As Insurers, PFAs Contend with the Economic Downturn


The current economic climate is plaguing the operations of insurers and the pension sub-sector, writes Ebere Nwoji

The prevailing downturn in Nigeria’s economy, occasioned by not only the slide in crude oil prices in the international market and the shortfall in crude production due to attacks on oil facilities in oil producing areas has not only taken its toll on the pension and insurance sub-sectors, but the various sectors of the economy.

The pension sub-sector, appears to have received a bigger shock from the development, as it has compelled many employers of labour, to resort to job cuts as a survival strategy.
With job cuts, the pension sub sector, is under severe pressure of demands from contributors and less contributions and remittances from sacked employees and employers, who have relieved their employees of their jobs, a situation, which is currently affecting their reserve and investment activities.

Apparently, since the federal government began to implement some of the economic measures it had put in place to avert corruption, reduce spending and retain more money in the nation’s treasury, operators of various sectors of the economy are not finding things easy. They have adopted measures, aimed at lifting their heads above the waters in business.

In the service industry, especially the banking sector, the Treasury Single Account (TSA) policy of the federal government, has begun to affect banks, prompting many even the big operators to resort to downsizing.

This is despite recent threats by the labour unions, to picket such banks and federal government’s threat, to withdraw the operating licenses of such banks.
For instance, recently, First Bank of Nigeria threatened to lay off as many as 1000 employees. Other banks also followed suit as a result of shrink in their income and profit.

The manufacturing sector, is not standing on safer ground as epileptic power supply, witnessed in the country, high cost of raw materials as a result of exchange rate of Naira to a dollar and low purchasing power of the masses have reduced their capacity utilisation thereby compelling many of them to reduce their work force.

As banks and these other sectors, throw back their work force to labour market, contributions of these unfortunate employees to their RSA, have automatically stopped while many of them fall back on their contributed funds managed by their pension fund managers(PFA).

The Pension Reform Act ( PRA) 2004, amended in 2014,which established the Contributory Pension Scheme (CPS), allows an employee, who is relieved of his job before the retirement age, to demand for 25 percent of what he has contributed.

What this means, is that many PFAs and Pension Fund Custodians ( PFCs),will henceforth, witness continuous demands from their contributors who were victims of the development, just as they will experience drastic reduction in the number of contributors.

Narrating his company and other PFA’s experiences in the face of the problem, Managing Director, FUG Pensions, Suleiman Usman, said closure of many businesses and laying off of their staff, have seriously affected PFAs in two ways.

According to him, one is the drop in the rate of employment, which automatically affected his company’s business in terms of the new accounts and enrolment.
Secondly, he said it affected his company in terms of having to service employees who are now out of jobs and will have to sustain themselves.

“The law has provided that in the event of the loss of job and inability to get another job for a period of four months and above, he can apply to access 25 per cent of the balance in his account. Now this is an amount that would have been in the account to be invested and growing, but because of his being laid off job, the owner of the account can come to withdraw 25 per cent for consumption, meaning that only 75 per cent will remain to be invested. Besides, no new employee is coming into the system until that retrenched employee gets another job and starts contribution again,” he explained.

According to him, if the employee, fails to get another job up till 50 years of his age, he will come back as a retiree to fully access that account as lump sum as pension, which normally he would not have done depending on the balance in the RSA.

In conclusion, Usman said the above are two fronts which his company’s business is affected by the situation.
“It is a reality on ground, but we anticipate that as these companies commence investing again, the laid off workers will be called back to work, he said.

On the effects of non remittances of contributed funds to the pension sub sector by some employers, Suleiman, said pension fund managers, cannot say remittances are not coming in.
According to him, remittances are coming as long as companies continue to exist, even those companies that have downgraded their operations and laid-off their workers.

According to him, for workers who continue on employment, they continue to remit. He however said it is in the public sector that non remittance practice is prevalent because a number of states that have keyed into the system, also in recent times are facing difficulties paying salaries and have defaulted in remitting pension.

He however, noted that there are states that have not paid salaries for several months, but surprisingly they pay pension deductions up to date.

He however, said some states are finding it difficult to remit.
He said at the federal level, government has made efforts to get funding for remittance, but that there are still outstanding arrears of several months as the last remittance was probably made in September 2015.

He however, said PenCom, is making efforts to get the arrears paid and that Pension Fund Managers, are expecting the reduction of the arrears very soon.

Experts in pension fund management, have said that the managers, will keep fit with exploration of opportunities in micro pensions, which the National Pension Commission, has been crusading for.

This, will pave room for the self employed and other operators of small businesses to key into the scheme.
The experts, said there is need for pension fund managers to move in to create awareness for small business owners, on the existing opportunities in the sector.

