In spite the provision provided by the Nigerian Content Act, the former Chairman Nigerian Insurers Association (NIA) and Managing Director LASACO Assurance Plc Mr OLUSOLA LADIPO-AJAYI, said insurance risks still need to be reinsured abroad. CHUKS UDO OKONTA met him.
Have all operators uploaded their data to the industry’s controlled system?
All operators have uploaded their data, but there are still some gaps. Presently, all insurance companies have fully subscribed to ensure that they upload their data. But we believe the data we have is not complete yet.
How has operators maximise opportunities in oil and gas as provided by the Nigeria Content Act?
Oil and gas is capital intensive, it is denominated in dollars; therefore, we still have capacity problems in terms of finance. But in terms of technical know-how, we are coping and gradually coming of age, because our exposure is aiding our understanding to technical know-how on risks in the industry. In fact, right now, we have some claims that have arisen, that would also further expose us as we would read loss adjusters reports to enhance our knowledge. The major challenge we have is getting the right type of security as reinsurance back-up. The capacity out there in the international community itself is limited, so, on the balance of probability, I think we are doing what we ought to do. It is our prayers that more indigenous companies should have confidence in the local insurance industry and encourage us to growth together. By and large, it is better than nothing and from my point of view as the Managing Director of Lasaco Assurance, I think it has paid up.
What is the present percentage level of insurers’ involvement in oil and gas business?
It is very difficult to place. This is because, even with the 70 per cent apportioned to local operators, is still reinsured abroad. Insurance is not something you can localised, it is an international business and no country in the world can effectively domicile it risks. What the local content has done is to ensure that risks are not shared in exclusion of Nigerian insurance firms. Risks in oil and gas are ours as they emanate from our country. We should be the one to share the risks in the international communities and not the international communities coming to share it to our exclusion. So, I am not in position to say the percentage we have achieved, because that would mean an analysis of the net retention that is retain in Nigeria which is something we have not done. But the way the National Insurance Commission (NAICOM) goes about it, would determine how far the Act has been complied with, before allowing businesses to go outside.
How has operators fared in marine underwriting?
The statutory provision for imported goods to be insured in Nigeria has been in our law for a much longer time than the provision of the Local Content Act. We have found out that the law is not being implemented and one of the issues raised about the law is that there has not been any instrument put in place to ensure compliance. The laws are there, but enforcement has been the problem. NAICOM cannot go to the ports to investigate what happens there as it is not its duties. Some time ago, we made contact with the Customs and the officers said it is not their responsibility to inspect marine certificates. Ordinarily, when people are opening letters of credit and processing things from the Central Bank of Nigeria (CBN), they ought to back it with local marine certificates. But how many people even take the certificate? People import things without getting genuine certificates. During the oil subsidy probe, we put up a memorandum to the National Assembly to tell them that we did not see the impact of the huge volumes of petroleum products imported or reported to have been imported. We did not see the impact in our marine insurance premium, that is to say most of those importations were not insured locally, because if that volume of oil was imported and they were insured, we would have seen the impact on our marine insurance premium, which we have notified the National Assembly . So, the problem of marine insurance is monitoring, but one good development now is that there is a review of the Custom Act by the National Assembly, and there is a specify provision for the Customs to implement laws that have bearing on their operations and under that provision it would be their responsibility to ask for marine certificates when they are inspecting goods. They are also required to liaise with regulatory bodies like NAICOM, consult with trade associations like NIA. This provision is very good and we have written a memorandum to support it at the National Assembly. We hope the law will be passed as it was drafted.
How positioned are insurer to underwriting special risks?
Special risks are risks denominated in hard currencies. These risks are oil and gas, construction energy, space and more. We have various businesses in special risks, but basically, any business that is denominated in hard currency – dollar is called special risk. Lasaco prides itself as a leader in such businesses, we want to go into every area of insurance and take the challenge, learn the technique and new things.
How has NIA consumer compliant bureau fared?
The purpose of the consumers’ compliant bureau is not to witch hurt anybody; it is not to de-market any company, but to provide fast dispute resolution mechanism between us and our clients. What we suffer is that when one insurance company does extremely well, the members of the public would say this is rather an exception, the company takes the credit alone, but when one company does exceptional bad, rather than seen that as an exception, the public would say that is the way insurance industry behaves. So, this is our concern and it was generally agreed that we submit to the jurisdiction of the customer compliant bureau. A number of cases have been resolved amicably. One thing we do not really like, is to publicise claims payment, this is because when the clients where paying premium, we did not call the press to say this client has XYZ amount. And the client paid on our promise that we are going to meet the claims. So, it would be unfair to the claimant if when he starts claiming we begin to broadcast what we are paying. That was the conservative view of the industry in the past, but it got to a point when we make our claims quietly and people still believe that we do not pay claims. With that, there was a re-rethinking of that position to tell the public what they do not know about our claims payment. When we announce the amount of claim paid, the public would understand that the claimant also paid a premium. This is why insurers are coming out from their shells to declare their claims. The purpose of the customer bureau is not to demote anybody, but to effectively resolve issues amicably.
