Casmir: Insurance Industry has Been Making Provisions for Catastrophic Losses like #EndSARS

Managing Director, Afriglobal Insurance Brokers, Mr Azubuike Casmir, is a veteran insurer with over 30 years experience in insurance business. In this exclusive interview with Ebere Nwoji, he spoke on issues of public interest in insurance, role of insurance in the #EndSARS protests losses, the place of digital marketing in insurance business in Nigeria among others. Excerpts

You are one of the insurers in Nigeria who has seen it all in the business of insurance. The industry is experiencing a lot of changes in the type of risks and quantum of claims coming its way. We heard about the losses from #EndSARS protest and other emerging risks, are indigenous insurers insuring these emerging risks?

Let me talk about our local challenges. That is what is primarily causing the problems. When you talk about emerging risks like cyber risks, look at London market, they are very versatile, very experienced and they have built so much capacity and competency in that regard and they have what it takes to also guard against certain cyber losses.

But our own situation here is that we have very volatile environment. Volatile in the sense that if you are not careful and you take a cyber risk, in the next two weeks, you will hear that the risk has crystalised and if the insurance company is not careful, it will be paying out claims that can make them go under so that is our local problem you talk about terrorism risk, of course, terrorism has become international problem.

Whereas other countries have been finding a way to address their own terrorism challenges, Nigerian case seems to be going unabated.

Everyday you see the situation worsening, if insurance cannot determine the likelihood of occurrence of a particular risk and it is dabbling into it, you are burning your fingers and that is some of the reasons some of them are shying away from it.

Is there any lesson from the EndSARS protest and COVID-19 for insurers?

Well, the lesson we learnt from #EndSARS protest is this we have been hearing about catastrophes and everybody believed that catastrophe can only come when you have wars, natural disasters like flood but little did anybody know that it could come from that angle and it came and was very overwhelming to the industry.

But if you look at that EndSARS protest critically, it could have been possible for insurance industry to opt out of that risk or those losses but for image reasons, the industry decided to take them up because when you read the policy document, they will talk about riot, strike, civil commotion, war or war like situation, politically motivated risks.

If you bring these together and link them to the #EndSARS protests, you find links which could have been possible for insurance companies to say look, we are not liable or at best let us pay these claims on ex-Garcia basis. But because the industry is struggling to shore up our image, we paid.

But those they paid bought extension what about that?

What are they extending, to cover riot and strike? Is that not true? That is the only extension that can cover that risk.

But even if you extended the policy to cover riot and strike, have you talked about the likelihood of that riot and strike being politically motivated, being close to insurrection, and the rest of them. So if there is a link, what we call proximate cause in insurance business, if you find any link between these things I mentioned and those losses that could arm insurance companies to repudiate liability.

Is it possible for insurers to design specific products that can directly address these emerging risks?

I don’t think that is the solution. You know there are actually provisions for catastrophic losses. That is why insurance industry is regarded as a conservative industry.

Over the years, insurance industry has been making provisions for catastrophic losses like the #EndSARS protest.

If you make a profit of N10 million, the law will always require you to set aside N2 million for catastrophic losses, unexpected losses that could go over and above what you ever anticipated.

So insurance industry in Nigeria, if they have been keeping their records over the years have been making reserves and provisions for the likes of #EndSARS losses so all they needed to do was to take back from those reserves and pay the claims.

Your company Afriglobal recently set the pace in digital insurance marketing through the launch of the Africover 247 platform. Coming at a time when many other brokers think digital marketing is not yet the way to sell insurance in Nigeria.

It’s about two months since you launched the platform. What is your experience like; how is the platform performing?

You and I know very well that technology is an ongoing thing. It is not one action you take and go and relax believing you have done it all. Technology is evolving and every now and then, something new comes up so you keep updating and upgrading what you already have. The platform we launched you know it is the first of its kind in insurance industry particularly in broking arm.

Before then, there were existing platforms particularly owned by underwriters deployed to one client or the other such that they could do their transactions with that particular client. But that is not the type we launched. Nigerians can use the application we launched outside the country. You may be surprised to hear that those that have shown much interest are Nigerians outside the country.

