‘No Premium No Cover’ To Begin

Ms.-Lydia-lariba-Bawa-new-NIC-bossThe National Insurance Commission (NIC) will begin to implement the “No premium, no cover” policy, which will require insurance firms to collect premiums upfront before providing insurance cover on April 1.

This means that insurance companies will no longer be required to sell insurance products on credit to customers.

A statement issued and signed by the Public Affairs Directorate of NIC said the decision to implement the policy follows a meeting held between the NIC and insurance and brokerage firms, who are members of the Ghana Insurers Association and the Ghana Insurance Brokers Association.

It stated that the commission noted with concern that some insurance companies have resorted to unconventional practices by reporting huge amounts of outstanding premiums while at the same time making equally large amounts of provision for bad debts without significant subsequent recoveries, thereby putting the entire industry at risk.

“The outstanding premium profile, the Commission observed could hurt the industry and therefore necessitated the formulation of the “No premium, no cover” policy to protect the interest of all stakeholders in the insurance industry since the present practice exposes the industry to liquidity risks,” it stated.

It said it will ensure strict adherence to the “No premium, no cover” policy in a bid to bring sanity into the industry.

The statement said the NIC has instituted a number of punitive measures for insurance companies that fail to adhere to the policy, including charging insurers ten times the amount involved for granting cover without premium.

Available data indicate that insurance companies were owed a little over GH¢130million in premium debts at the end of December 2012, a situation that makes it difficult for insurers to honour claims when they fall due.

The debt, which is 0.35 per cent less than was recorded in 2011, was incurred as a result of people taking various insurance covers without paying the required premium.

At the same time, claims paid by insurance companies increased by 35.8 per cent from the previous year to GH¢99.8million at the end of 2012.

The Commission announced that the huge outstanding premiums have had a significant knock-on effect on re-insurers.

Firstly, insurance companies are unable to pay their reinsurance premiums while the premiums remain unpaid by the policyholders. Subsequently, the reinsurers are unable to pay their retrocessionaries which creates serious credit risk exposures for both the insurers and reinsurers.

Secondly, when the premium debts are eventually declared bad or doubtful and have been written off, it creates complications for re-insurers as they would have already placed the business with their retrocessionaires.

The statement said the current state of affairs has not only increased the credit risk of insurers, but has also introduced uncertainty in the market as to the capacity of many insurers to meet their obligations to insurance policyholders and other stakeholders.

Moreover, it has contributed significantly to the inability of insurance companies to pay claims promptly and adequately.

Currently, there are 43 insurance companies in both the life and non-life insurance sectors who are all competing in a market where insurance penetration is less than two per cent.

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