Irene: FG Should Lead by Example by Insuring All its Assets

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 Mr. Peter Irene, is the Interim Managing Director, International Energy Insurance (IEI) Plc. In this interview with Ebere Nwoji, he shared his experience on his efforts to restore  IEI  back to profitability and sound Corporate Governance status. He proffered ways to boost insurance sector’s contribution to the GDP among other issues. Excerpts:

Nigeria is recession; a situation, which has adversely affected many businesses, how has International Energy Insurance (IEI) which you manage fared in the face of the problem and what is the future of the industry like?
Well, I can say that in the long term, the future of insurance is very bright, but you know, Nigerians, always look at the short term. But you can see how foreign investors are rushing to invest in companies in Nigeria because they are not looking at today but tomorrow.
As for the recession, yes the recession has affected insurance industry just as it affected other sectors. Basically, because of scarcity of dollar, it has affected the insurance industry in so many ways. One of the ways is this, most insurance firms, had their treaty agreement in Naira even when they accepted dollar risks.
What it means is that for example, you now have a claim, you have to pay in dollar but at the time you took up the risk, even though some people placed it in dollar, the exchange at that time was a fixed rate. Because of that, most insurance firms have to cough out huge claims in dollar. You can imagine how dollar has increased by almost 50 percent.
That is one aspect, another issue is that most treaties in Nigeria are denominated in naira and most of them were translated at the exchange rate ruling at that time if you have to pay, it means that you have to cough out money from your internal operations to make up when you are paying claims in dollar that were denominated in naira. Another thing is that most of the dollar claims that were not paid before, will have to be paid now and to do that, you have to pay more and that will impact on your total comprehensive income. So those are the issues and many insurance companies are caught up with this. That means we have to be very cautious in our business.
What we have done is that any risk that we underwrite in dollar, instead of putting it in Naira treaties, we have to do facultative insurance which means we have to do it separately and ensure that it is in dollars.
So that foreign exchange risk will not affect this last account and will no longer be so. But in the same way, when you have assets, you have liabilities. If you have assets in terms of dollars and liabilities of same, it means you have to cough out much more money. That will affect your profit or loss. It is a temporary issue but as I said, for insurance, the future is still bright because of our population.
You can see that with GDP, what we get as insurance cover is less than one percent which means there is a big market. As far as the future is concerned, people will begin to buy insurance and with the efforts of NAICOM in enforcing compulsory insurances, we will get there. It may not necessarily be an immediate thing but I think insurance has great potentials in this country.
In the midst of all these, at the interim, what do you think the industry should do to keep its head above the waters?

In my own view, number one thing is unity among the operators. If insurance companies can come together and speak with one voice, then insurance will raise its head. One of the major problems of the industry now is that I don’t think we are charging adequate premium.
Though product pricing is not a marketing strategy; rather product dispensation through easily accessible retail channels that will drive demand.  Insurance is an industry, which depends on large numbers. One, the large numbers are not there yet. Two, the rates we charge do not commiserate with the risks involved.
If you are bringing in risks and you are not charging adequate rate, you are killing yourself. I think the Nigerian Insurers Association (NIA) should do more than it is doing now. For example, Third Party Motor Insurance, you will find out that some people are charging as low as N1, 700. I discovered that even local government officials are making more money than the Insurers themselves because instead of charging the asking rate of N5, 000, the local government will charge less and make so much from a large pool, far above what the Insurers are getting. But if we will come together and be united, it will be better. But if we go to our meetings as we normally do and discuss one thing after which some of us will go back and do another thing, it will not help us.
But the National Insurance Commission (NAICOM), is working much harder now, you know recently, it set up the Insurers Committee just as we have Bankers Committee. The committee is working very hard to ensure that these things are put in their right perspective. If these issues are right, am sure insurance will fare better for it.
The few of you that are in oil and gas insurance pool are you now speaking with one voice in terms of pricing?

Well, in terms of pricing. I think we are speaking with one voice .Don’t forget that Oil and Gas insurance is a very volatile business and if we don’t speak with one voice, one claim alone can wipe out the whole funds you have. Most of these businesses come from outside the shores and the people involved are very thorough, so you have to charge appropriate premium and if you don’t, then you are killing yourself.
So are you saying the pool is working?
Yes, the pool is working

Let’s come to IEI, what can you say is the area of strength of the company?

The strength of IEI now, compared to what it was before, I think I can say we are very much stable than what it was before the interim management came in. Our core business line has remained oil and gas insurance and other non-life businesses. As you can see, we are paying claims and our services have improved. We have a stable Board, a Board with integrity. You know once you have people of integrity as your board members, it is a very big strength.

Are you looking at shoring up your shareholders’ funds how soon will that happen?
Very soon; we are preparing for our Annual General Meeting. It will take place this month all things being equal.
One of the issues we are looking at is that we are going to raise a lot of capital. We are looking at different ways either through private placement, rights issue or by any other means. We have a lot of professionals working in collaboration with us.
In the industry today, what is in vogue now is injection of foreign funds and collaboration with foreign investors and partners.

Are you thinking along that line, are you looking at the possibility of bringing in foreign Investors?

Yes, we have plans for that and many foreign investors are interested in Nigerian firms for investment. If you look around, you see the trend. Many investors coming into the industry come with huge funds, I don’t think local investors alone can generate the kind of funds coming into the industry. Our existing investors are also looking in the direction of such foreign investments.
What are your growth plans for IEI this year?

