GUIDELINES FOR LIFE INSURANCE POLICY

GUIDELINES FOR LIFE INSURANCE POLICY FOR EMPLOYEES

1. O INTRODUCTION

1.1 Section 9 (3) of the Pension Reform Act 2004 (The Act) requires every employer, to which the Act applies, to maintain Life Insurance Policy in favour of the employee for a minimum of three times the annual total emolument of the employee.

1.2 For the purpose of establishing uniform set of rules, guidelines and standards in relation to the application of the provisions of Section 9 (3), the following minimum guidelines shall apply.

2.0 GENERAL REQUIREMENTS

2.1 The employer shall fully bear all costs in relation to procurement of this policy, and this shall be in addition to, and separate from, the contributions to be made by the employer to each employee’s Retirement Savings Account, as required by the Act.

2.2 The Life Insurance Policy shall be effected through the purchase of a Life Policy issued by a Nigerian Registered Insurance Company, licensed and authorized to conduct Life Insurance Business by National Insurance Commission (NAICOM) under the Insurance Act 2003.

2.3 For ease of administration, a Consortium of eligible insurance Companies, as determined in paragraphs 3.1 and 3.2 of this guideline, shall be constituted for the purpose of providing life insurance cover for employees of the Federal Government.

2.4 Employers in the private sector shall be at liberty to engage the service of any insurance company or group of insurance companies which satisfies the eligibility criteria in paragraphs 3.1 and 3.2 of these guidelines.

2.4 Employers shall not be allowed to self insure.

2.5 As stipulated in Section 6 (1) of the Pension Reform Act, the National Pension Commission (The Commission) shall set up a Board of Inquiry for treating any case of missing employees referred to it by employers, for insurance claim purposes.

3.0 ELIGIBLE INSURANCE COMPANIES

3.1 In the first year of implementation, which is 2006, the National Pension Commission shall provide a list of NAICOM licensed and registered insurance companies eligible to conduct the business of provision of life insurance cover, under the provisions of the Pension Reform Act 2004.

3.2 For subsequent years, such eligible insurance companies must have met minimum acceptable standards to be fixed by the National Pension Commission.

3.3 The Commission shall collaborate with NAICOM to facilitate the Consortium referred to in paragraph

2.3 of these guidelines from amongst the list of eligible insurance companies in 3.1 and 3.2 above.

4.0 POLICY COVERAGE

4.1 The policy shall provide cover to the insured against Death.

4.2 Insurance coverage shall be for twelve (12) months, from January through December, and shall be renewable at the end of each coverage year.

4.3 The premium payable on the policy shall be pro-rated as applicable where an employee joins the scheme in the course of the year.

4.4 Where an employee leaves the service of the employer before the expiration of twelve (12) months, the premium paid relating to the unexpired period, shall be returned/set aside to the credit of the employer.

4.5 Insurance cover is mandatory for all employees as long as they are in employment.

4.6 Insurers shall be expected to ensure that employers comply with the minimum insurance cover of three times the annual total emolument of each employee.

4.7 Notwithstanding the provisions of 4.6 above, employers that have better existing life insurance policies for their employees, in terms of benefits, shall maintain such policies.

5.0 DOCUMENTATION REQUIREMENTS

5.1 Each employer shall obtain an insurance certificate from the insurer.

5.2 Such certificate shall be accompanied by a schedule which shall indicate amongst other things, the period of coverage, the number and details of staff at inception/ renewal date, their total emoluments, the benefit payable and the annual premium/date of full payment.

5.3 The insurance certificate shall be issued to employers by the Insurer within a month from the policy inception/renewal date.

5.4 Employers shall display a copy of the insurance certificate in a conspicuous place within the premises, for the information of the employees, as evidence of having taken such policies.

5.5 Employers shall send a copy of the insurance certificate with the schedule of benefits to the National Pension Commission and the Pension Fund Administrators (PFAs where the employees maintain their Retirement Savings Accounts (RSAs), not later than 31st March every year.

5.6 Employers shall be required to commence renewal negotiations in writing, within two (2) months to the expiration of the current insurance coverage. Such negotiation must be concluded before the last day of the current cover.

5.7 Full payment of the insurance premium shall be made, at the latest, on the first day of insurance cover.

5.8 Where an employer fails to effect full payment of premium at the stipulated time, the insurer shall report such failure to the National Pension Commission within fourteen (14) days of non receipt of premium.

6.0 OPERATIONAL TERMS

6.1 Operational terms of the policy shall address, amongst other issues the terms listed in paragraphs 6.2 to 6.6 below.

6.2 Free cover limit must be established between the insurer and employers. This is the limit of sum assured above which the insurer will require the affected individuals to undergo medical examinations.

6.3 Until satisfactory medical results are received, cover will be restricted to the free cover limit.

6.4 All employees shall be made to fill a non-medical form with their passport photograph attached, to ascertain identities and existence at commencement or point of entry into the scheme.

6.5 Procedure for filing and settlement of claims on the policy shall be clearly defined.

6.6 Employers are expected to negotiate premium rates payable on such life policies with the insurer, within the rate table stipulated by NAICOM.

7.0 DEATH OF AN EMPLOYEE

7.1 Where an employee dies, the employer shall immediately commence death benefit claim on behalf of the deceased, as prescribed in the operational terms of the policy.

7.2 Employer shall notify employee’s PFA and the National Pension Commission, of the employee’s death stating the claim amount receivable.

7.3 Employee’s PFA shall validate claim amount and where discrepancies arise, this must be resolved with the employer.

8.0 MISSING EMPLOYEE

8.1 Where an employee is missing, the employer shall report this immediately to the employee’s PFA, Insurer and the National Pension Commission.

