Insurers’ rights on group life insurance further weakens in new law

Insurers’ rights to enforce compliance of group life policy on employers of labour within the public and private sectors have been weakened in the Pension Reform Act 2014, analysts have said.

They believe that the provision in the law, which more or less makes group life insurance optional for the employer, is a disservice to the insurance industry and further erosion of its responsibility in the nation’s pension scheme.

Although Section 4(5) of PRA 2014, mandates every employer to have group life insurance policy in favour of each employee, Section 4(6) PRA 2014 states that “Where the employer failed, refused or omitted to make payment as at when due, the employer shall make arrangement to effect the payment of claims arising from the death of any staff in its employment during such period.”

This section of the law that has put the group life assurance at the discretion of employer is presently a major worry for insurance companies doing life business, and presently causing apprehension in the market.

Yemi Soladoye, managing director, Risk Guard Africa Limited, says this is a major blow on the insurance industry, having in the past lost major part of its pension business to the Pension Fund Administrators following the coming on board of Pension Reform Act 2004.

Soladoye says this clause has further weakened the position of authorities concerned with enforcement to prosecute organisations or employers that fail to comply with the law, saying it seems to have created a window for employers to do away with insurers and to cater for the settlement of their employee’s death benefits.

George Odua, an insurance broker who observed the gap, says the provision on Section 4(6) PRA 2014 is a great threat to group life business as some employers may hide under it to shy away from insurance of their employees and make arrangement for their staff during death.

They express worry over the continuous loss of insurance businesses, adding that if adequate measures were not taken, group life, which has been a major source of premium to life businesses, could be lost, as crafty employers may take advantage of the gap.

Before now, the insurance industry had lost pension management, workmen’s compensation to NSITF and there has also been a threat on aviation insurance as well as motor third party insurance.

The law stipulates that every employer, to which the Act applies, must maintain life insurance policy in favour of the employee for a minimum of three times the annual total emolument of the employee.

According to the guidelines for life insurance policy for employees jointly issued by the National Insurance Commission (NAICOM) and National Pension Commission (PenCom), the employer is required to fully bear all costs in relation to procurement of this policy, and this shall be in addition to the contributions to be made by the employer to each employee’s Retirement Savings Account.

The policy provides cover to the insured against death and the insurance cover is mandatory for all employees as long as they are in employment. This means that the policy provides for the payment of the sum assured in the event of the death of a member of the scheme from any cause, natural and accidental.

The objectives of the Pension scheme is to establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the public service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the State Government, the Public Service of the Local Government Councils and the private Sector;

It is also aimed at making provision for the smooth operations of the contributory pension scheme; ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, States and Local government or the Private Sector receives his retirement benefits as and when due ; and

Assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The provisions of this Act shall apply to any employment in the public service of the Federation, the public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.

In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organisation in which there are three or more employees.

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