By Bennett Oghifo
The federal government is evolving a new policy that will restrict insurance operators to their areas of competence and ability.
Commissioner for Insurance and Chief Executive Officer of the National Insurance Commission, (NAICOM), Mr. Muhammad Kari stated this yesterday at an Executive Breakfast meeting with the theme, â€˜Corporate Governance and the Nigerian Insurance Industryâ€™, organised by the Society for Corporate Governance Nigeria, (SCGN) in Lagos.
According to Kari, the new policy would introduce a â€œrisk-based systemâ€ where companies would be restricted to their areas of competence and abilities instead of the â€œrule-based systemâ€ in operation, where companies operate regardless of the level of their capital.
He said the policy was being worked on and that when it was ready, â€œcompanies with capital-base of about N2 billion would restrict their operations to activities like insurance of motor cars, buildings for fire and the like, while those with higher capital base can go into oil, ship, aircraft and engineering equipment.
â€œWhat we are coming out with is going to force companies to operate within their ability to their capital asset so that the policy holder and companies are protected against their wishes to go into areas where they cannot afford.
â€œWe are used to classify companies with the capital they can bring in but we are getting to the process of introducing risk-based classification which will try to see what your asset or capital can cover.
â€œI donâ€™t see the stock market growing again, of course it is dry now, I donâ€™t see the banking sector growing bigger but the insurance penetration is under one per cent and under one per cent contribution to the nationâ€™s Gross Domestic Product (GDP),
â€œThere is a lot of potentials in the biggest economy in Africa, with the population we have, you can imagine if we are able to increase our earnings and make companies responsible, you can imagine what it will be, it will help the economy, create employment and bring financial support to businesses and government.”
Â Right now, majority of the risks in Nigeria are funded by government, whether building collapse, flood, deaths, when people can take insurance in all of these things.â€
He said: â€œIn Nigeria, we have some companies that can take big deals but the issue is not whether we have them. Once we bring out the policy clearly, companies can come together, then they will be better capitalised. Companies that feel that they can raise money to qualify for bigger deals will be approached by investors who are watching proceedings and they will come out to put their money. For example, the risk in companies like Dangote products is enormous; there is no single company in this industry that can take everything. In insurance sector we have what we called come together to issue insurance, even when they do, there will still be additional higher capacity.
â€œAfter these classifications, we will see whether this higher class capacity can open up new licenses that can attract an insurer from London, who can put his capital because he knows if he comes, he will not be competing with smaller companies because they cannot come into those areas because their capitals will not allow them, then there can be come sanity in the industry.â€
The President of Society for Corporate Governance Nigeria, Mr. Pascal Dozie said more attention should be given to the insurance sector because of its potential as a driver of the economy.
Dozie said no nation could develop through the banking industry alone without an institution that would trigger capital formation, adding that it was within the insurance sector that capital needed for the nationâ€™s development could be formed.
According to him, â€œRather than focus on the banking sector, there should be a shift to the insurance sector, because in some climes, insurance firms own bank and not the other way round as it is in Nigeria, where the banks own insurance firms.
â€œAs a banker, I am not happy; unless we get insurance capital formation, it is going to be difficult for us, as we always go abroad looking for loans when we could get it from the insurance sector.â€
A director of the society, Prof Fabian Ajogwu, SAN, stated that it was important to appoint competent and experienced hands to head government commissions, because it would improve the nationâ€™s socio-economic growth.