NBFIRA cracks down on insurance vice

MBONGENI MGUNI
Staff Writer | Friday July 30, 2010 00:00

 

According to the Insurance Act, all insurance sales agents are required to possess the Certificate of Proficiency (CoP) as a minimum qualification while the NBFIRA Act prescribes penalties for brokers, insurance companies and other entities that violate the provision.

This week, it emerged that the broker reached a payment schedule for the P200, 000 fine, arguing that a once-off payment would dent its operations.

Although NBFIRA officials were reluctant to discuss the matter of the offending broker, it is understood that maladministration within the insurance sector has become a matter of concern for the Authority.

Industry insiders said apart from non-registered sales agents, NBFIRA was concerned about possible financial misconduct, particularly with regard to brokers, some of whom are reportedly under surveillance.

NBFIRA's anxiety was triggered earlier in the year by the collapse of Omega Insurance Brokers from which ripples are still being felt within the industry. NBFIRA suspended Omega's licence last November.

'The major concern is the handling of premiums and the forwarding of these to the insurance company,' one insider said. 'Brokers are supposed to keep two accounts - one for premiums and the other for their commission.

They are also allowed to keep these premiums for a certain period before forwarding them to the insurance company.

'There is fear that a number of these brokers are not forwarding these premiums to the insurance companies either on time or at all. Some actually wind up using money from their commission accounts to pay premiums, which is grossly illegal.'

Industry sources said these types of arrangement are often detected when clients make complaints, prompting the insurance companies to investigate and even de-list the broker.

'The trouble is that clients will make insurance claims and the insurance company refuses to pay because it does not have a record of premiums paid,' a source said. 'The corrupt broker will find it difficult to keep dipping into the commission account to support premium payments. At one point or another, the insurance company will get wind of the situation. However, according to the law, a premium is considered paid when the broker receives it, not when the insurance company receives it. Clients are therefore able to claim even when the brokers are mishandling their premiums or withholding these from the insurance company.

'This is what NBFIRA is probing. It's a difficult crime to detect, but it is potentially devastating to clients and the insurance industry in general.'

NBFIRA investigators are reportedly stepping up their probes because unchecked maladministration could rock the insurance industry and the country's economic stability. Insurance companies hold billions of Pula in assets under management, ranking them next to pension funds which are estimated beyond P30 billion.

At a Wednesday NBFIRA stakeholder meeting, the Authority's officials said investigations were often a complex affair. 'We undertook an enforcement activity that cost us P1.5 million and this is an indication of the funds we need to raise for this and other activities undertaken by the Authority,' said NBFIRA Director of Capital Markets, Juliana White.

In its 2009 annual report, the Authority said an intensive review of audited financial statements of brokers had uncovered deficiencies in 60 percent of cases assessed, including audit qualifications, insolvency, failure to provide verification of trust account operations and failure to provide verification of appropriate levels of indemnity insurance.