‘Domestic insurance opportunities exceed N2 tr’

‘Domestic insurance opportunities exceed N2 tr’

 In spite the challenges clogging insurance operations, the helms man of the industry Fola Daniel, says the domestic insurance potentials can generate premium income of over N2 trillion. CHUKS UDO OKONTA met him.

How much impact has the last recapitalisation made on the insurance industry?

The last recapitalisation exercise had made some significant impact on the insurance industry. One of the major issues confronting the industry prior to 2007 was that of financial capacity. The lack of financial capacity of course translated into we not having technical capacity and sufficient human capacity. Let us take it from the bottom, to have first class brains to manage an institution, you really need to be able to pay – that is a lot of money. You need to be able to deploy a lot of significant efforts in training and up scaling staff skills. So, with low resources, no insurance company would be able to devote sizable of money to training people, acquiring information and technology support. But the aftermath of 2007 has seen an insurance industry with huge financial capacity. We have gross between N500billion and N600billion to the sector, so the financial incapacity has completely disappeared.

What are the gains so far?

The recapitalisation has enhanced financial capacity and has manifested in the industry been able to meet up with claims which occurred. The robust financial capacity was put to test two years ago, when some companies paid the biggest claims ever had in the industry which was that of Nigerian Bottling Company which gulp up about N10billion. Effortlessly, the companies paid without hassle. In fact, the industry ought to have celebrated that feat, but because insurance practice is based on the principle of utmost good faith, the principle imposes a duty of respect of privacy of contract on the industry. This is because if we did not make fun fare when we collected premiums from companies, and by the time of claims, we begin to advertise every where the firms may not be too comfortable with it. The important thing is that we had a huge claim of that magnitude and the industry paid effortlessly. That is one of the gains of the recapitalisation exercise. Also, financial capacity helps in building technical capacity and one of the technical capacities is reinsurance. A firm must have decent balance sheet to be able to attract the support of reinsurance particularly foreign reinsurance. The 2007 recapitalisation has enabled the industry accessed greater technical capacity. Note that technical capacity is not what you achieve in a day. You need to build it. This is because if a company need to sent 10 of its staff to acquire better skills that is building capacity and it cannot be bought at the shelf.

How close is the industry towards the achievement of its N1trillion premium income target?

The issue of how close or far the industry is towards the achievement of the target would not have a straight answer. I think what we need to do is really to go back to the fundamental of the figures behind that target we gave ourselves. On the basis of what we have in the nation, should we really be talking of N1trillion income? Five years after recapitalisation, should we not be talking on something more than N1 trillion? If we deploy N500billion to N600billion to do business, should not be looking at doubling that amount of money? Or even making it triple? I think we have the wherewithal to generate income in excess of N1trillion. How much of it we have gotten, I cannot say, because the 2011 account has just reached the commission, I do believe that by the time we get most of the accounts, we would be able to say; yes this is where we are exactly. I think the underlining thing should be, do insurers have the capacity? Do we have a business environment that can support the premium income of N1 trillion or even N2 trillion? And the answer is yes.

What is the industry capital base?

The industry as at 2010 has between N500billion and N600billion gross income.

How has the industry’s Market Development and Restructuring Initiatives (MDRI) fared?

The MDRI focuses on highlighting existing compulsory insurances which were not properly implemented expect motor insurance which people are used to. But there are other class of compulsory insurances, so, we brought the MDRI to highlight, create awareness, implement and engage in enforcement which is the last result. One of the key objectives of the MDRI which is creating awareness in the mind of people has been considerably attained. Four to five years ago, when you ask people to take compulsory insurance for their buildings, they would asked you to explain which laws make it mandatory for them to buy the policy. To day, most Nigerian cannot claims ignorance of these compulsory insurances. So, we have reasonably created awareness and awareness is a continuous thing which one cannot stop and said I have had much of it. We will continue to create awareness until most of the people naturally accepted these products as a must buy. Reasonably, we have been able to sensitise people to buy insurance.

Why are insurers not underwriting big risks in oil and gas?

Most of the underwriters have shown enthusiasm on leveraging on the opportunities afforded by the Nigerian Content Act. The Act as it relates to insurance stated that 70 per cent of all insurable under the oil and gas business must be domicile with Nigerian insurers. And the insurance industry has risen to the occasion; they are seizing that opportunity as to write more business in oil and gas. But, like where we started from, having financial capacity is not the same as having technical capacity. Because you need finance to build technical capacity and it is a gradual thing. People because they suddenly find themselves with capital of N6billion or N7billion, does not mean that every one knows about oil and gas. The operators really need deliberate effort to train personnel to understand oil and gas, otherwise, they will go and state risk which they lack the required knowledge. That will become a blind date which could crash and it will be inimical to the organisation and the industry. People are eagerly building capacity and we are making good progress. Five years ago, you can point at number of Nigerian companies that are doing something in the area of oil and gas, but today, we have good number of them that are really striving to build capacity so that they can take advantage of the Nigerian Content Act as it relates to insurance.

What is the percentage participation of insurers in oil and gas underwriting?

