICOM the power to stipulate rates of premiums, and commissions and to establish general standards for the conduct of insurance business.

The Act in Section 8(f) grants the NAICOM the power to make further regulations for the purpose of achieving its stated objectives and for giving effect to the powers granted.

It establishes in Section 62 that the commission shall take policy instructions from the Minister and the Minister shall be duty-bound to comply therewith.

The Insurance Act of 2003

The Insurance Act of 2003 prescribes the classes of insurance businesses in Nigeria. According to this Act, the Insurance business shall be divided into two classes, namely; life insurance and general insurance.

The Act further divided insurance life insurance business into three, namely; individual life insurance business; group life insurance; and pension business and health insurance business;

It also sub-divided general insurance business into 8 divisions: fire insurance business; marine and aviation insurance business; general accident insurance business; motor vehicle insurance business; bonds, credit guarantee and suretyship insurance business; engineering insurance business; oil and gas insurance business; and miscellaneous insurance business.

The Act also specified that only companies duly registered with the National Insurance Commission will be able to conduct insurance and reinsurance business in Nigeria.

The Act Increased the minimum capital requirements for each class of insurance. For life insurance, the minimum capital requirement was increased from N20 Million to N150 Million while for General insurance, the minim capital requirement was increased from N20 Million to N200 Million.

Also included in the Insurance Act of 2003 is the provision that all insurers must pay at least 50% of the minim capital requirement with the Central Bank of Nigeria as at the time of registering and after registration, 80% of the statutory deposit shall be returned with interest not later than 60 days after registration with interest.

The Act introduced the “no premium, no cover” concept, which means that any insurance taken without payment of premium is automatically declared illegal and void.

Sections 64 and 65 made provisions for mandatory insurance for Buildings under construction and Public buildings respectively. It creates offences for default with the punishment of N250,000.00 or three Years imprisonment or both.

Similarly in Section 68, the Act provides for mandatory Third Party Liability Insurance for use of Motor Vehicles, making provision for cover of not less than N1,000,000.00 for such liability. The punishment for default in this section is a fine of N250,000.00 or one-year imprisonment or both.

From 2003 to date

In September 2005, NAICOM issued a directive increasing the minimum capital requirement for Life insurance businesses and non-life insurance businesses to 2 billion and 3 billion respectively.

Similarly, the capital requirement for reinsurance and composite insurance was scaled at 10 billion and 5 billion respectively.

As a result of this increase in capital requirement, the number of insurance companies decreases from 104 to 49.

Due to opposition from operators and widespread industry outcry, NAICOM withdrew its attempt to apply an increase through the Tier-Based Solvency Capital Policy in 2018.

However, NAICOM returned in May 2019 with a direct increase in the share capital requirement as follows, N8billion, N10billion, N18billion and N20billion, for Life insurance, General Insurance, Composite and Reinsurance businesses respectively.

This most recent intervention has received praise and criticism from both inside and outside the insurance industry.

Frequently Asked Questions(FAQ) about the History of Insurance in Nigeria