‘Boko Haram menace has adversely reduced insurance targets’

‘Boko Haram menace has adversely reduced insurance targets’

The insecurity caused by the menace of Boko Haram is affecting insurers' projections. The Managing Director Royal Exchange General Insurance Company, Mr Olutayo Borokini, in this interview with CHUKS UDO OKONTA said insurers have incurred great losses since the advent of the menace

How are operators responding to Boko Haram menace?

Every body is concerned by the menace, because if there is insecurity of lives and properties, of course business would not thrive. Investors would not come in. Every body is worried including insurance practitioners. It would definitely affect our business, in the sense that where there is violence, people would loss their lives, and if they are insured, insurers have to pay. Loss of lives may lead to increase in claims. If someone has a personal accident policy which protects him against an accident and he suffers an arm robbing and violent attacks, if he has a reliable claims insurance company would be liable to pay. For properties, there are exclusions as against terrorist activities like Boko Haram. Typical insurance policy excludes any loss from terrorism. Take for an example what happened in Kaduna, if an insured is injured or loss his life, insurance company has to pay. Unless you are able to prove that the injury or dead is as a result of terrorist attack. We has a case of a client in Abuja, there was a bomb scare and the client ran and left his car with the car inside, before he came back the car has been driven, we have to pay. That is the kind of things we do observe.

How much in monetary terms has the menace of terrorism impacted on the industry?

The cost cannot easily be quantified now. If the situation continues, by the end of the year, one can estimate what the industry has lost to the level of insecurity. Presently, economic activities are paralysed in the northern part of the country, like Kaduna and Kano. What it means is that business men and women would move out their investments out of those places because of the general state of insecurity. If they have had insurances, in these businesses, the insurances have to be terminated and that would mean lost of businesses to insurance companies operating in those areas. If they did not move out of the country, but to other part of Nigeria, the lost would not be much. But, if they move out of Nigeria, it would be a total lost of business to the insurance industry. The impact of the menace cannot be ascertained now, but insurance branches in the affected states would not be able to meet their targets. That is why we call on the government to stem the tides now.

How have insurers fared in oil and gas underwriting?

The local participation in oil and gas business has increased in the last two years, especially, with the passing of the Local Content Policy by the Federal Government.  70 per cent is supposed to be given to local insurers. That has let to the growth of oil and gas business in insurance. The Local Content Policy has its advantages and disadvantages. We have had increase in the number of claims, as a result of the policy. The services that were formally provided by foreigners are now provided by local technicians who are not really trained fully. It would take some time to develop the local skills. The result from it is that the risk factor is there.

Are oil and gas claims settled in dollars?

If the policies are denominated in dollars, they would be settled in dollars. You can denominate a policy in dollar or in naira. But usually, the policies are denominated in dollars. This is because, most of the equipment used in the oil and gas sector is imported and if there are any damage, they have to be imported. It is better the policy is issued in the currency with which you have to indemnify. Most of the policies are dollar denominated and most of the transactions are dollar based. The level of business is growing also the level of claims is increasing. The claims are going up because of the technical inadequate capacity. Note that the local content policy also mandates the oil and gas sector to cede some of the jobs to locals, which may not have acquired the necessary training. This also results to accidents which push the claims up.

At what per cent has oil and gas claims and premium raised?

In terms of premium it has raised by at least 50 per cent, while the claims rose by 30 per cent. But some how, it is still sustainable and profitable. 

Are insurers adequately equipped for oil and gas risks?

In terms of human capacity, we are not really prepared. This is because most of the risks are still rated abroad. We still depend on technical skill abroad to rate some of these risks. We need to develop the local skills, capacity, in terms of rating in the oil and gas sector. That is something that would take quite some time. This is because, even the London market, where most oil and gas risks are rated, it is not easy for them to pass the risks like that. It is the duty of underwriters to train their staff.

How has Royal Exchange fared since the last recapitalisation?

In 2010 the company was doing slightly above N3billion, but as at the last quarter of 2011, the gross premium income of the company has gone to N5.4billion. The cash collections are equally above N5billion. The company has been growing at the rate of at least 30 per cent. Virtually every class of the business has grown. Our oil and gas business has grown to premium income of N1billion; almost 30 per cent of our income came from the oil and gas. The motor business is also operating at about 30 per cent, the industrial risk business also accounts for 30 per cent. The rest 10 per cent is from other classes of business. We are really growing in every class of our businesses. The growth has been balance.

How has Royal Exchange General fared in Micro and Takaful insurance?

The growth of the industry in past years has been skilled towards wholesales, but in the last four years, the regulatory authority the National Insurance Commission (NAICOM) has been spearheading a move into retail business. Actually, the future of the insurance companies lies in retail. They have come up with a programme to assist the retail sector by sensitising the public and also regulations have been passed to help develop the small sector businesses. For example, we have the compulsory insurance, that states that all public buildings in Nigeria and buildings under constructions most be insured. These are essential areas of growth for the industry. They are all geared towards the retail market.  Of cause, Royal Exchange is also tapping into these opportunities through the e-products we have introduced in the market through the use of scratch cards. In other words, through the use of information technology, we expect to reach million of Nigerians by putting these products online and selling them to the members of the public and also through having an effective agency system that is well spread. Also the company is expanding its branch network to reach larger number of the population. The issue of takaful, is an Islamic insurance product, a bit different from the convectional insurance product, in the sense that where there are no claims in the course of the year, if you participated in the business you partake in the profit sharing. Also takaful products are based on the principle of sharia.  For an example, you cannot use the insurance money to invest in certain investments, like breweries. Apart from that tarkful products can be taken by Moslems and non Moslems.