Those of them that have assets here and they have been thinking about how they could have their assets here insured. Some have vehicles here that they left they are not using them. Some have landed properties that are not insured, probably they felt it was going to be difficult for them to be doing insurance all the way from there, but now for the first time, it is easy for them to just pick their phones and buy insurance for any of their properties anywhere in Nigeria.

So the acceptability is very wide. Quite many people have successfully downloaded and are using the application. Many also have fully used it to buy insurance but like I said, we are still upgrading. What we have also done is to partner with some well known online markets. Yes that is the right way to go let me give you an example Konga.

Konga is like an online supermarket where you go to and you buy any product. It means when you go to Konga, you also buy insurance and when you say Konga insurance and click, what you get there is Africover 247, and that will give you the link to buy any insurance product you want. This is just an example of what we are trying to do. There are quite a lot of other establishments we are partnering with.

What kind of partnership are you talking about with the online markets?

Let me use another example with Paga. You know you use your phone to do your transactions. You also use POS outlets to do your transactions. So the partnership is such that when you go to POS outlet, just as you do your banking transactions you can also buy insurance. So you have Africover as an app there so when you click, you buy any insurance you want.

But the truth is that if you invest in any technology and you think that in the next six months or one year you recover your investment, you are making a mistake. It trickles in, then builds momentum and overtime you begin to see the effects. So we are very happy that the app is receiving the desired acceptability that is actually spurring us further to upgrade it further higher than we launched.

There is this widely held view that the emergence of digital marketing will render insurance brokers irrelevant in the insurance business chain, do you agree with this and what is your next line of action as a broker to remain relevant?

I don’t think that is true. Anyway, some brokers that are not alive to the realities of the day will be gearing up to go out of the market.

But let me put it to you that it is not all insurance that you can sell digitally.

You and I know about some insurance like engineering insurance that requires a lot of expertise say insurance of vessels and others like that. You really need to be there physically to see what it requires so it is not all classes of insurance that you can sell digitally. You can do digital insurance mainly in retail market not in all insurances.

It is often said that insurance market is brokers’ market. Are you thinking along the line of partnering insurance agents? I mean floating insurance agency and be in control of hundreds of agents working for you bringing businesses especially retail businesses for you to place with insurance underwriters?

We are looking at it especially at state level. What we have been trying to do is to have agents in various states that will be marketing that platform. Before we got this platform, we tried to employ a number of agents. We have one of the offices at the back of this place but the challenge we have as brokers is that whereas that agent can work directly with an insurance company, introduce any transaction, earn the commission and move on; the same agent will work with you, earn the commission and share with you.

So you find out that agents prefer working directly with the insurance companies.

Of course the brokers live on commission so if you employ an agent that also lives on commission, both of you will share the commission and where the booty is not big enough, there will be problem because you find it difficult to satisfy them.

Members of the insuring public do not know much about the existence and role of insurance brokers in insurance business. Indeed, some mistake insurance brokers to be stockbrokers. What are brokers doing to make themselves popular in the market so that the masses will understand your roles and buy their insurance through you and avoid facing the challenges they face most times in getting their claims paid when risks occur?

The insurance brokers are doing a lot in this regard through their umbrella body, the Nigeria Council of Registered Insurance Brokers (NCRIB). We have been placing newspaper adverts, radio gingles even in televisions we have been doing a lot to sensitise people on the relevance of using insurance brokers in insurance business.

Myself I have featured a number of times in such programmes on behalf of NCRIB. The last one was on Niger FM.

I featured in their life programme. People were phoning in, asking questions about insurance and I responded to all of them. Also almost every week, NCRIB sends one professional or the other to feature in similar programmes and enlighten people on insurance. So a lot is being done.

Recent sigma report by Swiss Re, evaluated nine markets in Africa in terms of premium generation in 2020 and level of insurance penetration. In terms of premium, Nigeria was ranked the fifth market but in terms of penetration, Nigeria was ranked last. This is despite our huge population. How do you think this situation will be improved upon?

