Commissioner for Insurance, Mr. Fola Daniel, in this interview with Festus Akanbi, says any insurance company that still indulges in delayed claim settlement and associated vices will be digging its grave, insisting prompt settlement of claims is the best advertisement for insurance firms
Can you give an assessment of the performance of the insurance industry in the last one year?
The best way to assess the performance of insurance institutions in the past one year is through their audited accounts. We can only rely on the audited results of the companies and this is early January. We don’t have such reports yet and I don’t want to be speculative because I’m not going to pretend as if I have the idea of the whole accounts. I only have the quarterly accounts. I also don’t want to pretend I don’t have an idea of what the results are but I don’t want to place unaudited results before the public domain so we will not have the results of last year until the end of March when audited accounts start to trickle in. But I can say, with some degree of certainty that the performance of insurance industry last year was far better than the preceding year but by how much, I won’t be able to say. Definitely, there has been improvement in performance, in productivity and in premium collection.
In terms of penetration, will you say your expectations were met?
Penetration is not a one talk shop. It is a destination and it takes a while. Insurance penetration in Nigeria, depending on who is giving you the statistics, show that those taking insurance are about 10 percent or less. If you rely on the World Bank report, you will probably get like 94 percent of insurance gap in the country, so we are not expecting to close that huge gap within one year but I think we are making a progressive move towards reducing insurance gap, definitely, we have not covered those gaps.
One of the challenges facing the sector is the lack of depth. Series of international businesses passed to local insurance companies are being turned down because they complain that their insurance treaties cannot carry such. What are you doing to correct this anomaly?
I think this question should be posed to operators because it will not be the responsibility of the regulators to get them treaties. They should work towards getting treaties to all businesses they do and they should also work towards getting treaties for businesses that are doable. For instance, we have huge potential in oil and gas. So they shouldn’t just fold their arms and complain they don’t have treaties. They should go and get treaties. Treaties won’t come from heaven. There are ways of getting treaties. What we need to do as a regulator is to ensure we open windows, new opportunities and to ensure our businesses are not needlessly taken abroad although the onus is on the operators to ensure they build capacity in a way that ensure they conserve businesses here and also allow them to take more businesses.
What are you doing to protect the local operators? Most of the big oil and gas, energy and marine businesses still find their ways to the Lloyd market in Europe. How do you plan to address this issue of local content in insurance industry?
There is the Nigerian Local Content Act of 2010. The law was actually enacted in April 2010 and the board of the Nigerian content was inaugurated in October 2010. That is huge protection for the market. What that law says is that 70 percent of all ‘insurable’ in oil and gas must be domiciled in Nigeria. So if we are not able to retain 70 percent, then the only limiting factor is that of capacity. Capacity in the sense of what insurance company keeps and in terms of the backing they can get like reinsurers. The main challenge they have is the aggregate capacity and human capital. If you look at some values in oil and gas, it comes in millions of dollars. So an insurance company which will underwrite oil and gas must have financial capability beyond the ordinary. Really, underwriters need to have financial muscle, technical capacity and human capital.
How well is the eradication of universal banking impacting on the insurance industry?
As a professional and a regulator, I will not be celebrating the demise of universal banking because universal banking in other countries was supposed to be a value added but because of the way we practised universal banking, it is an aberration but let no one make it looks as if universal banking was inimical to insurance industry. It should be value added. I think it was the way it was practised that Central Bank wisely decided that banks should concentrate on their core businesses and leave all those strange businesses. I think where we should be heading for is in the direction of universal banking where you can, under one roof, buy insurance, buy your health insurance and the rest of them. I think it is not a thing to celebrate and I think the fallout should be that competition is more open because you recall that universal banking, the way we practised it, restricted competition. I’m sure you know that some banks that had insurance companies were alleged to be insisting that customers of the banks must insure their particular risks. I think that shouldn’t happen. A bank should showcase the value of the insurance component or their business and then you make your own choice. It should be competition. In some of the banks in Europe, many of them sell insurance but it is not mandatory. In fact, if they issue a policy and after a week you do not like it, you have to return it and tell them I don’t want it. As for the Nigerian insurance companies, I think they should be celebrating the fact that there is a more level playing field. Competition is being transparent.
What are the programmes being put in place to address the problem of human capital gap in the Nigerian insurance industry?
We are insisting that insurance companies must develop their human capacity and they must show evidence of it by way of rendering return of trainings their staff have undertaken particularly in oil and gas intervention. These are specialist areas and they are growing. Look at the Nigerian aviation industry and the number of airlines we used to have and the insurable business they are bringing on board. We are insisting that as part of the return they must render to us those results must include evidence of building capacity and of course we monitor it when we do our on-site inspections. I’m reasonably persuaded that insurance companies are desirous of building human capacity and they are making serious efforts. They don’t really have a choice. You cannot write oil and gas unless you have people who are competent to do so.
