PENCOM Takes Group Life Insurance Battle To Employers, Sets July 31 Compliance Deadline
Group life insurance is perhaps the most common of the benefits provided by employers who sponsor employee benefit programs. Often times, employees are given the opportunity to purchase supplemental coverage in addition to the employer-provided basic benefit.
While administering a group life insurance plan is seen to be easy as it involves enrolling the employee, obtaining a beneficiary designation form, calculating the premium, and remitting the premium to the insurer, occasionally, things do go wrong.
When this happens, employers find themselves having to pay a life insurance benefit from their own coffers when a beneficiary pushes back against a claim denial.
The Pension Reform Act 2014 makes group life insurance compulsory for all employees covered under the scheme. It is a scheme that can be likened to a death-in-service policy, designed to pay a benefit called the ‘sum assured’ to the next of kin or dependants of an employee who dies in active service. Specifically, this Act affects employers in the public and private sector having more than five employees.
Section 4(5) of the PRA 2014, provides that “every employer shall maintain a Group Life Insurance Policy in favour of each employee for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.”
The Act also provides for situations “where the employer failed, refused or omitted to make payment as and 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.”
Similarly, section 8(1) of the PRA 2014 provides that “where an employee dies, his entitlements under the Life Insurance Policy maintained under this Act shall be paid by an underwriter to the named beneficiary in line with Section 57 of the Insurance Act”.
The PRA 2014 also provides that “where an employee is missing and is not found within a period of one year from the date he was declared missing, and a board of Inquiry set up by the Commission makes a determination that having regards to available information and all relevant circumstances, it is reasonable to presume that the employee is dead, the provisions of Section 8 shall apply”.
This provision is in line with Section 57 (1) of the Insurance Act 2003 which provides that “a policy of insurance shall not be made on the life of a person or other event without inserting in the policy the name of the person interested in it, or for those whose benefit or on whose account the policy is made”.
The Insurance Act 2003 also provides that “the provisions of subsection (1) of this section shall not invalidate a policy for the benefit of unnamed persons from time to time, falling within a specified class or description if the class or description is stated in the policy, with sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy”.
But despite these provision and the numerous measures and efforts by the National Pension Commission, only five states including the Federal Capital Territory have valid group life cover for employees.
According to the Commission’s fourth-quarter 2020 report released recently on its website, only Lagos, Osun, Edo, Ondo and FCT out of the 36 states in the country have complied with the law on group life insurance.
Worried by this development, the National Pension Commission (PenCom) had given all employers of labour not later than July 31, 2021, to display evidence of purchase of group life insurance to avoid prosecution.
The pension watchdog said non-compliance to the notice would be considered a violation of the relevant sections of the 2014 Pension Reform Act.
“Employers that have not displayed a copy of the GLIP certificate within their premises are advised to do so on or before 31 July,2021,” PenCom said in a circular that was posted on its website.
It added that “Failure to provide GLIP is a violation of Section 4(5) of the Pension Reform Act (PRA) 2014.”
PenCom had in January this year directed employees to report any employer that fails to procure the minimum required Life Insurance Policy in their favour not less than three times their annual total emolument and those failing to remit the deducted pension contributions into their Retirement Savings Accounts.
Available data revealed that over 2.5 million civil servants in the country are missing out of the benefits of group life insurance cover, following the inability of 32 states to sign on to the policy, against the mandate of Pension Reforms Act (PRA) 2014.
Apart from the public sector, there are many workers in the private sector that have yet to
Speaking on this development, a Developmental Economist, Sesan Adewonise, called on workers trade unions to rise up to the plight of workers by compelling employers to insure their lives.
According to him, while the labour unions are fighting for salary increment, the pension and insurance packages of workers should also be part of their demands.
“It is now obvious to everybody that the state governors, among others, cannot do anything for the welfare of the workers unless they are compelled to do it. So, if the public sector unions don’t get up and ensure they implement these things, those states will not do anything,” he said.
It is worthy to note that the Group life insurance cover is a joint regulation of the National Insurance Commission (NAICOM) and PenCom, in Section 9 (3) of PRA 2014, requiring every employer, to which the Act applies, to maintain life insurance policy in favour of their employee(s) 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 the 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.
Policy coverage:
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.
Similarly, the policy also provides for the payment of the sum assured for those in common employment in the event that an insured person disappears and is not seen for a period of 12 months and there is sufficient evidence to assume that the member is dead.
However, the person receiving the sum will sign an undertaking to refund it if the missing person is subsequently found to be living. The insurance coverage is for 12 months, from January through December, and shall be renewable at the end of each coverage year.
The premium payable on the policy shall be pro-rated as applicable where an employee joins the scheme in the course of the year.
Where an employee leaves the service of the employer before the expiration of 12 months, the premium paid relating to the unexpired period, shall be returned/set aside to the credit of the employer.
Documentation requirements
Each employer is required to obtain an insurance certificate from the insurance company as an evidence of having arranged the insurance contract.
Such certificate is expected to be accompanied by a schedule which shall indicate amongst other things, the period of coverage, the number and details of staff at inception/ renewal date, their total emoluments, the benefit payable and the annual premium/date of full payment.
The insurance certificate is usually issued to employers by the insurer within a month from the policy inception/renewal date.
Employers are also mandated to display a copy of the insurance certificate in a conspicuous place within the premises, for the information of the employees, as evidence of having taken such policies.
Besides, the employer is required to send a copy of the insurance certificate with the schedule of benefits to the National Pension Commission, and the Pension Fund Administrators (PFAs) where the employees maintain their Retirement Savings Accounts (RSAs), not later than 31st March every year.
Employers are required to commence renewal negotiations in writing, within two months to the expiration of the current insurance coverage. Such negotiation must be concluded before the last day of the current cover.
Full payment of the insurance premium shall be made, at the latest, on the first day of insurance cover.
Where an employer fails to effect full payment of premium at the stipulated time, the insurer is expected to report such failure to the National Pension Commission within 14 days of non receipt of premium.
Death of an employee:
Where an employee dies, the employer is required to immediately commence death benefit claim on behalf of the deceased. The employer is expected to notify employee’s PFA and PenCom of the employee’s death stating the claim amount receivable. Thereafter, the employee’s PFA will validate claim amount and where discrepancies arise, this must be resolved with the employer.
Missing employee:
Where an employee is missing, the employer is expected to report this immediately to the employee’s PFA, insurer and PenCom
Then, the Board of inquiry established by the National Pension Commission would stipulate the documentary evidence required from employers to process missing person claims. This includes the Police Report, Employee’s passport photograph, newspaper publication of the missing employee, a letter from employer declaring him missing and any other document as may be required from time to time.
The documentary evidence required by the Board of Inquiry set up by the National Pension Commission is expected to be provided within 14 working days after the period of one year, from the day the employee was declared missing.
The Board of Inquiry is expected to within 30 working days of receipt of complete evidence required for its deliberations, communicate its findings to the employer, insurer and the National Pension Commission, for appropriate action to be taken.