How does Royal Exchange reach its targeted customers at grass roots?

Those at the grass root can not be reached through the conventional brokers system. They are reached through agency networks which we are developing in house. Also, we are deploying the use of information technology to achieve this. We are putting some of these products on our website and sell them through the use of scratch cards through agents. That are the method we have used to reach out to as many people as possible. In fact, the intension is that all our products would sold through scratch cards in small values which would be tailored towards their specify needs. The way the scratch card works is that if a young man has just bought a car wants to insured it, he would be approach by an agent who would educate him of the need for insurance, if the car owner agrees to insure the car, he would be given a scratch card, with the card, once he pays a certain amount of money, he would be able to access our web site, fill the proposal form on line, he would then get a cover automatically. An individual can still insure the content of his/her house through the cards, for certain products have been classified for certain prices, for an example, an individual can get a householder policy for one million value. At the rate of one per cent, which would cost N10,000 an individual can get a cover which can be done through the scratch card by just buy a card for N10,000 key the pin on it on our customised website, and fill the proposal form and get the cover automatically, after due confirmation. The process assists the insured in the claims collection and ensures that delays are removed.

How many agents have Royal Exchange engaged so far?

In all our branches, we have e-base agents that are employed on per time bases to sell our products.

Has Royal Exchange last year’s financial account been approved?

Our accounts have been approved by the National Insurance Commission (NAICOM). Our Annual General Meeting (AGM) is been planned and some dividend would be paid this year. The last two years, we have not been able to pay dividend, because of the fact that we have to make a lot provisions. We are gradually getting out of that.

Which class of business does Royal find more interesting?

Manufacturing is the base of any industrial development. For any insurance firm to do well, the industries have to do well. If the industries are doing well, of course, there would be a lot of opportunities for insurance. But we have seen that the manufacturing sector is going down, due to lack of basic infrastructure like electricity. Take for an example the textile industry. The industry in the last two years has gone down because of power failure. If every thing is working as expected, the manufacturing and construction which are the real sector and agriculture would generate businesses for insurance. For now, because every body is depending on oil, it is the main stay of the economy, so also, for us in the insurance sector, we are keying into it to generate revenue. The real thing is that the government has to develop the other sectors. Nigeria must not be a mono product economy. The manufacturing sector ids the bedrock of any industrial development.

In the past one year was there any major risks that thrown up large claims for Royal Exchange?

Yes. Last year, there was a lot of flood, especially in the southern part of the country –Lagos and Ogun states, which caused major disasters and affected our business. We suffer some losses in term of claims settlement like the one paid to West African Milk and others. For the West African Milk, a consortium of companies led by Royal Exchange paid over N3.6 billion. Our share of the risk was about 25 per cent. Last year, our claims payment was over N1 billion.

Presently how are insurers reacting to claims settlement?

Before, most of the Insurance companies were not well capitalised. But since 2007, when the capital base of companies was increased, a lot of companies are now in position to pay claims. I can proudly say that claims settlement in the industry has changed. In 2008, Royal Exchange led a consortium of companies that paid the biggest claims in the industry. And was the Nigerian Bottling Company (NBC) claims, which gulp about N8 billion. With that, it shows that we are able to meet our responsibilities. Nigerian insurance industry has come of age. The present players in the market are doing well. With a few exception, most companies pay claims, including Royal Exchange.

How interest doe Royal Exchange has in aviation business?

Aviation is a very high risk business, because when the losses occur, there are very high. It is lines of business that lot insurers are selective and careful about, including Royal Exchange. Aviation business is highly hazardous. In time past the industry tried to form a pool to underwrite aviation business, but the pool has become moribund. So, most of the aviation risks are reinsured abroad, with the local companies taking little portion. That was why even in the recent clash that happen, the local content was about 30 per cent. Our exposure in that risk is very minimal; we are not involved in the main risk. We are involved as a re-insurer.

Are risks properly priced?

The bane of the industry is rate cutting. Because of the number of players in the market and with few businesses available, coupled with the weak economy, we have more demand than supply. And there are no new businesses, so there are intense competitions. With the competition, some operators have to lower the price in most cases. There are supposed to be industry standard, but it is not adhered to. Competition has forced down the prices of insurance products. The issue is also complicated by multi-nationals. Because most manufacturing firms owned by multi-nation have to contend with the cost of doing business in Nigeria, which is very high, they try to manage their cost and one of the areas of doing so is insurance. For an example, the management of a company would tell their broker, we are not ready to spend more that N100 million on insurance for a year, how you are to structure the programme is up to you. Then the broker would go around shopping, trying to beat down rate through reduction in prices. That would force the price down. That is the trend we are having now. Most of the industrial risk businesses are not well priced. In some cases the re-insurers have to intervene by rejecting the risks.

How can the challenge be addressed?

It can only be addressed through collaboration. Presently, we have too many players for the businesses that are available. Take for an example South Africa, as big as the country is in terms of insurance penetration which is about five per cent, they have about 15 insurance companies.

In Nigeria we have 59 firms. How do you control such great number of players, because if there are about five underwriters on a particular business, and the five reject the risk, the broker still has an opportunity to take other five in the market and can continue until he exhaust the whole. Mind you the companies have been capitalized up to N3billion.