Akin Ogunbiyi: Insurance Business Must Create Value

17 Feb 2013

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Akin Ogunbiyi

The insurance industry cannot be said to have fared well in the nation’s economy because of its abysmally low penetration in the country despite a cocktail of interventions by the regulatory authorities. However, in its bid to get a sizeable chunk of the insurance market and deepen insurance penetration, Mutual Benefits Insurance Plc decided to spread its tentacles to some other sectors of the economy through its nine subsidiaries.  The company’s Group Managing Director, Akin Ogunbiyi, in this interview with Festus Akanbi explains the mission of the company and what is being done to make insurance irresistible to Nigerians

One evidence of the diversification of your portfolio is your entry into the microfinance sector. What will you describe as your major inspiration to deal with those at the lower wrung of the ladder?

Our experience has shown that the investment in microfinance bank is a wise decision. Our effort is not only for profits. Of course, we will make profits in the long run. Through the microfinance bank- Mutual Benefits Microfinance Bank Limited, we have been able to do a lot of empowerment which is the very first basic thing we need to do for people to be able to buy our products and services. We must create that purchasing power for them. Today, they have given us between 35,000 to 40,000 new policy holders which ordinarily wouldn’t have been captured by insurance. Their own mode of operation is tailored towards the informal sector.

What do we do? We go out there into the open market, identify the various petty trading that people do. We have a group of people that sell jotting papers What they do is to cut them and clip them together before they make their sale in traffic in Lagos. We identified them at Oyingbo and told them they could do it better by modernising their activities. They complained they did not have money and we held meetings and showed them what to do. We told them, if you do it this way, don’t you think you will make better margin? They formed a cooperative society. They agreed with us and we empowered them. We didn’t give the money to them. Through our microfinance bank, we printed those jotters in a better format and handed them over to them. We started out with that group with N50, 000. That was about two and a half years ago. We have about 10 units like that today and with our microfinance bank, we are pulling N10 million business. They are assessing loans of N10 million today up from N50, 000. We have another set of people running bookshops.

What we did was to visit their shops. They have all kinds of books. We called them together and told them they can get contemporary books which people would love to buy. We put them together, a unit of 50. If we had wanted to do that without a microfinance bank, how would that have been possible? We met with the officials of the National Association of Microfinance Banks before we started out, they rebuffed us but we had this idea. When we started with those people selling textbooks and exercise books in Oyingbo, we started with about N100, 000.  Today, they are taking loans from our microfinance banks to the tune of N20 million. We looked for members of Association of Pure Water Producers. We advised them against doing their pure water just anyhow. Our people identified those that do pure water business in Yaba and Oyingbo. We educated them on what they stand to benefit if they do it better. We put them together in groups and today many of them have modern machines for producing pure water. Collectively, they are assessing about N35 million loans from our microfinance bank. This is how we have gone about empowering the people. These are calculated and strategic investments that will have impact on the bottomline.  The bottom line is a deliberate effort to increase insurance penetration.

Is that the motivation for delving into the transport business too?
Our investment in transportation was borne out of our passion to deepen insurance. Some four years ago, we read in the newspapers that the Lagos State government would no longer allow Molue and kabukabu to operate on some routes in the state and before Lagosians could come to terms with the new laws, the government had started implementing it, impounding vehicles here and there. We saw an opportunity. We asked ourselves, what is the population of stakeholders in transport business in Lagos State? We went out to hold meetings with officials of the Nigerian Union of Road Transport Workers in the state and there they educated us that they actually have different units of NURTW. Agege, Lekki, Mushin and so on. We found out that in Lagos alone, people that have something to do with intra-city transport is well over two million. This is made up of owners, drivers and conductors.

There are times you have about six drivers attached to one bus doing different shifts. It took us six to nine months to actually understand the workings of this group of people. After a careful study, we now sat down with their leaders. We told them, the Lagos State government has come up with this type of policy. What it means is that in a short while, all of you will be out of job, your source of livelihood would be taken away.

Supposing we form you into cooperative units, with a maximum of 50 members with collective collateral through collective responsibility and empower your unit. This is not going to be a one-time thing. Let’s give ourselves a period of time. The leadership jumped at it. Initially, they got it wrong because they felt we were going to give the money either through the leadership or that we will acquire the buses and hand them over to the leadership. We said no. We told them we wanted to reach out to their members. If we reach out to your members and empower them. When your members have the ability to pay whatever dues that you wanted them to pay to your union, this is where you will make your own money. We came to an agreement that we needed to acquire buses and they agreed. We registered 50 cooperative movements with the State government. We have Mutual Model 1 to 50. For each unit, we have 50 members and we elected leaders among those cells and gave them three months. We told them that for each of the units, we would give them a number of buses.