The answer lies in retail market. Let me tell you what we see today. We have the oil majors, Chevron, Mobil, Total, NNPC and the rest of them. Because of the local content law, these companies are mandated to do certain tranches of their insurance here in Nigeria.

So you have a situation where Chevron’s insurance premium alone runs into billions of Naira. But even though it runs into billions, chevron is just one company. When you talk about insurance count, you just count them as one.

Total is one, and NNPC is one. So you have a situation where you have large premium written but when you count a number of transactions, they are very few.
Let me tell you that in insurance, it is not a desired development. Insurance runs on law of large numbers. The implication is that if for any reason, Chevron decides not to do insurance that figure you see going up will crash.

Whereas if you focus on retail insurance, you have quite a large number of people coming in before anything will happen that will make that large number of people not to take insurance, it will take quite a lot. So the trend that is sustainable is actually that, which comes from retail market.

The problem with retail insurance is lack of trust how do we solve the problem?
A lot has been done to that effect now unlike before. The trust problem came from agents. I can tell you that it was created when insurance firms began to employ agents sending them out to go and sell insurance. Some of them went out selling policies they did not understand. Some of them went about selling term Assurance to you and make you believe it is endowment Assurance.

They make promises that are different from what the policy documents provided. But when people make claims, that is when they realised that the same product which agents told them that are available in the policy is not true and then they became disappointed and when this happens, one will tell his experience to the other and so the story began to spread and you know we have a large number of them. So that was actually what tarnished the image of the industry that we are battling today to recover.

But the way to go is what the professional arm of the industry is doing. That is the Chartered Insurance Institute of Nigeria. The institute makes sure that before you register an agent, the person must have passed through insurance proficiency course. You make sure the agents have basic knowledge of the products they are selling so that when you go out, you don’t just sell insurance because you want to sell and collect your commission and walk away, you sell what you understand.

Another problem we have in insurance, which is applicable to banks, is that underwriters employ marketers who are graduates of other discipline. Some of these graduates though they went to school, they don’t understand insurance and how it works. What you now see is that when they employ them, they give them targets and most of them in a bid to meet their target, they go out there and sell what they want to sell any how to meet their target. The shareholders put pressure on the management, the management returns the pressure on the marketers, marketers go out there sell whatever they can sell to meet their targets.

Except you have a striking balance where you have a very strong and professional underwriting department who can check what these marketers are bringing. Know those that are real business and those that are not. That is why in most insurance companies, the marketing department and underwriting department do not agree.

This is because the marketers will go out and bring in all manner of things but when they come back, an experienced underwriter will reply, I am sorry these ones cannot go the way you want them.

But the marketer wants to meet his target but the underwriter is there to ensure they do the right thing.

You talked about the oil and gas business and local content, is the local content actually working in oil and gas business?

Yes, it is working.

Do Nigerian insurers actually insure the core business of oil and gas sector?

Yes, they do. Remember that when we talk about local content, it is also subject to capacity. Assuming the local content law says you must do 60 or 70 per cent of total insurance with local underwriters and you now find out that the local underwriters’ capacity cannot take that 60 or 70 per cent capacity, what do you do? The local market will take only what they can take and the rest is ceded out so you find out that where the local market would have earned N5 billion because of low capacity, it can only take N2 billion and the rest is ceded out.

When you talk about capacity, in what sense; is it in the area of human resources or capital?

Capacity in terms of capital and that is why NAICOM presently is talking about shoring up the industry’s capital. Where you have low capital, it is not possible to insure very large Risks. Remember your capital also will determine the extent of treaty reinsurance cover that you can buy. Treaty Reinsurance cover even gives you additional cover over and above what you can retain on your own because treaty will tell you okay, if we are to give you what you call quota share treaty 50-50.

For me to give you N1 billion cover, you must have taken N1 billion on your own so what happens if your capacity cannot take N1 billion? It means the quota share treaty can only give you N500 million, which is what your capacity can do so if you are presented with a very large risk, you will have no option than to cede it outside.

So when you have taken that full capacity, who takes the remnants abroad?

Before we talk about taking the remnant abroad, there are ways it is handled. We have what you call local facultative Reinsurance. What that means is that you can look for other insurance companies that can take proportions out of what you have to reduce your load. We call it facultative.