What is NIA doing to ensure survival of bank-owned insurance firms?
It is not the responsibility of the NIA to ensure that any company remains afloat. NIA does not promote ownership of a company, we only deal with companies that are in existence and are licensed by NAICOM. From our point of view, those bank sponsored companies have not contravened any law. What the insurance industry was against was the kind of universal banking they wanted to introduce years back, whereby a bank would not need an insurance license to transact insurance business. The approach then was that you just walk into a bank; you would see a savings department, current account and insurance department. That type of practice was unethical and we opposed it. Our position was that any individual who wants to establish an insurance company must adhere to the Insurance Act. If the Central Bank has problems with them, that is their problem not NIA’s issue. If the Central Bank tells them to closed down, there are provisions in the Insurance Act for closing down of an insurance company either life or general business. If the companies are to transfer ownership there are provisions in the Act for that. We do not have a stake in who holds an insurance company, our stake is that once any insurance company is existing and a member of the NIA, we would protect the interest of the company and encourage it to operate in accordance to the law of the land. So, the divestment has nothing to do with the NIA.
Can’t the NIA encourage bigger firms by acquire stake in the bank-owned companies?
That is purely commercial business decisions for any individual to take. The NIA is not concerned with that now because it is not a major problem. The companies are not in danger of lack of suitors. To the best of my knowledge, there are people that are willing to get involve with them either from the insurance industry or outside. So, it has not been a problem for us to consider.
How has the MDRI fared?
The Market Development and Restructuring Initiative (MDRI) have not gone as far as we expect it. This is because there are teething problems such as the training of agents and others. The problem with Nigeria is that we need law enforcement to sell insurance at this point in time given our level of development. Until there is enforcement people would not readily buy insurance. If you look at the Pension Act, as widely publicise as it is, how many Nigerians employers have taken the group life scheme apart from the federal government and a few states. How many states have enacted their Pension Act? The thing is a kind of social change and there is need for more enforcement. On our part, we have our challenges, but the only area of success that has been remarkable is where insurance companys working with an enforcement agents in some states to enforce certain aspect of the law. We would not get there over night, MDRI is a very good initiative meant to deepen the industry. We have to train agents, keep them by paying allowance pending when they are able to produce. But one wonders how long we would be able to keep them. If it gets to a position when people are penalised for not providing the insurances they took for their losses, it would become easier for insurers to sell their products. Now, if you go to an average Nigerian and tell him to insure his house because there is law for such, he would ask you where does the law exist? Most Nigerians do not even know about the law.
Is the capital base of the industry adequate for large risks?
We are over capitalised. Examine our businesses, how much business are we doing with the capital we have? Insurance does not thrive on capital base. What drives real insurance business is reinsurance back-up. Definitely, we need more money, but our challenge is how to deplore our funds to do businesses to earn more.
What are operators doing as regard the challenge of underutilisation of their capital?
In Nigeria the private sector has almost collapse that is why everybody is running after government business. It is only when you do businesses with government that you see money. Big flow of premium comes from government businesses now not from the private sector. People talk of emerging risks like climate change, terrorism and kidnapping, when insurers develop products along these classes of risks how many Nigerian would buy them. Note that insurance thrive on a large number, if only few individual buy these policies the aim would be defeated. We are not supposed to pay claim form our capital base. We are only expected to use our capital base to provide state-of-the-art equipment, good offices, provide good service, do research. Every class of insurance in theory is supposed to pay for itself. On the long-run, our capital base is just a stop gap. The premium we collect are supposed to run our businesses. Insurance is a service industry to commerce, it is not a catalyst. It only helps to protects commercial endeavours. Premium payment has been a major problem in Nigeria. We are unable to play our intermediation role because people including the government do not pay their premium in time. So, when they say we have not developed, it would be difficult for us to develop if insurance is not done properly. Also, insurance industry is its own worst enemy, because competition has driven down prices and the price has continued to go down into unprofitable level. So it is difficult to grow the industry. We are running ourselves below profitable level due to pressure in the competitive market that is why we cannot grow beyond what we are doing at present.
How did the NIA under your leadership fared in tackling the issue of rate cutting?
That can be taken as one of the dark spots in my tenure. I did not succeed in that regard. That is the simple truth. It is a pity.
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