On Tuesday, the Senate passed the Nigerian Insurance Industry Reform Bill, 2024, introducing sweeping changes aimed at overhauling the insurance industry’s regulatory framework.
The bill sets new minimum capital requirements for insurance businesses, imposes stringent penalties for unlicensed operators, and consolidates decades-old legislation to address contemporary challenges in the sector.
New Capital Requirements for Insurance Businesses
The bill stipulates that insurers must meet and maintain minimum capital thresholds to operate in Nigeria. These thresholds, aimed at strengthening financial capacity and mitigating risks, include:
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- Non-Life Insurance Business: N25 billion or a risk-based capital determined periodically by the Insurance Commission.
- Life Assurance Business: N15 billion or risk-based capital determined by the Commission.
- Reinsurance Business: N45 billion or a risk-based capital determined by the Commission.
This marks a significant escalation from previous requirements under the Insurance Act of 2003 and reflects efforts to align the Nigerian insurance sector with global best practices.
Steep Penalties for Non-Compliance
The bill introduces hefty penalties for individuals and entities operating without proper licensing.
- Individuals: A fine of N25 million, a two-year prison sentence, or both.
- Companies: Organizations guilty of unlicensed insurance activities face fines of N50 million per principal officer.
- Risk-Based Framework: The Commission will adopt risk-based capital determination, factoring in insurance, market, credit, and operational risks.
These penalties represent a substantial increase from the N250,000 fine stipulated in the 2003 Act, demonstrating the government’s commitment to eliminating unregulated practices in the sector.
The Plenary Highlights
The bill was presented to lawmakers by Senator Adetokunbo Abiru (APC-Lagos), chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions. He argued that the reform bill consolidates various insurance-related laws, including the Insurance Act of 2003, Marine Insurance Act, and Motor Vehicles Third Party Insurance Act, to create a unified and contemporary regulatory framework.
“The current insurance legislation is over two decades old and lacks provisions to address contemporary challenges and foster growth and innovation. This bill aims to make the industry globally competitive,” Abiru stated.
However, the bill faced opposition from Senator Jimoh Ibrahim (APC-Ondo), who questioned the feasibility of the N45 billion minimum capital requirement for reinsurance businesses in light of Nigeria’s current economic realities. Ibrahim urged the Senate to reconsider the provision, describing it as potentially detrimental to the growth of reinsurance operators in the country.
However, Deputy Senate President Barau Jibrin defended the bill, stating: “Economies are dynamic and constantly changing. Updating legislation to align with contemporary realities is essential. This reform will reshape the insurance ecosystem, strengthening its role in the financial sector.”
The plenary concluded with the lawmakers passing the bill after extensive deliberation.
The bill consolidates decades-old laws, such as the Marine Insurance Act and the Nigerian Reinsurance Corporation Act, into a unified framework. It also incorporates risk-based capital requirements, empowering the Insurance Commission to assess risks from insurance operations, market conditions, credit exposure, and operational challenges when determining the capital adequacy of firms.
The reform is expected to modernize Nigeria’s insurance industry, attract foreign investments, and increase public confidence in the sector.
The passage of the bill marks a significant milestone for the insurance sector. However, analysts are split on its immediate impact. Critics, like Senator Ibrahim, worry that the stringent capital requirements could stifle smaller operators, while proponents argue that the reforms are necessary for creating a robust, competitive insurance industry.
The bill now awaits concurrence from the House of Representatives and presidential assent before it becomes law.
Once enacted, the Nigerian insurance sector is expected to undergo significant restructuring, improving its global competitiveness while ensuring compliance with modern regulatory standards.