Curtailing Excesses of Owner-Managers in the Insurance Industry

30 Jan 2013

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 Commissioner for Insurance, Fola Daniel

In spite of the opportunities created by owner-managers, particularly the creation of jobs and awareness in the insurance industry, current developments have shown that there is need to put the excesses of these group of investors and company administrators under close watch with a view to sanctioning those found to have breached the laws severally instead of forcing them to resign their appointments, writes Nnamdi Duru

Emergence of Owner-Manager Structure
Owners-managers in the Nigerian insurance industry became more pronounced during the post indigenisation era when with less than N50 million, one can set up an insurance company. A few privileged insurance practitioners and professionals took advantage of the opportunities created in the system then to set up companies.

The emergence of these operators got a boost during the post military era when many operators were given license to set up and run insurance companies. Some pooled their family savings and borrowed a little from friends and banks while others got a few friends to contribute to form companies, which they usually ran as family businesses. They put so much into such businesses to ensure survival and possibly to bequeath them to their children subsequently

Also, during and shortly after the military era, many serving and retired officers and their civilian friends amassed so much wealth, without knowing what to do with then. Some of these professionals who were close to these people, took advantage of that and convinced them that insurance is also a good business. Some in a bid to extend personal favours to their friends and family members in most of these cases, invested in the insurance and such investments have endured till today.

Expectedly, while some of these companies were ran aground by their promoters, others however, could not survive subsequent recapitalisation exercises in the industry and as such, controlling shares had to be sold off to others investors.
Even with the selling off of these companies to capable investors, a new set of owner-managers who acquired controlling shares in such companies emerged. They revived the companies and in most cases ran them as family businesses too.

To the credit of these owner-managers is the establishment of new insurance companies and revival of distressed and rested ones. These managers put in everything at their disposal, time, money and effort, even their personal and family resources to ensure that these companies survived. In fact, they took all the risks and many were actually consumed in the process.
However, the best things that accrued to the Nigerian economy from the emergence of owner managers in the industry was the creation of massive jobs for the numerous employees in the industry.

Related to that was the training and retraining of human capital in the industry. Since these owner-managers were most insurance professionals, who in most cases were trained by the Federal Government during the NICON Insurance Corporation era, they really understood what it takes to be a professional and the relationship between trained personnel and company survival. So they tried their best within their limited resources and even personally trained most of their employees who still remain the best in the industry today.

These owner-managers also brought creativity and innovation in insurance service delivery. In their respective drive for survival, they fine-tuned every aspect of the business, pushed marketing above risks underwriting and tightened the noose around their finances.
Most importantly, these set of owner-managers created so much awareness for the insurance, the practice and the industry as well. In their effort to survive, they took the insurance campaign to every city across the country and made in routes into various tiers of government in order to get more businesses. In the process, many Nigerians came to know about insurance. Whether they actually embraced it or not is another issue.

Unfortunately however, they undermined corporate governance significantly in the process of ensuring survival of their companies, over-concentrating powers in their respective offices for fear of fraud by employees and over time, this practice got enshrined in the industry.

Many of the new generation insurance companies were started by owner-managers but today these companies have outgrown their owners and become very good public corporation, expectedly, run on the principles of good corporate governance.

However and unfortunately, some of these companies both private and public companies are still being controlled by the owner managers, who still retain or have acquired controlling shares in the companies, in different guises. Some of these owner-managers elevated themselves to the position of Executive Vice Chairmen, Group Managing Directors and in worst scenarios unofficial Executive Chairmen, lording it over their appointed substantive Managing Directors.

Some of them assume these positions in order to still be in control of the companies’ finances directly and indirectly. In some cases, the Managing Directors are reduced to Executive Director Operations, overseeing marketing and underwriting while everything relating to finances is being controlled by the owner-managers.

They brought everything about major expenses including claims beyond a point and offshore operations of their groups under their schedule of duties. This is not bad in itself, but recent trends have shown that some of these owner-managers are using this as a cover up for diversion of company resources to enrich themselves at the expense of other shareholders and employees of the companies.

When they look back to all the effort and family resources which they have put into the business and seeing themselves losing decision taking powers as a result of other investors buying into their companies in the course of recapitalisation, some of these owner-managers devise other means of compensating themselves for all their effort and lost powers by way of diverting some resources from the companies as highlighted below:

Offshore Investment Diversion
A critical look into the activities of insurance companies show that, irrespective of their nomenclatures, many owner-managers bring the offshore operations of their respective organisations under their purview. This is not bad in itself again, as many of them have used the position to further the interest and growth of their respective companies.

