Insurance Makes Its Mark


The insurance industry has witnessed some positive changes that could engender the desired growth and development despite a number of challenges it is contending with, writes Ebere Nwoji

Although the insurance industry is still battling with a number of challenges that have dwarfed its growth, the sector, no doubt, has in the past few years recorded positive changes, which if sustained, would lead to the attainment of its much desired growth and development.

Notable among these changes are the successful implementation of some aspects of the Insurance Act 2003, around which revolves the growth of the industry but which has been dormant over the years.

The industry in January, 2013, successfully enforced the no” premium no cover” policy, which its non-implementation over the years plunged operators into huge debt that nearly killed the industry.

The result was the industry’s inability to pay claims when risks occur and inability to handle capital intensive accounts which were often flown abroad.
At present, the industry operates on cash basis and is well positioned to pay claims and handle big accounts.

Closely connected to this was the problem of fake insurance operators, especially motor and marine insurance operators which for many years, drained the industry’s vault .Currently, the industry has been able to address this through its insurance industry database platform set up by the Nigerian Insurers Association (NIA).

The development of micro insurance which the industry is experimenting now was another mile stone recorded by the industry in recent years.
Also the introduction of the Risk Based Supervision model, which the industry adopted this year, was a major feat and the aim was to classify the operating firms according to their financial capacity in business handling and enable them operate in line with their solvency margin.

These achievements and more if sustained, will in the nearest future turn around the fortunes of the industry and reposition it as a major contributor to the Gross Domestic Product (GDP) of the economy.
Prior to these changes, insurance industry in Nigeria, since the exit of British operators, has recorded a chequered history due to activities of the early Nigerian practitioners who alienated the people to the industry. Indeed, the industry, suffered the worst neglect and poor patronage as it ranked last in the scale of preference of an average Nigerian.

The industry was so jettisoned by every Dick and Harry in the country that very few Nigerians want to buy insurance, work in an insurance company or want to have anything to do with the industry. Although this is changing, the industry is still faced with some challenges.

Top of these challenges is the problem of low capital base which has over the years incapacitated the operating firms in handling capital intensive businesses especially in the oil and gas and aviation industries.

The above problem combined with the poor patronage of the industry to result in low premium income, which in turn resulted in its low contribution to the GDP of the economy.

The industry’s contribution to the GDP has remained less than one percent.
After 57 years of Nigeria’s independence and the exit of British insurance managers from Nigeria, other sub-sectors of the economy were recording success and growth, whereas the insurance industry, remained a toddler for several years mainly due to low capital base, as the capital base of operating firms was ridiculous when compared with those of their counterparts in other sectors of the economy, and the banks.

To address the issue of capital base, the federal government, through the various chief executives of the industry regulator, the National Insurance Commission (NAICOM), namely; Chief Oladipo Bailey, Emmanuel Chukwulozie and Fola Daniel carried out major recapitalisation exercise that upgraded the minimum capital base of the industry from N50million to N150million and currently, for life underwriting companies, N2billion. Then general business has risen from N20 million to N70 million, to N200 million then to the current N3billion for underwriters and from N90 million to N5 billion for composite companies and N10 billion for reinsurance firms.
This last recapitalisation exercise by Emmanuel Chukwulozie raised so much dust more than the previous in the industry.

After a long drawn battle that lasted for 26 months, the exercise was declared an illegal one by the Federal High Court in Abuja on the ground that the Federal Ministry of Finance and the National Insurance Commission do not have the power to raise the minimum capitalisation of insurance companies without recourse to the National Assembly and having done so, thy contravened relevant provisions of the Insurance Act, 2003.

With this, the number of operators in the industry reverted to the pre-February 2008, 2007 era of 103 underwriting and four reinsurance companies.
The cancellation which threw the entire industry into a big confusion raised questions as to how the companies will start all over again? How will the merge entities commence separation? Will the acquired companies break out again? Did all the operators not know that Section 9 (1) of the Insurance Act needs to be amended before embarking on recapitalisation? How soon can the CBN return all the monies kept in the escrow account? Is NAICOM capable of returning all fees collected in respect of the illegal capitalisation? All these and so many more remain unanswered. Indeed the 2007 consolidation exercise will forever remain historical in the industry as the industry suffered serious stagnation, which is still telling on the operations of many firms today. One negative impact of it was that the insurers’ money in the Escrow Account of CBN was left idle for the whole of the period as activities in the entire industry came to a halt.