Insurance industry is still grappling with the twin issue of poor claim handling and rate cutting. How soon will these problems be things of the past and how many erring operators have you brought to book in recent times?
On the issue of claim handling, I will tell you with some degree of pride that failure to settle claims and delay claims settlement is fading into the past. We have a dedicated complaints bureau in the commission and at the time we set up the bureau, what we said then was that the bureau would be mandated to handle complaints on claims. As at 2007, we had a huge complaint of an average of 10 in a week but in 2008 and 2009, the situation has improved because for two to three weeks we did not get complaints from the people. The few complaints that are now coming are dealt with dispatch. However, we cannot take every complaint from the members of the public as the whole truth. Equity demands that you find out from the complainant and the guy being complained against. So we put this together and we insist insurance company must act in accordance with the law.
I’m sure you are aware we took some regulatory decisions against some insurance operators, which included suspension of licence, even taking over of management of these companies. They are largely to do with our dissatisfaction with certain things because I believe personally, as a professional, the best advertisement you can offer is prompt claims settlement. To settle claims of one person, you will certainly win more converts.
If you fail to settle one claim, you are likely to lose 100 clients or potential customers and because insurance sound magical so when those guys that are already being cynical now have the course to doubt if their claims would be paid or not, there is problem. So we are always serious on the issue of claim settlement and we ensure companies are complying.
People do ask me if those companies we intervened in them have turned a new leaf. The answer is yes. Those companies are doing better. In fact, one of the requirements going forward in monitoring the activities of those companies is to send to us on a monthly basis details of claims they settle, so we will see when the claims were settled, to who and where did the claims go to. On the other side, which is self regulation, the Nigerian Insurers Association (NIA) also decided to set up the ombudsman, which is an alternative dispute resolution mechanism. They set up the ombudsman, which every member agreed to submit to. I know that ombudsman which is domiciled in NIA and adjudicates between a few insurance companies and some claimants and I think they have done so successfully and to give weight to that measure, they got a retired Supreme Court judge to appeal justices, a very well respectable person to adjudicate and I think they are working well. It is self regulation. If that is done effectively at NIA level, fewer cases will be coming to us and those cases coming to us are taken very seriously. We are committed to our quest to deepen insurance penetration. We take it very seriously.
There was a report recently that companies were opting for merger to avoid closure. What exactly is the position?
Mergers or business acquisition is a natural phenomenon in business. It is true that a good number of companies are exploring the possibility of mergers and acquisitions not because of any weakness in their books but because they recognise that the bigger you are, the more economic to do business. So there are companies that are doing very well individually but they said they opt for acquisition or merger, that is to enable them have one balance sheet that is bigger and robust and that can attract big ticket businesses like in the oil and gas that I mentioned. In the report you are alluding to, I also read that companies are doing so because of the fear of being wound down.
There is absolutely nothing like that. At least there are half a dozen companies that foreign firms have bought into massively, one of them up to 98 percent. That cannot be a result of weakness because your balance sheet must be credible; it must be good before it will attract foreign investors. So really, it is a plus for us. Instead of having 50 companies, if we have less number of companies, they can then enjoy the benefit of synergy; they can enjoy the benefit of cost effectiveness. If five companies combine, you don’t need five heads of finance, you don’t need five managing directors. You will certainly have one, even if you have a larger board, it will not be in addition of all the previous board members of the companies that merged as one company, so it is cost effective. In the US financial services sector, you find out that companies are taking over one another not because of weakness but because they see benefits and values in combinations, that is why they are doing that. I think it is a very good development and I also want to say that the mergers and acquisition you see of recent are not regulatory induced, they are purely voluntary.
How far has the commission gone in its campaign against fake insurance operators?
The campaign is still ongoing and this year we are going to do a different strategy. We have done some solo campaigns last year but this year, what we want to do way forward is that we want to involve stakeholders. Who are the stakeholders in the campaign against forged insurance policies? All of us Nigerians are stakeholders because Nigerians are being defrauded. We are given papers that are worthless. They have deceived people into believing that they have some insurance security whereas they have none. The Nigerian police are a very major stakeholder and the Federal Road Safety Commission (FRSC).
We are leveraging on all these other stakeholders. We are combining effort to ensure that we can effectively curtail the menace of fake insurance. It’s more predominant in motor insurance and of course, marine where people want to bring in their goods and the last thing they think is marine insurance and once the vehicle is with port authority, they just give papers but these should not be valueless papers, they should be significant papers that give you security. If you are transporting your vehicles from America to Nigeria and there is damage, you should have the cause to complain and ask for compensation but most of those papers brought to port authority are valueless and that is why you see many importers with damaged goods as if they are mourning because they have lost money. In other climes, the loss of a property should not cause you sadness because you should know you can get some compensation.