8.2 The Board of Inquiry established by the National Pension Commission shall stipulate the documentary evidence required from employers to process missing person claims. This shall include the Police Report, Employee’s passport photograph, newspaper publication of the missing employee, a letter from employer declaring him/her missing and any other document as may be required from time to time.

8.3 The documentary evidence required by the Board of Inquiry set up by the National Pension Commission shall be provided within fourteen (14) working days after the period of one year, from the day the employee was declared missing.

8.4 The Board of Inquiry shall, within thirty (30) working days of receipt of complete evidence required for its deliberations, communicate its findings to the employer, insurer and the National Pension Commission, for appropriate action to be taken.

9.0 SETTLEMENT OF CLAIMS

9.1 Claims must be settled by the Insurer within seven (7) working days of receipt of complete documentation and acceptance of liability.

9.2 Information on any discrepancies on claims or its non-settlement within the time, as specified in 9.1 above, shall be sent to the National Pension Commission by the employer and employee’s PFA immediately.

9.3 Total sums due to the employee shall not be encumbered or subject to any deductions by the employer.

9.4 The total sum due to the deceased shall be paid directly to the credit of the deceased’s Retirement Savings Account by the insurer.

10.0 REVIEW

10.1 These guidelines are subject to regular reviews.

11.0 ENQUIRIES

All enquiries regarding these guidelines shall be directed to the National Pension Commission.

INSURANCE LAW

Insurance law

Insurance is regulated by the states under the McCarran-Ferguson Act, with "periodic proposals for federal intervention in the United States", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners works to harmonize the country's different laws and regulations.

As far as insurance in the United Kingdom, the Financial Services Authority took over insurance regulation from the General Insurance Standards Council in 2005;laws passed include the Insurance Companies Act 1973 and another in 1982, and reforms to warranty and other aspects under discussion as of 2012. In the European Union, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (subject to permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU.

In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China[38] was passed, followed in 1998 by the formation of China Insurance Regulatory Commission (CIRC), which has broad regulatory authority over the insurance market of China. The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China, which was eventually suspended as demand declined in a communist environment. 

Insurance insulates too much

An insurance company may involuntarily find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a hypothesis known as ethical hazard. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.

For instance, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional torts committed by or at the direction of the insured. Even if a provider were so irrational as to want to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

DENSITY OF INSURANCE POLICY CONTRACTS

In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold. Insurance policies can be composite and some policyholders may not understand all the fees and coverage included in a policy. As a result, people may buy policies on unfavorable terms.

Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy. For illustration, most insurance policies in the English language today have been carefully drafted in plain English; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible. Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price.

Insurance may also be purchased through an agent. A tied agent, working exclusively with one insurer, represents the insurance company from whom the policyholder buys (while a free agent sales policies of various insurance companies). Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. Agents generally cannot offer as broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

DEALING WITH INSURANCE COMPANIES

INSURANCE COMPANIES

Insurance companies can be categorized into two groups:

     ~Life insurance companies, which sell life insurance, annuities and pensions products.

     ~Non-life, general, or property/casualty insurance companies

Meanwhile, Property or General insurance companies can be further divided into these sub categories.

·        Standard lines

·        Excess lines

Standard line insurance companies are insurers that have received a license or authorization from a state for the purpose of writing specific kinds of insurance in that state, such as automobile insurance or homeowners' insurance. They are regulated by state laws, which include restrictions on rates and forms, and which aim to protect consumers and the public from unfair or abusive practices. These insurers also are required to contribute to state guarantee funds, which are used to pay for losses if an insurer becomes insolvent. They are typically referred to as "admitted" insurers. Generally, such an insurance company must submit its rates and policy forms to the state's insurance regulator to receive his or her prior approval, although whether an insurance company must receive prior approval depends upon the kind of insurance being written. Standard line insurance companies usually charge lower premiums than excess line insurers and may sell directly to individual insureds.

Excess line insurance companies (also known as Excess and Surplus) typically insure risks not covered by the standard lines insurance market, due to a variety of reasons (e.g., new entity or an entity that does not have an adequate loss history, an entity with unique risk characteristics, or an entity that has a loss history that does not fit the underwriting requirements of the standard lines insurance market). These companies have more flexibility and can react faster than standard line insurance companies because they are not required to file rates and forms. However, they still have substantial regulatory requirements placed upon them. They are typically referred to as non-admitted or unlicensed insurers. Non-admitted insurers are generally not licensed or authorized in the states in which they write business, although they must be licensed or authorized in the state in which they are domiciled.

Most states require that excess line insurers submit financial information, articles of incorporation, a list of officers, and other general information. They also may not write insurance that is typically available in the admitted market, do not participate in state guarantee funds (and therefore policyholders do not have any recourse through these funds if an insurer becomes insolvent and cannot pay claims), may pay higher taxes, only may write coverage for a risk if it has been rejected by three different admitted insurers, and only when the insurance producer placing the business has a surplus lines license. In general, when an excess line insurer writes a policy, it must, pursuant to state laws, provide disclosure to the policyholder that the policyholder's policy is being written by an excess line insurer.

Insurance companies are generally classified as either mutual/common or proprietary companies. Mutual companies are owned by the policyholders, while shareholders (who may or may not own policies) own proprietary insurance companies.

Other possible forms for an insurance company include reciprocals, in which policyholders reciprocate in sharing risks.

REINSURANCE COMPANIES

These are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

Captive insurance companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:

    heavy and increasing premium costs in almost every line of coverage;

    difficulties in insuring certain types of fortuitous risk;

    differential coverage standards in various parts of the world;

    rating structures which reflect market trends rather than individual loss experience;

    insufficient credit for deductibles and/or loss control efforts.

There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.