A critical look at the operations of the PFAs and PFCs, shows that since the advent of the Contributory Pension Scheme, the fund managers, have been enjoying the compulsory nature of the scheme, which guarantees free and smooth flow of funds into their account with little or no stress.

They have therefore, not thought of how to engage in aggressive marketing to get more contributors into the pension net. But as the need for this is starring on their faces now, each of the pension fund managers will have to put on his thinking cap on how to get his own fair share of the retail or micro pension market. They may need to engage the services of marketing agents, to achieve success.

Similarly, the insurance industry is another sector that is at the receiving end of the present doldrums state of the economy. Before now, insurance product is always the last item in the consumers’ scale of preference. With the current economic challenge facing both the poor and the rich in the country, operators are certainly witnessing unspeakable business lull.

Recent sales analysis, conducted by one of the petroleum product marketers in the country, said that as important as fuel is to Nigerians’ daily living, since the increase in the price of fuel from N86.00 to the current price of N145.00, sales of the product, has dropped by about 34 percent .
This goes to show the extent to which the present economic situation in the country has reduced the purchasing power of the people.

Insurance, being the last item to be considered in the consumers’ preference list, is much more affected by the situation.
Recent checks by THISDAY, shows that company like the Nigeria Reinsurance Corporation, as at last month, was owing arrears of salaries to its workers making some of the workers to silently down-tool.
There are also some other firms, which find it difficult to pay staff salaries just as some have resorted to various cost saving methods.

The situation, has also reduced Social Responsibility activities of many operating firms, while others, have toed diversification routes.
The prevailing situation, has also combined with the demands of the newly introduced regulatory model, the Solvency 2 and Risk base supervisory models, to reduce their payment of returns on investments, as many operating firms, are now busy building stronger reserves that will enable them cope with the new regime.

Apparently, Nigerians’ apathy to insurance, even before the economic down turn, has been responsible for minimal contribution of the industry to the Gross Domestic Product (GDP) of the economy.
Insurance contribution to the GDP is less than one percent.

With the present situation, there is fear that the contribution may have dropped further as Nigerians, find it difficult to access money to solve their basic needs, let alone having enough to spend on insurance which many of them regard as luxury.
But despite the situation, government, still has hope of both insurance and pension sectors contributing their quota towards addressing the present economic problems in the country.

Recently, the minister of finance, Kemi Adeosun said there is a strong link between insurance market development and economic development, adding that the commonly used index of measuring the development of insurance in an economy is market penetration which is the ratio of total insurance premiums to the Gross Domestic Product.

She sadly noted that insurance contributes less than one per cent to the GDP of the country and that to change the ugly situation, the government is committed to identifying the challenges and taking steps to address the current poor performance of insurance in the country.

“It is on this premise that in February, earlier this year, I inaugurated the Consolidated Insurance Bill Review Committee in a move that seeks to make the bill conform to the ideals of contemporary insurance practice as well as facilitate public awareness and consumer protection.

“We are optimistic that the work on the bill and its eventual passage to law would positively change the face of insurance regulation and practice in our country, Nigeria,” she said.
Adeosun called on the Nigerian Insurance Industry operators to fully cooperate with the committee set up to review the industry’s bill, so as to come up with a draft that would be the impetus for rapid growth not only for their sector but the Nation and in particular all consumers of insurance services alike.

Also at the recent chief executive officers’ forum, organised by the Nigerian Council of Registered Insurance Brokers(NCRIB),in Osun State, the state governor, Ogbeni Rauf Aregbesola, noted that Nigeria is going through a tough economic situation and called on the members and leadership of (NCRIB),to come to the aid of the nation especially in rescuing over 27 states of the federation, who are presently facing challenges in the payment of salary arrears.

He said: “Unknown to many is the fact that insurance, more than banking, actually drives the economy. When businesses are insured, it gives entrepreneurs the liberty to take informed risks, knowing that their backs are covered.

“Risk taking is critical to capitalism and the confidence that the business is insured, for most part, is the motive force of capitalism.
“However, beyond providing cover, the due diligence report and other expert report required by insurance firms ensure that actual risks are minimised.

“Insurance companies also help the economy with the provision of long term funds, which are mostly invested in real estates and industrialisation”, he stated.

The Governor, charged the council, to go back to the drawing board, and come up with sustainable policies that would support the revival of the nation’s economy.
On his part, the commissioner for insurance, Alhaji Mohammed Kari, said he has drawn out plans on how to reposition the industry.

According to him, not only that he would consolidate on growth plan of his predecessors especially promotion and implementation of the market Development and Restructuring principle, he will also give priority attention to publicising insurance to make more Nigerians patronise the industry.
He also said he would promote micro insurance scheme across the country to make every Nigerian be in position to patronise insurance products.