By Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)
INTRODUCTION
The financial services sector stands as a fundamental pillar of the Nigerian economy, playing a vital role in nurturing economic growth, stability, and progress.[1] Through pivotal services like banking, insurance, and capital markets, the sector promotes financial inclusion by providing individuals and businesses with the requisite tools for financial planning, risk management, and wealth accumulation. Moreover, the financial services sector contributes significantly to the implementation of monetary policy and economic reforms, thereby aiding in the maintenance of macroeconomic stability.[2] Its development is indeed crucial for attracting foreign investment, driving innovation, and enhancing the overall standard of living in the Nigerian society.[3]
Consumer protection within the financial services sector holds significant importance in upholding public trust and ensuring market stability. The insurance industry places paramount emphasis on consumer protection, as it directly impacts the welfare of policyholders who depend on these financial instruments for their security and risk management needs.[4] The implementation of effective consumer protection measures serves to mitigate fraud, misrepresentation, and unethical practices, thereby fostering a transparent and equitable marketplace. These measures are indispensable for instilling consumer confidence, which is pivotal for the sustained progression and advancement of the insurance sector.[5]
Despite its crucial nature, consumers in the insurance industry encounter various obstacles that can undermine their trust and financial security. Challenges such as the failure of financial institutions thus making consumers lose trust in the financial system.[6] Effectively addressing these issues necessitates a robust regulatory framework and diligent oversight, roles in which entities such as the Nigerian Deposit Insurance Corporation (NDIC) play a significant role. The participation of the NDIC in consumer protection within the insurance industry is indispensable in safeguarding the rights of policyholders and ensuring the financial sector operates with integrity and accountability.
The NDIC was established with the primary objective of furnishing deposit insurance to safeguard depositors in the event of bank failures. The core functions of the NDIC encompass the insurance of deposit liabilities of banks, the oversight of insured institutions to ensure their adherence to regulations, and the resolution of distressed banks.[7] Over the years, its role has evolved to encompass the management of assets of failed banks and the promotion of financial stability in Nigeria. In the broader financial landscape, the NDIC assumes a pivotal role in upholding the stability and probity of Nigeria’s banking sector.[8] Through the provision of deposit insurance, it mitigates the risk of bank runs and enhances public confidence in financial institutions. Moreover, the NDIC collaborates with other regulatory bodies, such as the Central Bank of Nigeria (CBN), to supervise financial institutions and avert systemic crises.[9] Its involvement in the resolution of failing banks ensures the protection of depositors’ interests, thereby contributing to the overall stability of the Nigerian financial system.
This article will assess the Nigerian insurance industry, highlighting risks associated with inadequate consumer protection while appraising the role of the Nigeria Deposit Insurance Corporation.
THE NIGERIAN INSURANCE INDUSTRY AND CONSUMER PROTECTION
The Nigerian insurance industry is primarily designed to mitigate the impact of risks in diverse facets of society. Governed by a vibrant legal and regulatory regime,[10] the industry aims to protect the stability and uphold the integrity of the market while prioritising the interests of the consumers. Key legislations include:
- The Insurance Act:[11] As the primary insurance legislation in Nigeria, the Act applies to all insurance businesses and insurers,[12] categorizing the businesses into life insurance business and general insurance business.[13] While life insurance relates to the health and wellbeing of humans,[14] general insurance relates to objects, properties and other businesses in general. [15] The Act further provides for the registration and licensing of insurance companies in Nigeria,[16] the corporate structure of insurance companies and other related matters. In relation to consumer protection, the Act outlines several measures aimed at protecting consumers, including the validity of a policy for the benefit of unnamed person(s) providing sufficient description of such is given,[17] the recognition of a derivative action over an insurance policy,[18] the rejection of a registration of an insurance business in the interest of the public or prospective policy holders,[19] transparency and accountability in operations including the amalgamation of insurance businesses, etc.[20]
- The National Insurance Commission Act:[21] The Act establishes the National Insurance Commission[22] with the mandate of providing standards for conduct of insurance business in Nigeria, approving the rates of commissions and insurance premiums payable in respect of all classes of insurance business, advise the Federal Government on insurance policies, protect insurance policyholders, beneficiaries, and third parties, regulate insurance and re-insurance transactions among Nigerian and foreign companies, etc.[23] It is also empowered to monitor the activities of insurers and oversee failed or failing insurance institutions[24] and receive complaints against insurance companies by the consumers.[25]
The National Insurance Commission (NAICOM), pursuant to powers granted it, also releases guidelines from time to time to regulate activities within the industry. Such include the Prudential Guidelines for Insurers and Re-Insurers in Nigeria,[26] Guidelines for Micro-insurance Operation in Nigeria,[27] Guidelines for Licensing and Regulation of Insurance Holding Companies in Nigeria,[28] etc.[29]
The insurance industry provides risk management and financial protection across various sectors of the economy and it answers to several key players, including insurance companies, reinsurance companies, insurance brokers, underwriters, and consumers or policyholders. It is therefore, without doubt, that consumer protection is at the fore of the industry. However, regulators have also ensured that consumers, whose interests are meant to be protected, do not have their interests quashed by insurance providers, hence the elaborate provisions in our laws. The laws thus, seek to safeguard against inappropriate or opaque policies, unnecessarily high costs associated with the use of insurance products, claims settlement delays or denials, etc.
