SIMON OKEKE: No Insurance Company Will Collapse with New Recapitalisation Structure

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Mr. Simon Okeke

Executive Chairman, Purebond Insurance Brokers Limited, Mr. Simon Okeke, has over three decades’ experience in the insurance industry. Formerly managing director/CEO of Central Insurance Company Limited, Okeke, is a member of the Council of Fellows of the Nigerian Council of Registered Insurance Brokers and an associate of the Chartered Insurance Institute of London. Okeke had in late 2000 founded Souche Insurance Brokers unLimited, which metamorphosed to Purebond Insurance Brokers Limited in 2011. In this interview with Kunle Aderinokun and Bamidele Famoofo, he speaks on the recent development in the Nigerian insurance industry and addressed pertinent issues in the pension scheme, asserting that the specialization of Purebond Insurance Brokers in special risks, oil and gas, engineering, gas pipeline construction and aviation insurance broking, amongst others, has placed the company in the league of prominent and indigenous professional broking concerns. Excerpts:

When did your journey into the insurance world begin and how has it been so far?

I started my Insurance career as broker in 1986 with United Modern Insurance Brokers and latter joined Crusader Insurance company in 1987 as an underwriting superintendent before the company closed its general business in 1989 to remain a specialist life office. The life office was eventually taken over by a group of investors, who changed its name to Custodian and Allied Life Assurance Company.

I consider myself exceptionally favoured when during the Crusader interview; l emerged one out of the two management trainees that scaled through the rigorous tests that weeded out 133 applicants. Besides being an underwriter, my flair for marketing stood me out in my career as l contributed to the growth of the gross earnings of the company and many others that l worked for thereafter.

As a staff of Crusader Insurance, l worked in various departments headed by the current governor of Osun state, His Excellency, Mr. Adegboyega Oyetola, which include general insurance, re-insurance and motors etc. In 1989, the company wound down the aspect of its general insurance business because of its cyclical growth pattern and settled down for the life business that offers a more stable positive growth graph and better returns.

Still, l was among the few staff retained by the company to wind up the general business unit of the company. While this was going on, l qualified in 1990 as an associate of the Chartered Insurance Institute of London and that gave me the leverage to seek employment elsewhere. This is because l do not want to be contained in the life assurance business, l have always wanted to experience both arms of the business. I got employed at African Development Insurance Company (ADIC) as an assistant marketing manager. The firm was headed by Prof. Joe Irukwu, who is nicknamed Mr. Insurance of Nigeria. I thought it was a very big leap for me as assistant manager marketing from a superintendent position. I was in charge of all the brokers in Lagos and parts of the country. My duty was to train and also lead my team to market the products of the company. We marketed both the general and life assurance businesses as well as engineering insurance. Engineering insurance is a special risk arm of insurance that deals with machines, plants, equipment or civil works, construction of hydro power plants, gas pipeline constructions, among others. Special risks are just like engineering, but include oil & gas upstream activities, while life assurance business deals with term, whole life, endowment, mortgages, annuities pension and related benefits. Don’t forget that it was the Nigerian insurance companies that were handling pension schemes as it is done in developed economies of the world until 2004, when the federal government, out of the ugly experiences that bedeviled the fate of retirees, decided to open up and regulate the pension business and brought in foreign investors to take over the portfolio of pension schemes being managed by Insurance companies. Before then, insurance companies were both administrators and custodians of Pension assets and liabilities. However, because of the lucrativeness of the life assurance and pension business, coupled with the benefits of deposit administrations from big corporations and multinationals, the government felt it was more or less something that can be managed by specialist administrators with the banks acting as the custodians. The PFAs now had to work with Pension Fund Custodians (PFCs).

The National Pension Commission emerged as a result of this development to regulate these operators, who invest the regular savings collected from contributors in the government and the organised private sector of the Nigerian economy. PenCom has amassed so much money from contributors. We should be talking about over N9 trillion pension fund being managed by Pencom through the appointed custodians. This is not a small amount of money. You can imagine what would happen if insurance companies are managing such fund. There is, however, a regulation that governs the investment of pension fund. Currently, pension assets are channeled into the following sectors: real estate properties, quoted ordinary shares, FGN and state government bonds, corporate debt securities, money market securities, private equity funds, infrastructure and open/close funds. The underlying caveats in these channels is that of convertibility of the investment, in case the need arises or cash call, the fund will easily be available to meet pension obligations.

