The Nigerian National Assembly has recently proposed a hefty penalty intended to curb unlawful activities in the Insurance industry. More specifically, ₦25 million in fines was proposed to be imposed on anyone found running an illegal insurance businesses in the nation. This provision is included in the proposed Nigeria Insurance Industry Reform Bill, 2024, which aims to modernize Nigeria’s existing insurance laws. The proposed measure indicates that anyone conducting insurance business without the required license might be subject to a fine of ₦25 million or two years in prison, or both.
If a company or firm is proven guilty of the same offence, the penalty doubles, and the top executives of the organisation might be sentenced to two years in prison in addition to fines of ₦50 million each. According to a part of the bill content, anyone who transacts insurance business without a licence under the bill is breaking the law and faces consequences if found guilty. The bill also mandates that any organisation requesting a licence must be established in accordance with any other Nigerian law or ordinance or as a limited liability company under the Companies and Allied Matters Act No. 3 of 2020.
Licensed firms required to comply with basic principles.
This move would guarantee that the field can only be accessed by legally recognised companies. Licensed firms are required to operate in accordance with basic principles, such as logical risk management, financial stability, and adherence to industry best practices. The license of the insurer may be revoked for noncompliance with these guidelines. The bill lists many situations in which the National Insurance Commission (NAICOM) has the authority to revoke an insurer’s license including becoming bankrupt, stopping operations, not having the necessary capital, and engaging in deceptive conduct.
Prior to the recent proposal to levy a ₦25 million fine for unlicensed businesses, the penalty for such an offense was a fine not exceeding ₦250,000, or imprisonment for a term not exceeding three years, or both, under the Insurance Act of 2003, which governs the industry. The drive for even harsher penalties as part of the continuing regulatory reforms in the sector stemmed from the belief that this comparatively low punishment was inadequate to effectively deter illegal operators. The National Assembly is now debating the idea, which if approved would make it one of NAICOM’s most important enforcement instruments.
Recent regulatory initiatives is crucial for the industry.
Industry stakeholders, along with other relevant parties, will be attentively observing the progress of this bill, given its noteworthy contribution to strengthening regulatory oversight and guaranteeing that the sector functions within a precisely defined legal structure. Recent regulatory initiatives moves, led by NAICOM, have been crucial in determining the direction the sector will take going forward. These initiatives have centred on improving stability, transparency, corporate governance and consumer protection. The commission updated its corporate governance principles in 2023 with the goal of improving insurance businesses’ openness and accountability.
As per the standards, insurers must set up more effective governance frameworks, such as autonomous boards of directors, efficient audit committees, and unambiguous conflict of interest procedures. NAICOM has been actively advocating for the implementation of the Insurance Consumer Protection Framework (ICPF), which outlines policyholders’ and insurers’ rights and obligations. Furtherly, the commission has stepped up its oversight of market behaviour and is taking aggressive action against unethical acts including misrepresenting insurance products and holding up or rejecting valid claims.
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In July, the industry was given a much-needed boost when a bill seeking to reform the industry passed a second reading at the Senate. The bill, which is being sponsored by Senator Adetokunbo Abiru (APC Lagos East), the Chairman of the Committee on Banking, Insurance, and Other Financial Institutions, aims to repeal several existing laws, including the Nigeria Reinsurance Corporation Act (Cap. N131), the Insurance Act (Cap. 117 2004), and the Marine Insurance Act (Cap. M3 Laws of the Federation of Nigeria 2004). This bill aims to establish a thorough legal and regulatory framework and address related issues in the industry.