Unfortunately, some of them do this for reasons not related to the growth and well-being of their companies. They man these sensitive positions and use them to siphon company resources into their private pockets in the guise of offshore operations and offshore investments.

A reliable source confirmed that just recently, one of the highly respected owner-managers whose nefarious activities in this regard was being closely watched by the insurance regulator, National Insurance Commission (NAICOM) hurried retired from active service to the surprise of insurance watchers who believed he still had many more years to put in the insurance industry. He was said to have bowed out voluntarily in time not to be disgraced out of office by the commission, which was very close to unravelling all the frauds and sharp practices he was perpetrating with his former office.

Funding of Personal Contracts
Some of the owner-managers who use their positions for personal gains and diversion of company’s resources do this in the guise of funding personal contracts.

Some of them are said to be in the habit of securing government contracts with their privately registered companies and get their insurance companies to fund such contracts. Eventually when the projects are completed, the payment are usually made in the name of their private companies which ab initio secured the contracts.

All the company’s finances which were diverted into funding such projects are therefore, diverted fully by the owner-managers involved into his private company without any refund or investment income accruing to the insurance companies they are running.

Falsification of Reports
When the sins of these fraudulent owner-managers are catching up with them, they now resort to falsification of company accounts to cover up some of the resources diverted over time. These desperados are in the habit of introducing fictitious assets and cash in different banks in the books of their respective insurance groups and submit same to the insurance regulators. They go back to bribe inspectors at the commission to get approval for such falsified accounts.

They use their over-promoted Managing Directors and Finance Directors, who usually take orders from them and who for fear of losing the perk of office to perpetrate this type of fraud and malpractice. Some even go to the point of forging bank statement which they submit to NAICOM to back up their cash in bank claims.

Such obnoxious practice is now being closely monitored by the current administration in NAICOM and some culprits have been forced to resign their positions as Chairman, Managing Director and Finance Directors respectively.

Diversion of Capital Raised
Some unscrupulous owner-managers divert fresh funds raised from the capital market wholesale. They initiate necessary actions at the board level and secure shareholders’ approval to raise fresh funds from the capital market. When money is raised, they practically divert most it, if not all the money, into their private bank accounts under various guises and in some cases falsify books to cover up the fraud.

In some cases like what happened in the case of crisis-ridden Investment and Allied Insurance Plc (IAA), where one of the Directors who is now investigated and prosecuted by various security agencies; unscrupulous owner-managers convert money raised during private placement of companies’ shares particularly and introduce fictitious and non-existing assets to cover the fraud.
Some even go to the extent of declaring paper profit and pay dividends to shareholders from their capital in order to divert their interest and avoid close scrutiny of their activities.

Corporate Governance Violation
The activities of some unscrupulous owner-managers in the industry rear its ugly head in the form of breach of various corporate governance rules. Some, particularly those who would not pass the “Fit and Proper Persons” test for managerial positions in the industry, turn themselves into Executive Chairmen and Group Managing Directors, running the companies on a day to day basis in disguise even when there are sitting Managing Directors and Finance Directors. This way, they divert company finances into their private pockets without anybody to challenge them.

People in this category usually engage the services of Managing Director, who in some cases may have been over promoted to this position or rehabilitate those who may have lost their jobs in the past and were distressed and frustrated. The latter takes orders from them on a day to day basis and for fear of losing the perk of office do the biddings of their benefactors and serve as rubber stamps for the illegalities the owner-managers commit daily.
Call for Action

The current administration in NAICOM which holds itself out against any form of fraud and malpractice in furtherance with its mandate of protecting the interest of stakeholders, particularly policyholders, must ensure that a stop is put to these types of fraud and malpractice in the insurance industry.

The regulatory body must train and retrain its inspectors or investigators to be knowledgeable enough to unravel any hidden or disguised transactions in supervised companies. They should also be well-remunerated so that they do not fall into the temptation of collection bribes and grafts to pass fraudulent transactions as good.

Stiffer Sanctions Necessary
The insurance regulator must realise that asking or allowing company executives who are already indicted or were about to be indicted in various NAICOM investigations to step down or resign their positions is not enough punishment for such malpractices. This should be the first step, just to allow the commission do a better job of unravelling the frauds and sharp practices they have committed.
The commission should involve the Police or other relevant security agencies, which in turn, should prosecute the indicted company executives in court and where they are found guilty; they should be jailed to serve as a deterrent to others in such privileged positions. This is the only way forward.

Tags: Nigeria, Featured, Business, Commissioner Insurance, Fola Daniel

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