THE ROLE OF NDIC IN ENHANCING CONSUMER PROTECTION IN THE INSURANCE INDUSTRY
The Nigeria Deposit Insurance Corporation was established pursuant to the Nigeria Deposit Insurance Corporation Act 2023,[30] empowered to, among other functions, guarantee deposit liabilities of licensed financial institutions or of institutions authorized to accept deposits under the BOFIA[31] supervise insured institutions to mitigate against failure risks and resolve failing insured institutions with the concurrence of the CBN, etc.[32] The Act outlines the Corporation’s authority to develop regulations, codes, and guidelines for its operations, ensuring accountability, transparency, and adherence to best practices.
As earlier stated, consumer protection stands at the core of activities in the insurance industry and NDIC is pivotal to the protection of the interests of consumers in the sector. This can be gleaned from the array of functions it carries out under the Act. For starters, the NDIC insures the deposits maintained by licensed financial institutions. These monies, belonging to consumers are insured against risks which may threaten the continued existence of these financial institutions and prevent customers from having access to their funds. This, in effect, ensures market stability, promotes public trust, and overall enhances confidence in the financial services sector. NDIC therefore drives a fundamental objective of the insurance industry. Furthermore, the NDIC offers assistance to failing banks and financial institutions with the aim of averting their insolvency and safeguarding consumers. In circumstances where insured institutions encounter liquidity crises or other financial challenges, the NDIC has the authority to offer financial support.[33] In instances where monetary support is deemed inadequate, the NDIC is empowered to take charge of these institutions. This may entail the installation of new management or assuming control of the institution’s activities to rehabilitate its financial well-being.[34] The overarching objective of these interventions is to forestall abrupt bank failures, thereby ensuring the safety and accessibility of depositors’ funds.
However, when a financial institution is determined to be insolvent, the NDIC intervenes to oversee its systematic resolution. This authority encompasses the ability to wind up the institution, offload its assets, and allocate the proceeds to depositors and other creditors.[35] The NDIC ensures the prompt disbursement of insured amounts to depositors, thus mitigating the financial repercussions on individual consumers. Furthermore, the NDIC can facilitate mergers, acquisitions, or other measures with more robust institutions, guaranteeing depositors continued access to their funds through an alternative entity.[36] The NDIC assesses the risk management strategies of financial institutions in order to identify potential hazards to consumer deposits and to guarantee the presence of sufficient measures to alleviate such risks. Finally, in the interest of consumers, the corporation may request information on the operations of insured institutions, investigate its activities, appoint examiners to assess the operations of insured institutions, and make appropriate recommendations to the Central Bank on any violation of law, regulations, or ethics by an insured institution.[37] It also possesses the authority to enforce sanctions and penalties against financial institutions that violate banking regulations, particularly those concerning consumer protection.[38] These enforcement measures function as a deterrent against misconduct and ensure that financial entities operate within the legal framework established to safeguard the interests of depositors. Through holding institutions answerable, the NDIC upholds the integrity of the banking system and shields consumers from potential exploitation.
CONCLUSION
Consumer protection within the insurance industry is of utmost importance in upholding public trust and maintaining financial stability. The Nigeria Deposit Insurance Corporation (NDIC) holds a crucial role in this domain, utilizing its statutory mandate to safeguard depositors and bolster the resilience of financial institutions. By implementing proactive interventions, rigorous supervision, and effective resolution mechanisms, the NDIC ensures that the interests of consumers are given top priority, especially in the midst of financial uncertainties.
SNIPET
The NDIC was established with the primary objective of furnishing deposit insurance to safeguard depositors in the event of bank failures. The core functions of the NDIC encompass the insurance of deposit liabilities of banks, the oversight of insured institutions to ensure their adherence to regulations, and the resolution of distressed banks. Over the years, its role has evolved to encompass the management of assets of failed banks and the promotion of financial stability in Nigeria.