I’m of the view that PenCom regulations are work in progress because there are a lot of dashed hopes in the area of harmoniously and proactively complete the verifications of pensioners with the primary motive of the thrift or contributors of the fund. Don’t forget that the contributory pension scheme allows a contributor to access up to 50 per cent of the balance in the RSA to 50 years old, but due to some anomalies in the reforms, a contributor can be delayed until age 60 or more. They should be allowed to draw 50per cent of their money to start a business of their own while the rest is converted into annuity. It allows the contributor to draw from his/her savings in perpetuity. If death does not occur, the benefit continues as the savings attracts interest.

What aspect of the Pension Reform Act 2014 would you want to be amended to create a level-playing field for both the pension administrators and the insurance industry?

I want to look at the Pension Reform Act 2014 from two angles. One is the operation or administration. Of the pension itself and the provision of the Life Assurance component that pays 3 x annual salary for death in service before retirement. Following the Pencom Act 2004 that became effective 2005, few life insurance companies indicated interest to apply as administrators or managers bearing in mind their existing clientele base. There is a central issue in the present regulatory framework, as it relates to the benefits payout to the estate of employees, who die interstate. Also there are instances, where somebody dies after creating his/her will, some administrative encumbrances in the system tend to frustrate the dependent relatives as certain details that should have been extracted from the deceased records are never updated or completed, and that hinders payment to the would-be beneficiary. To be specific, in a situation where a named beneficiary dies, there should be a provision for the next beneficiary, who could show a proof of claims to be given undeterred access to be able to claim his rights, but that remains a big challenge as we discuss. I’m looking at it from the point of view that the regulation or reform that has been made should address the issue of the management of the pension fund. It should allow the PFAs to give insight as to how to channel the investment of the fund. It should be channeled into the guaranteed sectors of the economy as I mentioned earlier where there would be no liquidity issues when the fund is badly needed.

Government borrow from the pension fund for political and white elephant projects rather than in infrastructure that would create wealth through employment and this l consider as pretty sad for the industry and the economy at large. Let us consider, if government had borrows to renovate, for example, the abandoned Federal Secretariat at Ikoyi, Lagos State, and commercialise it, don’t you think it will yield a good return for the country? There are lots of companies searching for good office locations in Lagos, which the location of this structure provides. Secondly, the pension managers themselves do not know how the funds are being generated and therefore allow political and government influence to determine investment direction. This does not meet the original objective of setting money aside by the contributors.

It would appear that the contributors are caged under this present arrangement in the pension scheme as their chances to access their benefits when they need them are slim. They must wait for a very period and the procedures are long. Are there no ways this can be improved upon?

Like l said earlier on, the contributors are not the government, but people, who have decided lawfully to keep a certain portion of their own money for the rainy day, because thrift is the very essence of every progressive person, company or even state. Nigeria operates the contributory pension scheme. If somebody has contributed for some time, say 35 years before retirement, at 60, he is supposed to be given 50 per cent. In fact, the day the person is retiring should be when his/her account should be credited. I don’t see what you need to verify to pay into the account of the contributor. He/she needs his/her money to be able to start a new life. You would realise that most people die after retirement because they have no hope. But when they are assured that when they retire, there is something good ahead, they live longer. I will even propose that three months before retirement, the money should be paid into their account. There should also be pre-retirement workshops organised by both the organised private sector and public organisations to show people how to manage their monies before they retire, knowing that managing money is a different problem all together.

If these happen, l will tell you that people will retire with a level of confidence, but whereby this money is caged, they are deprived of accessing their own fund. If you are deprived, what then will you have to do considering the enormous responsibilities waiting ahead? The balance of 50 per cent is kept in form of annuity, so that even when you are doing business with the bulk you got, you are still entitled to a pension on monthly basis. On the other hand, when death occurs before retirement, three times the annual salary is expected to be paid to the family of the deceased as the fund becomes automatically matured. But there are two possibilities here. It’s either administrators pay it out in bulk to the family of the deceased or spread it out in form of annuity for the beneficiary, depending on their choice.