But we told them that to show their seriousness, can they contribute N200 per day for the next three months as seed money to show their commitment. When we did the calculation, we discovered that the seed money was just like one percent of what we were going to invest in the buses but we just wanted that sense of belonging to let them know that their money was involved. By the time they saw our seriousness this people came back to us and told us they were not going to do N200 per day. They told us that their members have the capability to do N1, 000 per day. In the first one month, we got N52 million contribution and within three months we gave to them we got N150 million. This is what we mean when we talk about the wealth at the bottom of the pyramid. It shows that people have the resources and that was how we started out.

So, were you able to fulfil your promise to them?
When we were about empowering them by buying buses for them, the law of Lagos State caught up with us. They said they do not want an individual operator or ownership of the scheme. We had seen an opportunity and because that opportunity appeared to be closing, it led us to another opportunity for the little we now know about the logistics of operation of transport business in Lagos we decided to return the money contributed by people to them with interest and this is verifiable. After this, we approached Lagos State government telling them what we had done earlier. We told the government we didn’t want the initiative to die since we have the resources, can you give us a licence to operate a franchise and that was how we came up with Mutual Model Transport Limited. We had to make presentations to the government under Public Private Partnership arrangement and Mutual Model Transport was the first franchise of LAGBUS.

Today, we have over 100 vehicles in our fleet. Of course it was tough, but the standard of operation has stabilised. The norms and values of Mutual Benefits have been incorporated into the transport business. This is what we are transferring into other businesses to ensure success and survival. Today, we are almost the last man standing now when it comes to operation of transportation in Lagos state. From there we have moved on to other areas.

We are working with Association of Airport Car Hire of Nigeria nationwide in all the functional airports in Nigeria. You will see Mutual Benefits Camry. It is not just going there. For every ticket sold, Mutual Benefit gets N10 travel insurance. We are using this to deepen insurance and we have had cases when claims are given to people who got injured when they entered our buses. For instance, there was one woman who was crushed to death when she fell off from our bus. The family got N1million. Definitely, the family will know what an insurance do. We have used the insurance to create value and we have actually positioned it as instrument for benefits.
How did Mutual Benefits go into property business? I understand Mutual Benefits Homes and Properties Limited has begun the sale of its estate in Iponri?

It is our passion to use insurance for what it ought to be as the bedrock of the economy, to create value and to create wealth and most importantly, to give people fulfillment. People write volumes on the inadequacy of housing not only in Lagos but also in other major cities. The middle class has fizzled out. And what has the mortgage institutions been able to achieve? The mortgage institutions have the same challenges and issues like what I have enumerated under the microfinance institution. How can you say you want to take a mortgage for two years at commercial rates like the multinationals and real sector operators? There is no mortgage in Nigeria. When you look at the last five years, people saw the need to go into real estate investment. Just look at everywhere in Lagos, from Ikoyi to Lekki to Epe today, you will see massive real estate development. Ordinarily, these are good concepts and good initiatives because these are services that people need but the question is how affordable are they? Most of the sources of losses suffered by banks today are in the area of their investment in real estate.

How many of those houses are they able to sell? How many of those houses are occupied? They are totally unaffordable. And again, we just don’t look at problems only. For every problem, the question is what are the opportunities that present themselves in that problem situation? Ironically, about 75 to 80 percent of all the new products we are coming up with are insurance policies to mobilise savings and they are also investment linked, in which case, all these premium we are generating, we don’t call them premiums, but deposits from our customers that is we have come out with products that generate liability for Mutual Benefits. If we generate liability just like any bank generating liability will I go and put the money in fixed deposits? If you buy a policy with Mutual Benefits today, at least I’m aware you have a minimum guaranteed interest of 7.5 percent per annum. If I give one billion naira to any bank today, especially in the last four years when the CBN said the MRR is four percent, that means even if I put money in the fixed deposit, I can’t even recover my cost. For every one thousand that we get as deposit from customers, it’s the net of 700 that comes to Mutual Benefits, how? The agency commission will be paid. Reinsurance that needs to back up your policy will have to be paid. Then we have administrative charges, and then we have the interest element that we have promised you every month which is liability and those liabilities are not just liabilities. We must invest this money in projects and investments that have long term tenure that will be able to generate cash flow for us in the future to be able to run our business. If you do a policy with us, you should be sure of getting your claim. This is what led us into these investments. Yes, the need was there. The market was there moreso that the capital market is dead. The capital market of today is dead because every stock has become penny stock, not just insurance. The money market does not favour our own kind of business, so what do we do? We invested in real estate.

Apart from your investment in Iponri area of Lagos, are there other properties owned by Mutual Benefits?
The first thing we did was to acquire lands in choice areas. At Gbagada in Lagos, we have 27 plots which we got from Lagos State and it is paid for. At GRA Ikeja, we have about 7,000 square meters owned by Mutual Benefits. Right in front of Alausa, the seat of government, we have a choice area there, which if not for the loss we suffered from the capital market; the board had approved new development for that particular property for as far back as 2009. We were just about going to the capital market to turn our assets to liquidity and begin, but unfortunately, we lost everything in that market but the property is there.