KEYWORDS
NDIC, NDIC Act 2023, consumer protection in insurance industry, the role of NDIC
AUTHOR: Oyetola Muyiwa Atoyebi, SAN FCIArb. (U.K)
Mr. Oyetola Muyiwa Atoyebi, SAN, is the Managing Partner of O. M. Atoyebi, S.A.N. & Partners (OMAPLEX Law Firm). Mr. Atoyebi has expertise in and vast knowledge of Banking & Insurance Law and Practice, and this has seen him advise and represent his vast clientele in a myriad of high-level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.
He can be reached at atoyebi@omaplex.com.ng
CONTRIBUTOR: Tobenna Mogbo
Tobenna is a Team Lead of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Banking & Insurance Law and Practice.
He can be reached at Tobenna.Mogbo@omaplex.com.ng
[1] Otitodiri, Onyema, and Okpo Sylvia. “Legal And Institutional Frameworks for Consumer Protection In The Nigerian Banking Sector: An Appraisal.” Nigerian Journal Of Legal Studies 12 (2023) available at https://nigerianjournalsonline.com/index.php/NJLS/article/view/4681 accessed on 25 July 2024.
[2] Ikechukwu, Acha, Ikoh Itoro, and Nsien Christiana. “The efficacy of Nigeria monetary policy: A comparative analysis.” Scholedge International Journal of Business Policy and Governance 3, no. 4 (2016): 51-52. Available at https://www.academia.edu/download/69582179/404.pdf accessed 25 July 2024.
[3] Ajayi, L. B. “An econometric analysis of the effect of financial sector reform and monetary policy on Nigerian economy.” Journal of Economics and International Business Management 2, no. 3 (2014): 73-81 available at http://www.sciencewebpublishing.net/jeibm/archive/2014/3/pdf/Ajayi.pdf accessed on 25 July 2024.
[4] Igbinenikaro, Etinosa, and Adefolake Olachi Adewusi. “Financial law: policy frameworks for regulating fintech innovations: ensuring consumer protection while fostering innovation.” Finance & Accounting Research Journal 6, no. 4 (2024): 515-530. Available at https://www.fepbl.com/index.php/farj/article/view/991 accessed on 25 July 2024.
[5] World Bank Group. Federal Republic of Nigeria Diagnostic Review of Financial Consumer Protection: Key Findings and Recommendations. World Bank, 2017. Available at https://documents1.worldbank.org/curated/ar/820711525451341303/pdf/125964-WP-P160136-PUBLIC-NIGERIADiagnosticReviewofFinancialConsumerProtection.pdf
[6] An instance is the recent revocation of the license of Heritage Bank.
[7] See Ojukwu-Ogba, Nelson. “In Search of Financial Stability in Nigeria: From Legislation to Effective Regulation of Banks.” African Journal of International and Comparative Law 25, no. 1 (2017): 20-46.
[8] Folarin, Akorede. “An Overview of the Banks and Other Financial Institutions Act 2020.” Available at SSRN 3752297 (2020).
[9] Section 3 NDIC Act.
[10] Though not without its attendant challenges.
[11] Cap I18 LFN 2004
[12] Section 1 of the Act. Exceptions include friendly associations and foreign reinsurance companies.
[13] Section 2(1) of the Act.
[14] Section 2(2).
[15] Section 2(3).
[16] Section 3.
[17] Section 57 of the Act.
[18] Section 60.
[19] Section 4 (2) of the Act.
[20] Section 50
[21] Cap N53 LFN 2004.
[22] Section 1 NAICOM Act.
[23] Section 7.
[24] See Part VI and VII of the Act.
[25] Section 8.
[26] Prudential Guidelines for Insurers and Re-Insurers in Nigeria, available at https://storage.naicom.website/naicom/files/Prudential%20Guidelines%20For%20tnsurers%20and%20Reinsurers%20In%20Nigeria.pdf accessed 25 July, 2024.
[27]Guidelines for Microinsurance Operation in Nigeria, available at https://storage.naicom.website/naicom/files/MicroInsurance%20Guidelines%202018.pdf accessed 25 July, 2024.
[28] Guidelines for Licensing and Regulation of Insurance Holding Companies in Nigeria, available at https://storage.naicom.website/naicom/files/HOLDCO%20GUIDELINES%20(1)%20(1).pdf accessed 25 July, 2024
[29] For a comprehensive list, see NAICOM Regulations and Guidelines, available at https://www.naicom.gov.ng/regulations_guidelines accessed 25 July, 2024
[30] Section 1.
[31] Banks and Other Financial Institutions Act 2020.
[32] Section 3 of the Act.
[33] Section 49 of the Act.
[34] Section 50.
[35] See Section 55.
[36] Section 51 and 52.
[37] See Part VI of the Act.
[38] See Part X of the Act.