To what extent has the withdrawal of the pension fund portfolio affected the Insurance industry in Nigeria?

It has in no small measure affected the industry because this is money taken away from players in the industry. Of course, you don’t have any power to say no to what the government says. Government says transfer the pension assets to the PFAs and if you want to become one, register. The transition is still running as far as l’m concerned. In 2005, so many PFAs came in from all over the world. Some of them are no longer in existence as they cannot manage the pension assets. They could not survive because Nigeria has a peculiar way of doing things.

What are the prospects of the pension industry in Nigeria?

The industry has a huge and bright prospect in the country given the population, and especially the growing population of youths. But the challenge is unemployment. There is a positive correlation between employment and pension fund increase. That to a large extent means that a wealthy nation has a strong workforce. You will observe that migration from Nigeria has increased the workforce of the countries where our people go in search of greener pastures. They go there to form the workforce and what they leave us with is the creation of pension liability not asset. Nigerians increase the pension assets of those other countries.

Could you do a brief review of the insurance industry in Nigeria?

I would say that the insurance industry in Nigeria has come of age. Remember that the first insurance company in Nigeria, which is over 100 years old today came into the country under the Royal Niger Company as an agency office. Since then, there has been a trajectory of innovations, establishments and indigenisation of Nigerian insurance industry and much has happened since then. Today, we operate and are governed by the Insurance Act of 2003. We call it NAICOM Insurance Act. Insurance has had its worse times and is coming out of the woods. And l will say the best thing that NAICOM did to change the game was to implement the sections of the Act that deals with corporate governance and institution of world best practices among others. One of the provisions of the Act that says ‘no premium, no cover’. Before now, people can subscribe to insurance contract and refuse to pay even one year after. You cannot force him to pay. But the truth is that there is no cover when you refuse to pay your premium. So, from 2011 up to 2013, it became a deal that if you don’t pay your premium, you won’t have any cover. This has really helped the insurance industry since it became operational. Some of the evidences of the change are that most insurance companies are now owners of their own properties in form of head offices. They now also have money to buy enough re-insurance to back claims on liabilities. The NCRIB is equally making insurance to be better and patronised.The use of registered insurance broker in every insurance contract delivers peace of mind as he takes time to interprete the tiny clauses in the every insurance contract. Entering into any insurance relationship without a registered insurance broker is tantamount to entering a court to defend yourself without a lawyer. Involvement of insurance brokers in the industry has a positive correlation with the volume and quality of business being done as we speak. The capacity of the industry is beginning to grow because premium is coming in bigger volumes than it used to be.

What impact do you think the on-going recapitalisation plan, ordered by NAICOM will have on the industry?

Thank you very much for this question. You know the insurance industry is the only arm of the Nigerian economy that guarantees growth as they provide the necessary financial backing in the event of unforeseen circumstances or disasters. For you to play as a risk manager or sound insurer, it means you must possess the financial capacity to provide for the necessary risks that would arise in the course of your business. So, what NAICOM saw that prompted it to come out with this policy was that so many players in the industry operate on low capital with a steady rush of capital flight. What they want them to do now is increase their risk acceptance capacities and create underwriting profits. The summary of the recapitalisation are as follows: A general business insurer whose capital was N3billion will now make it N8billion, A life underwriter will upgrade from N2billion to N8billion while the composite company (Life and General) will move from N8billion to N18billion. The Re-insurers will move their base from N10billion to N20billion. The implication of this is that the volume of business being generated in Nigeria will be retained more because the industry is seriously campaigning for deeper insurance penetration. Currently, insurance penetration is as low as less than 2per cent. With the emphasis on the ease of doing business and sound adequacy of re-insurance cover, we would definitely be on the right course to reduce capital flight. Recapitalisation will help the industry because there would enough capital for operators to do business, settle all genuine claims which will in turn boost confidence among premium payers.