Somewhere in Berger area of Lagos we have a property covering 115,000 metres square, which is about 22 hectares. They were all acquired for real estate development but our own real estate development is with a difference, this is what I want to emphasise. Our charges are affordable. Second, we are giving mortgage at 90 percent. I can tell you that banks have approached us and they were ready to pay us off front but we declined because it would defeat the purpose for acquiring them. The purpose of going for that investment is not profit we want profit in the long run. Like I said, we were looking for investment that would be able to give us cash flow to meet future liability. I may not be here in the next five years but the issue is Mutual Benefits has generated liability in excess of N15 billion. These are premiums we have generated from people that are linked with life policies to meet the liabilities we have generated when they fall due.

How did you come about the concept of agent staff instead of marketing staff that we are familiar with in the insurance industry?
There is nothing new under the sun. When there is a challenge, there is always a way. I will give kudos to the board of the company. Our board for believing in us and for giving us the support that makes us to showcase our ingenuity. As I talk to you, these innovations did not just come.

They are a product of careful planning, learning process and massive investment. I travelled sometime and I was reading a magazine inside the plane and read about how they are using agents to make things happen in that organisation and if you can recall since 1985 when Structural Adjustment policy was introduced, Nigeria has not been the same again in terms of employment, it is getting worse and even the quality of our graduates is something else. They just go to school even for somebody who made a first class. This is because a whole lot of things which supposed to add value to their lives do no longer exist on the campuses anymore. Our children are no longer exposed to core norms and values, everybody is talking about globalisation.

Most of what our children learnt today are through the cartoons they watched and through the internet. And with this background, we decided to try agency administration. When we started this in 2003, if you recruit 100 agents today, after training them for four weeks, they would eat our food, they would get transport allowance for that four weeks and by the time they graduated, maybe only two of them would remain. And like I said, we engaged in massive investment, believing in what we were doing as the right thing, and from the learning curve, from our practical experience, from other information we had and to the glory of God, we were able to perfect the art of agency administration in Nigeria for Mutual Benefits.

In Lagos alone, we have about 2500 agents, and nationwide, we have about 4,000. We have gotten it right and if you pick any of our agents today, if you give them regular job they will tell you they don’t want. We have operational manual, product manual, we have made sure everything is now standardised and we keep advertising and employing young graduates. We make them to believe in themselves. We are still learning and the success we have recorded in that area, we are now trying to see how we can translate it into the large economy. In August 2011, we have started repositioning insurance as agents of growth in Mutual Benefits.

We have a system in place that makes our products available to Nigerians wherever they may be. If you go to my village in Ile-Ogbo, and you want to buy third party insurance for your car, you should be able to get our product without problem. Second, we felt we needed over a period of five years to have over 200,000 agents nationwide between now and 2017. If those structures are in place, what do you think they will do for us? It will have multiplier effects. There is a N10 somewhere in Maiduguri, which ordinarily should be premium for insurance, but for which it will not be available for the insurance industry and but for the effort of Mutual Benefits Insurance, it becomes available. This will boost the development of insurance industry. This is our goal. May God help us?

What are the opportunities available to insurance operators in Nigeria this year?
The opportunity for insurance will always be there. Again, the proposed budget which is yet to be signed is not fundamentally different from that of 2012. The point is opportunity will always be there. Let the insurance industry come together. The commissioner for Insurance has done a very beautiful thing for the industry under this Market Development Initiative, if the industry will grab that document, let us brainstorm on the import of that document and adopt collective strategy.

If we do this, insurance will be everywhere. We should learn from the failure of the American firm, A&G.  When we started Mutual Benefits in 2008, we had not even done this much and we were labelled a trading company and because of the problem at the time, everybody was thinking we were going the way of A&G.

When you fail, everybody points accusing fingers at you, for me it is not the failure of A&G. I want to tell you today that A&G as an insurance company is not only the single motivating factor for the rapid industrialisation of the American economy. It was the company that mobilised heavily, through its premium collection and made investible funds available. A&G is down today, but the insurance arm is much stronger than ever.

In South Africa, Old Mutual is an institution above many others in the country. They are also a major player in the world economy today and yet it is an insurance company. People should not judge us because of the failure that has been recorded. We need support. If people have ideas, they can come and ask. We need people to come and see what we are doing so that collectively, we can do it right. This is the right way to go. We are not just investing. Every investment of Mutual Benefits is tailored towards real insurance.

There should be premium for values. I’m not saying we haven’t made mistakes. We have lost money but these are things that have strengthened us. There is risk in business. If you don’t take risks then you stand the risk of risking all. Mutual Benefits did not just wake up one day and said o! We have surplus fund we want to do this we want to do that. We have engaged the government of Niger Republic in the last two years.

We have gone there to make series of presentations. Niger is a small country. We commissioned a report to examine what Niger is today and what it will be tomorrow. It was after that we convinced ourselves, that it would be a fertile ground for insurance.

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