On the question of 70 per cent, which was ceded to local operators, I think we need to be a bit careful here. The question is 70 per cent of what? The Nigerian Content Act stipulates that we should insure 70 per cent of any thing under oil and gas. But some of these businesses come in billions of Dollars. Do we have immediate technical capacity to take 70 per cent? The answer may be no, not all the time. So, we are looking at 70 per cent on case-by-case basis. And if you look at it at case-by-case basis, there are situations where as a regulator we say to the oil industry, no, this is not a case of 70 per cent. 70 per cent is a prescribed minimum. We can do 100 per cent. So, there are situations where we can do 100 per cent absolutely, which means, there is no need to cede anything abroad. There are situations we can take 90 per cent. Then there would be situation naturally, where because of the quantum of the value’s risks, 70 per cent would not be retainable in the country. It must be noted that in spite of the law, insurance is about spread of risks. So, where it become expedient for us to take less than 70 per cent as a result of the large volume at risk, we take less than 70 per cent. This is because we must not take a value that would choke the industry. We must not accept a sum insured in a way that where there is a claim, we begin to give excuses. Insurance is moving forward and it is about making promise, but redeeming that promise is very important. So, we take objective view of each case as they come. As I have said, it is not about 70 per cent for there are several situations where we were able to take 100 per cent.

To which extent will the proposed insurance bill aid regulation of the industry?

The last three to four years, the industry has adopted developmental strategy than regulatory. We believe that unless the industry is developed, there is vibrancy; the regulator over time will become idle as there will be nothing to control or regulate. So, we have focused more on developing the industry and that was why we introduced the MDRI programme. The focus has been on development and there is where we are going. The law that is in the offing will support our developmental efforts. It will also create jobs. One of the cardinal policies of the present administration is to create jobs – reduces unemployment, restiveness in the society. Graduates that are not employed may be available for mischief. We believe that any new law that is fashioned that did not support President Gooluck Jonathan quest to create employment and reduce poverty is not a good one. The proposed bill has been done in a way to support the government quest to reduce poverty in the economy. As to time line when the law will be out, we cannot have control over when legislation is passed. I can say that within the next few weeks, the executive should be in position to send the bill to the National Assembly. When it gets to the National Assembly, how long it will take, we do not know.  I can say that the insurance environment is lucky. The relevant committee of the National Assembly that has oversight function on insurance are very eager to do any thing to support insurance growth and development. And if one of the tools to ensure rapid development is the review of the law, they have assured us that as soon as they see the bill, they would do what is needful to ensure that there is no unnecessary delay and I believe them. That is why I said we are lucky. The executive is eager to ensure that insurance occupy its rightful place. The Legislators are very willing and waiting to support the growth of insurance in our environment.

Why has NAICOM not be proactive in sanctioning errant operators?

I believe you want the National Insurance Commission to be like Central Bank of Nigeria (CBN) as regards sanctions. The method of central bank is not a cap that fits all. It is not a medication that cures all ailments. The approach of central bank has its own merits do it publicly let Nigerians be aware of what is happening. Of cause, the central bank was confronted wit a different scenario that needed the remedy they applied. The problem of the insurance industry is not exactly the same. So, we may not be able to borrow that medication to cure a different ailment. When you have diarrhoea you have to take drastic medication to stop it, because it could embarrass you. Whereas somebody who has headache would take panadol, two of them are medications, but are intended for different purposes. And the effects look different. So, we salute the central bank for what they are doing but I want to confirm to you that from time to time, we sanction insurance operators and if it is important for the public to know we let them know. Our sanctions are largely remedial. What is upper most in sanctioning an insurance company is the protection of policy holders. If I sanction an insurance company and put it on the papers of newspaper, without obtaining a remedy, how does that help the policyholder?  But if I can effectively sanction an operator and the interest of policy holder is fully served, that mean we are doing the right thing. Let the central bank continue to do what it is doing, we have a different problems and different approaches in resolving the problems. I assure you that we are not sweeping anything under the carpet or shielding any operator. As a matter of fact in the last three months, I think there has be shout and cry from the industry about our sanctions we have given to errant operators. We are acting as it become expedient and appropriate; we are not going to mimic any regulator so that the public will say we are doing something that would not be necessary.

Is the large number of operators really deserving, going by the low level of insurance penetration?

For a country that is as large as Nigeria, 600 brokers that are brokers indeed cannot be said to be too many. We have 774 local governments excluding those that are not recognised by the constitution. Assuming that we have 774 local governments and 600 brokers, that mean that we would have 600 brokers for 600 local governments, 174 local governments would not be covered. So, the large number is not the problem. I think the problem for all of us, is that given the huge population that we have, the active economy we operate and the political environment, insurers should be better than where they are.  There should be more people buying insurance. Some 10 years back, the middle class were completely wiped off. It was either you belong to the upper class or the low class, but today, the middle class is coming up significantly, and that is why when you go to the villages, instead of seeing  bicycles in primary schools you see cars. The middle class is growing and it is the middle class that buy insurance products. That is not to say that the upper and lower class do not need insurance. Given the opportunities, the industry should be doing better.