But what about the suggestion that the removal of insurance desks from motor licensing offices is contributing to the increase in the cases of fake vehicle insurance?
I think the reverse is the case. We found through our studies that the licence office was the biggest market for hawking of fake insurance and we thought that we need to remove the fake from the original. If you go to licence office, you still find ABC Insurance Company but there is no company called ABC Insurance Company in Nigeria so the common denominator the fake one and the original ones have is the word insurance. The vehicle owner knows if he goes to the licence office, he is not going to get his licence renewed unless he shows up the paper and we decided that insurance companies should move out of the place but we encourage them that insurance companies should show more visibility in metropolis like Lagos.
There is no reason why an insurance company cannot open as much as five offices especially that the insurable assets in Surulere Local Government is more that what you can find in a place like Gambia. It should have another branch in Ikeja apart from those of Surulere, so we are encouraging insurance companies to be more visible by going to local government areas. This is because if they have more presence, the need for Nigerians to buy fake insurance will be reduced to the barest minimum afterall, Nigerians painstakingly go to the filling station and spend like half an hour to buy fuel and once you drive out the fuel is exhausted and you have to come back the following morning. So I do believe that if there are more branches of insurance companies, our people will go there to buy cover because no sane person will knowingly want to buy something that is fake.
There was this study of micro insurance by GIZ for the commission last year. What is it all about and how have you gone with it?
Micro insurance is one of the channels we want to deploy to reduce insurance gap in the country. Micro insurance is conventional insurance but what we are doing is taking insurance to the grassroots to those in the informal employment and those that are employed by an employer that has a minimum of five employees. They know they have the need to have a life insurance cover. There are farmers in rural areas that do not know anything about insurance. So we are doing group life insurance that are related to the local environment. We are taking insurance to the grassroots. They are called micro because they relate to the need at the grassroots and also relate with your pockets. The product must be affordable and it must be available and it is also micro because some of the old policies that are voluminous and which may require the expertise of a lawyer to interpret are not there.
What is the outcome of your campaign on compulsory motor insurance?
We started the campaign about two and a half years ago. We have about 16 compulsory insurance. The one that is more popular is that of motor insurance but has unfortunately resulted in a bad name for insurance institutions. But apart from motor insurance, there are several other compulsory insurance and one is building the cost of erection. At least section 23 or 24 of Insurance Act 2003 stipulates that any building that is in the minimum of at least two stories or above must at the point of erection have insurance. What is the insurance about, it is to compensate third parties who may be injured as a result of construction, and it could be people passing through who were affected by the impact of debris falling from the building.
The other one is Insurance of Public Buildings and the definition of public building is very wide. Every building is a public building, when the third party, that is members of the public, have access into that property and I think the only exception of the public buildings as defined are the churches and mosques. However, as you know churches and mosques are benefiting from insurance. So what we did as a commission was to create awareness. We went to all the geopolitical zones to campaign, also to showcase the benefits of these policies which provide you with ready compensation as against ad hoc compensation which government gives in case of disasters and I think that message substantially covered the areas we wanted to cover.
The second tier, after creating some awareness, what happens? Insurance companies should step in. We cannot step in because we are regulators but we decided to play our role in the area of regulation that is why we spend money to create awareness to ensure that insurance companies are leveraging on this opportunity and I think many of them are doing this and this will manifest in their results for 2012. I have a seen a bit of that in 2012. More and more Nigerians are getting aware. Awareness doesn’t have a stop. We must continue to produce awareness and I’m glad that insurance industry operators are supporting our efforts after all ultimately, they are the beneficiaries.
When will the controversy over settlement of insurance claims to victims of the recent Dana aircraft crash in Lagos?
There is absolutely no controversy; I think people are just simulating controversy where there is none. The requirement is that a minimum of 30 percent be paid to victims within 90 days after the accident and I can tell you that all claimants that have come forward with proofs of identity have been paid. We have few cases where 10 individual claimants submitting claims for one person, so it shows that the insurance company cannot pay to recipients. It is a national tragedy.
In the past, Nigerian insurance industry stood to be counted. They discharged their responsibility. Look at previous crashes, Nigerian insurance companies paid, so this one is not an exemption. This one is a national tragedy and we also recognise the fact that many of the victims died interstate (they didn’t do their wills) but there must be a way of identifying who are bonafide next of kin. I think that has been a bit of the problem. These are a few cases that are yet to be resolved. The residual of 50 to 70 percent will be taken care of. The initial 30 percent will be paid, that is not a problem. We do not want to generate controversy and the insurance industry does not want to feast on this saying yes we are paying victims’ families because that is what they are cut out to do.