Nigeria: Importers and Fake Insurance Policies

Despite the fact that Marine Insurance Act makes it compulsory for all goods going out and coming into the country to be covered by insurance policies, importers and exporters of trade goods have remained enmeshed in the fraudulent practices of using fake documents as insurance covers for their cargoes, reports Francis Ugwoke

Those who know the shipping industry describe it as a sector full of strange people. It is also a sector where one finds all sorts of corruption. Think about the billions of naira that are lost on a daily basis as a result of illegal bunkering or crude oil theft by a gang of powerful people who are knowledgeable in shipping. Then, there are also some highly-placed Nigerians who would defraud the nation through oil subsidy by making false claims. Most of these people are into shipping trade. A few months ago, it was revealed that the Nigeria Customs Service (NCS) does not collect duties from ships bringing petroleum products into the country. It is estimated that the Customs Service could generate as much as N1.5 trillion every year as against the current N800 billion, if duties are paid on petroleum products being imported into the country . While these 'big men' steal in billions, there are also many others in the seaports, who benefit from undervaluation of goods.

The importer would place an order for N10 million worth of goods, only to falsify the value of the items to N2 million in order to evade payment of appropriate duties. Some customs men who discover this on the other hand see it as an opportunity to also help themselves. They simply demand their own 'settlement' to give the importer an insignificant amount to pay as Debit Note (DN). This way, the nation loses billions of naira on a daily basis. One other area where the country is losing heavily is in marine insurance where it is estimated that 80 per cent of importers use fake documents to make up for the statutory obligation to indemnify their goods. Investigation showed that most importers of trade goods fake insurance documents without minding the risk to them as traders.

Marine Insurance Law

The provisions in the Marine Insurance Act make it mandatory for importers and exporters to take up cover for their goods. The idea is that since international business is full of risks, with ships sailing from one country to another before arriving one's own destination, the best is to have insurance cover for the goods. THISDAY checks revealed that while corporate organisations provide necessary cover for their goods, many international traders simply patronise the 'Oluwole Market' where there are specialists who arm them with fake insurance documents. Since insurance regulation is very weak, the importers have had their way. They have also been lucky that cases of ship wreck and other damages through which they can lose their cargoes are rare. But many still lose their goods through pilfering or vandalisation of the containers.

Shippers Council

Apparently aware that many shippers do not take insurance cover for their goods, the Nigerian Shippers Council (NSC), which is an agency of government that protects the interest of importers, has been making efforts to ensure that this is not so. The Cargo Defence Fund set up by the council to protect the interest of importers has been involved in educating them on the importance of marine insurance. A senior member of the council who did not want to be quoted said that there is the institute Cargo Clause with three different categories. ICC has Clauses A, B and C. Among these covers, Clause A is a comprehensive insurance for those who want full coverage. The council advises importers of perishable goods to take Clause A cover for perishable goods. It also advises that they can be covered by Clause B and C on goods that are not perishable, like steel products. But the official expressed surprise that despite the efforts of the council to make importers take the policy that will help them recover their money in case of damage, many of them have not been co-operating.

Fake Insurance Policy

At the Lagos seaports, mainly Apapa and Tin Can Island ports, it was gathered that there are agents who specialise in providing insurance covers for importers of trade goods. The agents can fake any insurance company's document since nobody scrutinises the documents. The Customs Service is not concerned about the genuineness of the documents. So also are other agencies at the ports, including terminal operators and shipping companies. Even the banks where some of the documents pass through are not concerned about the genuineness of the documents. An agent confided in THISDAY that it takes about N5,000 to get fake insurance document for any import or export.

Bad Business for Insurance Agents

An insurance agent, who had gone to solicit for cover for his company was shocked when she was told in confidence at Apapa port that very few importers go for genuine insurance covers. The agent said that she discovered that those who take genuine cover are mainly corporate organisations and a few others. She said most importers believe that nothing will happen to their goods on transit.

But Nigerian Shippers Council is on regular basis inundated by series of petitions on how shippers lost their goods on transit with the shipping company failing in compensating the importers. In marine insurance, while the vessel is covered by marine insurance, the cover for goods on board is the responsibility of the importers. It was however gathered that international insurance law provides that in the case of cargo loss as a result of accident on sea, the shipping company or vessel owner can only pay about $500 compensation per container.

Cost of Genuine Insurance

The cost of marine insurance depends on the value of goods. And insurance agent, Miss Neka Ukefu, said what an importer pays to indemnify his goods is very minimal compared to what he would have spent in importing goods into the country. She said that Clause A is between 0.4 to 0.5 per cent, depending on the insurance company. Clause C is 0.18 per cent. How much to pay on any of the covers can be negotiated, she said. According to her, Clause A is for Comprehensive insurance, which is cover for total loss. Clause C is limited as it does not cover total loss. She acknowledges that there is equally what is known in the insurance circle as Waka Pass cover, which according to her, is fake insurance document. She hinted that some unscrupulous insurance staff are also involved in providing such cover.

Effect of Fake Insurance on Economy

An insurance agent who specializes in marine coverage, Chief Kenneth Udah, said the insurance industry is losing billions of Naira revenue to importers and exporters who chose to use fake insurance documents for their goods instead of seeking genuine cover. According to him, between 70 to 80 percent of importers, particularly those of trade goods use fake documents, adding that if this group could patronise insurance companies by insuring their goods as required by law, the insurance industry would experience incredible development. He estimates that what is lost to fraudsters in the industry is in the region of about N300billion annually. He advised the National Insurance Commission (NAICOM) to come up with strategies on how to address the issue of fake marine insurance. NAICOM, he said, can set up an insurance monitoring team that will scrutinise all insurance documents attached to import documents at the Customs Command throughout the country. According to him, this will reduce the incidence of fake and improve the revenue generation of the industry from marine insurance. THISDAY checks revealed that at some spots in Apapa port, security operatives have continued to make arrests of those who are involved in faking insurance documents, but the fake business has not stopped. It was gathered that on arrest, the agents simply settle their way and continue in business.

Gains of Marine Insurance to Importers

A maritime lawyer, Mr. Emmanuel Ofomata, who spoke to THISDAY said a serious businessman cannot be involved in faking insurance document because of the risk involved. Ofomata said the amount involved in insurance cover is not so much that an importer can be involved in fake insurance considering the gains if anything happened. He said in most cases, the highest any importer can pay on container load of goods for insurance cover could just be N50,000.

He added that this takes care of rainstorm, shipwreck, pilferage on the importer's goods. "It is in their own interest to insure their goods against any unforeseen incident. Sometimes you may not know the importance, or one will think that it is not necessary, until something happens. If you invest 50,000 dollars, it takes two months for the goods to arrive, so it is important to insure such goods because of possible damage as the ship carrying the goods will probably not come straight to your country, and will travel to other countries before bringing your goods. What an importer pays as insurance is just a fraction of the value of the goods," he said.

Ofomata said in the past people were afraid that insurance companies would not pay claims, adding that this was among the reasons why many do not take insurance cover. But he said things have since changed now with the National Insurance Commission (NAICOM) clamping down on insurance companies that fail to pay genuine claims.

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