Will the players be able to raise the required fund for recapitalisation or should we be looking forward to series of mergers and acquisitions?

As it is right now, no company is going to go down because of the way the recapitalisation is structured. This is because it allows for any players to fix itself in the category it belongs. If you belong to any of the bands, you will be limited by what your capital allows to do. But beyond this, in business, you don’t want to remain where you are. You want to be a line crosser and for you to do that, you must have the motive to do bigger business. This move will motivate both local and international investors to bring fund into the industry as is currently being ahead of the June 2020 deadline. For the purpose of recapitalisation, NAICOM gave them up till June to confirm their readiness to continue to play either in their current level or at a bigger level. I’m encouraged to let you know that almost all the insurance companies have indicated their readiness to recapitalise. They are saying that they are sure to meet up with the NAICOM’s requirements to raise their capital base. I see them raising funds through Rights Issues from their shareholders, outright IPOs or any other hybrid investment options. Mergers may occur, but I don’t see acquisitions. I believe that the power of two is greater than that of one. If two companies that have N10billion each combine, they will raise N20billion to be more capable in doing larger risks and play in the upstream sectors of oil and gas industry.

Can you talk about the brokerage industry in Nigeria?

The brokerage industry is the professional arm of the insurance business in every vibrant economy of the world. There is no insurance business done in Nigeria that is done without a brokers’ input. At least 60 per cent of businesses underwritten in Nigeria pass through an insurance broker. The rest goes to those who gets the business directly or by affiliation with banks. Though NAICOM has asked banks to divest from insurance, some of them still have captive accounts. A captive account refers to businesses that come from the banks to the insurance companies directly without going through a broker. Even brokers themselves have their own captive as is synonymous in business. However, the brokerage business in Nigeria has come a long way. The positive development in the brokerage industry started after the NCRIB, which is the professional body for insurance brokers, became an autonomous body. That happened over 50 years ago and we are still waxing stronger. We are the professionals that arrange the risk profiles of every entity be they government or organised private sectors. They are the professional intermediaries that ensure seamless insurance package for their clients. They have a better understanding of insurance technicalities and understand the strengths and weaknesses of insurers, if any, and are in a better stead while advising their clients. The broker also spells out the terms in every insurance deal. They do the risk survey, advocacy and manage risk profiles of their clients through intermittent reviews and training of their clients’ workforce. Above all, they render these services without charging any fee except their brokerage commissions derivable from the discounted and reduced premiums clients pay through them.

The broker help the client with the technicalities of the business and also explain and advise him on the appropriate steps to take. Once you appoint a registered insurance broker to handle your insurance deals, you might go and sleep with both eyes closed. You pay less when you go through a registered insurance broker. Please take note that brokers and not agents, are loyal to their insurance companies who appointed them.

Tell us about the motivation behind the creation of Purebond Insurance Brokers Limited.

Purebond Insurance Brokerage Limited started in 1995 as Souche Insurance Brokers unlimited. Then l was working in a paid employment, but l had a vision to make a name for myself in the insurance industry. This is because when I told my family about my decision to study insurance, out of sheer ignorance, l was despised. They wanted to know why l did not choose to become a medical doctor, an accountant, an engineer or even a lawyer. Their belief was that no serious minded person wants to make a career only to end up ridding a vespa or scooter as was seen in my town at that time. But l was bent at making a career in the industry and so, l struggled to sponsor myself through the course. In the course of my career in the industry after graduating from school, l discovered l had a lot of potential for marketing. When I joined the mainstream of insurance at Central Insurance after l left ADIC, l made up my mind that the way to go is float a business in insurance brokerage. I knew the company l incorporated a year after l became AGM, marketing will work for me. So, by 1998, after my promotion to the rank of managing director, we bought a company that had licence to operate since we had no licence. I called the new entity Souche Insurance Brokerage Limited, but later we decided to call it a name that would have international appeal, hence the choice of Purebond Insurance Brokerage Limited. We have high quality clients. They are not many but they are of very high quality. We are already thinking of building our own office in a niche location in Lagos after 25 years of hard savings and very soon, we would be there.