Facultative is when you have taken a risk and you feel that you won’t be able to go to that extent, then you call some other insurance companies to come and take part of what you have.

Is it the same thing as co -insurance?

No, co-insurance is an arrangement whereby every underwriter participating in a class of risk bears the risk severally. If there is a risk of 100 million and we are five, if I take five million, I am taking five million on my own whenever there is a loss, each of you will pay claims according to the proportion you have taken here every underwriter is liable separately. That is co -insurance every underwriter is liable separately.

But when you talk about reinsurance, one underwriter has taken the risk 100 percent. He now calls on other underwriters to come and take part of what he has taken 100 per cent in different proportions such that when there are claims, you are held responsible.

You will pay first. In co – insurance, the insured is aware of the co – insurers arrangement such that when there is claims, he will require insurance A to pay his own proportion he holds all of them responsible until they all pay him.

If for any reason, any of the co -insurers fails to pay, he cannot hold others or the lead underwriter responsible.

The lead underwriter is responsible for his own proportion.

Every other participating company is responsible for his own portion that is why liability is several not joint.

When you talk about Reinsurance, one insurance company has accepted the risk hundred percent, it is that insurance company that the insured knows, he does not know the arrangement you have with other reinsurance companies. If there is a claim, he paid you the premium 100 percent you took, then you went and shared with other insurance companies so when there is loss, the insured faces you, demanding for his claims.

He does not want to know if other insurers in the business paid you or not this is reinsurance generally. But Facultative is the conventional Reinsurance.

It is an annual arrangement whereby insurance company buys reinsurance that will cover him for a whole year such that every risk you are taking beyond a particular tranche, automatically goes to the reinsurance company.

That is an annual arrangement. It can be treaty, it can be quota share, it can be excess of loss reinsurance and NAICOM requires every insurance company presenting its license for renewal to show evidence of reinsurance. If you don’t have it, you won’t renew.

But the facultative you are talking about now is usually local.

Local in the sense that for every risk you are taking, you go and shop to see if there are other insurance companies that can take part of it.

If you succeed in getting them, okay for you, if you don’t, you are on your own. Remember I said the first one is an annual arrangement; you buy it at the beginning of every year. With that, every risk you are taking over and above your retention is automatically covered.

But in the local treaty, every risk you accept over and above your retention, you have to go out and look for those that will take different proportions until you are able to cede out the risk hundred percent. That is facultative.

You talked about capacity, there is general belief that Nigerian underwriters only act as brokers to their foreign counterparts when it comes to insuring risks requiring huge capital such as aviation and oil and gas insurance. What you said seems to confirm that and these are the same insurers kicking against capital increase. How do you defend this?

What you should understand is that there are actually no big organisation, especially for corporate governance issue that will like to do a large chunk of insurance directly with insurance companies in Nigeria.

Now, what you find out is that insurance companies have partnership arrangement whereby when they accept a risk that is beyond them to carry, they call their foreign partners to come and assist them.

So I don’t think they are in any way undermining the brokers. Because if it is a local risk here, the same risk you are calling your foreign partners to come and assist you, definitely has a local broker here managing it.

So what you are asking could be addressing reinsurance broking issue and Afriglobal apart from being insurance broker, we are also licensed to do insurance broking.

Can you directly cede business abroad?

No, we cannot cede business directly out of Nigeria. The law in Nigeria does not allow that. Before you can cede any business abroad, you must have exhausted the local capacity.

You must also show to NAICOM evidence that you have tried local underwriters and they were not able to retain the risk. So you can only take any risk off shore when you have shown clear evidence that you have tried local underwriters and they are not able to accept such risk.

May be because of the type of risk you are presenting, example, terrorism cover, you find out that the local capacity of local insurance firms is very low. Cyber risks, the capacity is very low. So now that you are talking about billions, billion in Nigeria, you have a risk of 100,000,000 you may be surprised to hear that you may not find insurance company in Nigeria that can accept it. Despite that it is low. Most of them don’t even have capacity for such risk and terrorism risk so in that case, local content law does not operate.