CIMA Code : outstanding premiums, new regulation

Despite improving indicators, African insurers are still faced with a lingering scourge: outstanding payments. The latter have reached such enormous levels that insurers, regulators and governments can no longer ignore the problem. Unpaid premiums, not negligible at all, often account for more than half of the yearly turnover.

Within CIMA, the measures undertaken so far to stem the progression of this phenomenon have turned out to be unsuccessful. In light of these successive ineffective measures, CIMA decided to toughen up.

The reforms introduced by the ministers of the organization’s member countries at their last meeting of April 11, 2011 in Ndjamena (Chad) are poised to end a situation that could result in the disappearance of many insurers.

Respect of the insured-insurer contractual obligations

The phenomenon of the outstanding premiums highlights the problem of the respect of the contractual obligations of the insured who is committed to pay the premiums at the deadlines stipulated in the contract.

The decisions taken in Ndjamena modify the CIMA Code as regards the following items:

Conditions of the premium payment

So far, Article 8 requires insurers to include in the contract the amount of the premium. The new provisions now require them to specify the terms for the payment of the premium.

The payment of the premium and the renewal of contracts

Used with permission from MicrosoftUnder Article 13 of the CIMA Code, the effective date of the insurance contract is subject to payment of the premium by the insured. This legal obligation to pay the premium is enhanced by resolutions adopted at the meeting of April 11, 2011.

It is now prohibited for a company to renew a contract whose premium has not been paid yet. Moreover, failure to pay the premium or a portion of it within the agreed time will trigger the automatic termination of the insurance contract.

The new legislation also supplements Article 13-1 with sanctions against the insured in case the latter delivered a dishonored check or bill in payment of the premium. In such circumstances, the insured will be ordered to settle the payment within eight working days upon receipt of the document or letter of formal notice. Upon expiry of that period and if no remedial action is undertaken, the contract will be automatically terminated.

Within CIMA, the measures undertaken so far to stem the progression of this phenomenon have turned out to be unsuccessful. In light of these successive ineffective measures, CIMA decided to toughen up.

Article 13-2 redefines the relationship among the different co-insurers. Henceforth, in case of single-receipt coinsurance, the leading insurer is required to repay portions of the premium due to other co-insurers within fifteen days upon receipt of payment of premium or part of the premium. Upon expiry of that period, the premiums due by the leading insurer and not transferred to other co-insurers will automatically earn interests rated twice as high as the discount rate.

Relationship with intermediaries

In an effort to expedite the payment of premiums owed to companies by intermediaries, the ministers cabinet adopted a set of decisions aimed at limiting the risks of premiums retention by intermediaries.

Premiums collection

Insurance intermediaries shall not collect premiums, write or receive checks made payable to their order. This ban does not apply to cash payments below one million FCFA (2 224 USD).

Premiums repayment

The repayment of premiums to insurers is regulated by Article 542. According to this law, intermediaries are required to pay insurance companies the premiums they collect within a period of thirty days. As this provision is hardly enforced, the new legislation has introduced new penalties. Henceforth, the repayment of premiums to insurers must be backed up by a fully supported remittance slip. In case of non repayment of the contributions received within the agreed time, non-refunded sums will earn interests twice as high as the discount rate.

Current accounts

Current accounts must be subjected to a cross-validation on a quarterly basis. In case of disagreement, the reservations expressed by each party shall be deposited in the current account or in an attached document. Current accounts should be submitted by the general agent or the broker to the regulatory authority within a maximum period of thirty days from the end of the quarter and no later than April 30, July 31, October 31 and January 31.

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