After this long drawn battle, Daniel was appointed to relieve Chukwulozie of his job as the Commissioner for Insurance while the industry’s capital was increased to the present level of N2 billion for life underwriting firms, N3billion for general business underwriters and N 5billion for composite firms and N10 billion for reinsurers. Until the current year when NAICOM under Mohammed Kari as the Commissioner for Insurance introduced the regime of risk based capital , operators since after the last recapitalisation exercise resorted to self regulation as many insurance firms now have capital in excess of N15billion.

Having secured enough capital, the regulatory body faced the challenge of deepening insurance penetration in the country to raise the industry premium.
NAICOM captured this in what it called Market Development and Restructuring initiative (MDRI) which it launched in 2009.The initiative has the objectives of transforming the industry from N380 billion naira premium income to a trillion naira industry. This, the commission said would be done through the enforcement of compulsory insurances. It listed five compulsory insurance policies stipulated by the insurance act of 2003 for effective enforcement.

These are third party motor insurance, Statutory Group Life Insurance, Employee’s Compensation (which replaced Workmen Compensation)
Occupier’s Liability Insurance, Builder’s Liability Insurance, and health Care Professional Indemnity Insurance.

The commission launched these policie in the six geo political zones of the country and declared that enforcement should commence in March 2011.
The MDRI also has the objective of creating 50,000 jobs through the agency system. The initiative was also targeted at fighting against fake insurance practice in Nigeria.

The regulatory body has been at the fore front of efforts to see that the initiative achieved its objectives. Although at the onset, the insurers were far from giving their support to the commission as they preferred the usual way of doing their business. However, of recent they have started aligning with the commission especially in the area of retail insurance. Many operators are now designing products that will attract the interest of Nigerians at the grassroots instead of chasing government and corporate businesses around.

By its original design, the first phase of the MDRI which was between 2009 and 2012 was meant to achieve the objective of transforming the market into a trillion naira market. This was not achieved at the targeted time as the industry’s premium remained at N300 billion as at December 2012 according to NAICOM prompting the commissioner to declare that come the second phase of the initiative which will last between 2013 and 2017, the industry will achieve the target.

Also the industry has solved the problem of disjointed and non transparent accounting system as the industry migrated from the Nigerian Accounting Standard Board system to International Finance Reporting standard (IFRS).The industry also launched the cooperate Governance structure and the anti -money laundry structure in order to remain globally competitive.
Still in search of ways of growing the industry’s premium, the commission in 2010 launched guidelines on insurance of oil and gas business in Nigeria as a way of ensuring that local content policy of federal government is implemented in the insurance industry.

The enforcement of the no premium no cover in the industry received loud ovation of the industry operators as they described it as the beginning of new things in the industry.
The above developments put together have no doubt placed the insurance industry on a better growth plat form as could be seen from signs of growth shown by many firms in the system.

But the industry is still far from meeting the target set by Daniel, which is that come the year 2017, the value of insurance contracts would rise to about N1 trillion ($6.4 billion) from N300 billion in 2017, and that the industry, would contribute about three per cent to the Gross Domestic Product (GDP), up from the current 0.6 percent contribution. He also targeted that penetration will increase to 22.5 per cent from 10 per cent.

He said compulsory motor-vehicle insurance, which makes up most contracts now, would remain at about 10 per cent by 2017, while life insurance would constitute seven per cent, general business insurance three per cent and petroleum companies’ insurance 2.5 per cent.

One of the major growth plans, which the industry operators have been able to achieve within the period, was the development of the Nigerian Insurance Industry Data base by the Nigeria Insurers Association (NIA)
The NIID is a central system that allows all insurance companies to store all valid policy real time. Also, the insurance industry has built its own indigenous College of Insurance to address the problem of lack of trained professionals.

Also the educational arm of the industry, the Chartered Insurance Institute of Nigeria (CIIN) few years back, collaborated with the ministry of education and has obtained approval for inclusion of insurance as a subject of study in senior secondary schools in the country.
The industry has also formed a consultative committee comprising of executive members of various arms of the industry. The relevance of the committee is that hence forth, the industry will begin to speak with one voice in any matter of interest rather than speaking separately as individual arms.