Well, first, with the funds we are expecting, we want to diversify and look into other areas apart from oil and gas business. Our growth plan will depend on the success of what we are doing now. Because of Risk Base Supervision (RBS), we want to know how much capital we will secure but in the interim, we are trying to expand our business to other areas so that we can bring in the much needed premium. So it all depends on what we achieve. We will in this first quarter concentrate effort on raising capital that is our major plan. It will depend on how much we are able to raise either in first or second quarter.
But the main highlight of the forth coming Annual General Meeting will be how to raise the capital as I have said, if we are given the permission by the shareholders. Secondly, we want to negotiate with Daewoo for that debt, we want permission to negotiate with them. Thirdly we want to change our Auditor to one of the big four. These are the main issues and most importantly, we want to get approval for our 2016 Accounts. When we came here, the accounts were not ready but we have gotten about three accounts ready and we have met up with all the demands. Before now, three accounts were in arrears. But they have all been approved and published. We have met with our new Auditors to discuss the audit of our 2016 accounts.
So which of your accounts is still outstanding?
We have no outstanding accounts now. As I told you, we have updated our accounts and are working on the 2016 accounts. It is ready just that we have not done our Annual General Meeting.

In a nutshell, how will you want to see IEI in the next five years?
Well, we want IEI to come back to what it was in 2008 and beyond to be one of the first 10 if not the first five, and to help to raise the standard of insurance in Nigeria.

What do you have to tell government on the way forward for insurance industry?
We want government to lead by example by insuring all their assets and pay their premium as and when due. I learnt the group life insurance premium of government workers has not been paid what happens if any of the workers loses his or her life? Government should lead the people right by paying its premium before it can think of enforcing compulsory insurances which the industry operators have been pushing for.

You talked about diversification, are you thinking of going into life under writing?

Well, it all depends. In the future life business will be a major source of long term funds. You can see what is happening in pension sector. I learnt the assets now is up to N6 trillion. So life underwriting is not only good for IEI but for the entire industry. If we are the ones underwriting Pensions, you can imagine what our premium figures will be now.  It is in life business that all these foreign investors are interested; you can see Old Mutual of South- Africa and the rest of them. They are making money and I believe that the prospect of life insurance is high. May be in future, IEI will consider going into life business. But the problem of life insurance is that it needs a lot of technology and people to do it. I believe that in the future, if you are not underwriting life business, you are not there.
What do you think should be done to make Nigerians appreciate insurance and see it as a necessity?
It is really a problem but I think what we need is education. Many Nigerians don’t understand insurance. If you go to my village now and talk about insurance, they will be looking at you as a strange person I remember in those years when I was in secondary school, my brother was working with an insurance company and I always ask him what do you do every day and he will say, we do insurance, we collect money from people and give them insurance cover and it sounded strange to me but thank God they have now included insurance in the curriculum of secondary schools in Nigeria. It will help to educate people about insurance from youthful age. They should spread it so that people will cultivate savings habit. Nigerians want to consume everything now but we should educate people to save for the rainy day. Some institutions of higher learning don’t have insurance department Ahmadu Bello University has been doing Diploma in insurance. I think it is not up to five years they secured accreditation for B.Sc. degree in insurance. They should do more and other institutions should follow suit. So we have to educate ourselves. It is not only passing the law, we should educate people. CIIN should take more proactive steps and go to schools to encourage them to offer insurance.
If you are the president of this great country Nigeria, what policy will you put in place to promote insurance?
If I become president of Nigeria today, I will enforce compulsory insurances nationwide, because the laws are there, for example. Why government must be paying to people when houses collapse. That should not be if such collapsed building has insurance cover. Once you enforce compulsory insurances, all these things will stop. Insurance will begin to take up such risks.
You cannot say the enforcement will not work as some people always think, because it is Nigeria, don’t forget the world is changing every day. Insurance industry in Nigeria will witness revolution and it is already happening. Look at ‘no premium “no cover,” policy of the industry. It has worked and it has saved many companies. You can imagine the premium we would have generated if all residential buildings in Lagos are insured. So if I become president, from my government, I will enforce compulsory insurance starting from insurance of states and federal government properties.

You are into aviation insurance, recently, Lloyds of London, threatened delisting Nigerian Airline operators and their insurers from its reinsurance list due to nonpayment of premium. Are you comfortable with attitude of Airline operators in Nigeria towards insurance?
Well, one of the things I noticed when I joined the company is that aviation rates are low. Insurance companies are not charging enough premium.

But airline operators are complaining that aviation insurance rates are high in Nigeria compared to other countries?
It is not true; most of aviation insurances in Nigeria are taken overseas .So the rates are not dictated in Nigeria.
I don’t think their problem in terms of cost is insurance. They should be talking about high cost of fuel and other expenses that shoot up their cost of operation not insurance, if you don’t pay for insurance, what have you paid for. They should make insurance their first priority by paying for their insurances.
The cost of running airline is high what I did when I took up the leadership of this company is to streamline our aviation underwriting to make it workable. I ensured that we retain very small percentage. Aviation is a special interest area of business because it covers so many things like the hull, the passengers and so on. So insurance is very key. Nobody has ever survived air accident except Dana. I am surprised that they survived it and I congratulate them. Hardly do airlines survive it because the interest is high, because it is a public liability issue so we have to be very careful. The most critical is passengers’ liability. I think the problem of our airline operators is because we are in third world country so they can’t charge high airfare. If they do, they will be out of business because people cannot pay especially with exchange rate of Naira to dollar.