‘Outstanding premium still a challenge in insurance business’

‘Outstanding premium still a challenge in insurance business’

by Nike Popoola

The Managing Director, Regency Alliance Insurance Plc, Mr. Biyi Otegbeye, in this interview with NIKE POPOOLA, speaks on premium growth and other major issues in the insurance sector

How do you assess Enterprise Risk Management in the sector?
The regulator has come up with Enterprise Risk Management as a scheme, although it is not new. A lot of us have been doing it. Only this time, they have introduced an updated model to do it. That is, to look at the whole risk exposures of the insurance companies on the holistic basis, and then formulate advanced basis on how to mitigate those exposures in such a way that it will not affect the fundamentals of the company. It is very good. Every insurance company has embraced it and the insurance regulator is supervising its implementation.
Why is the issue of huge outstanding premium still lingering in the sector?
Huge outstanding premium is a big issue in this industry today. The National Insurance Commission, as a regulator, has done the right thing, insisting that uncollected premium should be written off in cycles, depending on their tenure. It is to dissuade toxicity from being introduced into the balance sheet of insurance companies. But then for the insurance company, value has gone out (for which premium has not been collected).
X-raying the reasons, you can come up with three possibilities; client is distressed, cannot pay the premium; client has paid the premium, broker has not remitted; or client is not distressed but is unwilling to pay. For these three possibilities, there should be pragmatic actions. If the client is distressed and is unable to pay, there is hardly anything you can do about that. The reason is that, even if you go the way of litigation to recover it, you can only recover money that is available. When the money is paid to the broker and the broker fails to remit it, I think the industry can do something about that. One of the things I have advocated, which they have done in Ghana successfully, is to regulate that premium payment should be routed through the insurance companies and then stipulating about 90 days period, for commission payment. So, I think we have not done enough on this. Just as the Nigerian Council of Registered Insurance Brokers is doing a good job on behalf of their members, we expect Nigerian Insurance Association to also do a good job on behalf of their members, and the regulator should try and do something that is in the interest of the client.
Where a client is unwilling to pay and he has the ability to pay, there are a few measures you can take, including debt recovery and resorting to litigation, especially where it is obvious. On the part of the regulator, quite a lot has been done to assist this industry. The self regulation of consulting the lead is becoming effective. For instance, a company does insurance with an underwriter for five years and did not pay premium, then no other company should collect it from him. If he moves to another underwriter, he would not be able to insure until he settles the previous ones. NAICOM is saying if clients owe, you have to send reports on a monthly basis, giving the details of outstanding premium against each brokers name so that they can make the broker accountable for those unremitted premium as well. We will not take insurance out of the context of the macro economic situation in the country, whatever we do must be benchmark against our disposable income per capital income and other fundamentals of the macro economics.
What major development has Regency Alliance undertaken?
What we have been doing is consolidating and growing the fundamentals of the company. The company is 17 years old, and what we have been concentrating on in the last five years was to have been following the strategic business plan that we set out to achieve. And that is based on three things: developing sustainable brands; achieving market penetration; and being a dominant player in the industry. In fact, by our projection, before 2015, we want to be among the first five insurance companies. So, what we have been doing basically is to constantly renew and reengineer to ensure that these major objectives are achieved. I can tell you that we have made tremendous progress in that aspect.
What have you done to be more accessible?
We are present in 14 states already. We didn’t just get to 14 states; three years ago, we had presence in nine. Two years ago, we had presence in 11; last year we had presence in 13; and this year, we have just established another. So, you are seeing a systematic growth in terms of branch networking. I will say that networking on its own should be based on sound feasibility. In terms of viability of these regions, we are not just interested in doing it like the banks retail thing. Rather, it is going to be based more on sound business decisions. Because we are focus on general insurance business, the types of personal lines that are associated with life in terms of penetration and getting close is not really our focus of business. Our business focus is on general business. We pride our self as a dominant player in energy, oil and gas and the special risk class. We are developing our personal line products. For now, the concentration of our personal line is in the urban areas. You will not expect us to be present in all the 36 states just for the sake of being everywhere.
In terms of compulsory insurance policies, what special contributions are you making to the development?
To achieve market penetration, using this vehicle of compulsory insurance as a platform, we have developed cost-effective products that are affordable for all the products that NAICOM has approved. We have set out marketing chains; we have built up strong agency workforce that goes out on daily basis. Most of these policies, like the travel and householders policies, we have created a web-enabled environment for customers to go to the internet and purchase these things using their cards. We have introduced convenient payment systems and increased our advertising budget by almost 300 per cent, just to ensure that they are aware of what we are doing. But then, I must admit that a lot of these were concentrated in the very developed cities. And typically too, because the economy is not sound as it should, and we are mindful of the constraint in terms of purchasing power, we don’t deploy the team in all the areas; we do selective deployment, based on the outcome of our feasibilities.
How has the guideline on oil and gas enhanced local underwriters’ participation in energy business?
The law domesticating oil and gas to a level in the industry was made. But, beyond that, the industry itself did not just rely on the law but has gone ahead to develop the energy business in this market. I will say thanks to collaboration with the technical partners. Most insurance companies that play in this area have technical partners. We have extensively trained our personnel to ensure that they can cope with volatile and complex risks, even though substantial underwriting of the risk still resides abroad. In few occasions, where there have been large claims, this market has responded very well. I recall there was a blow out recently involving underwriters and we are talking of several millions of dollars. Within two weeks, this industry responded promptly to the delight of the international market themselves. In terms of the intention of the companies on these exposures, we are still having challenges, and the challenge is that because of the profitable experience of the foreign market, we still have a sort of oligopoly in the foreign market and prices are substantially being regulated. So, the kind of competition that you are going to expect and the variability that you are going to expect is not there. So, there are only a few places, where you can reinsure some of these risks. When you go to A, B or C, it is like they have done meetings, and they have regulated the prices, and that way, the industry is having a lot of problems, growing their retention capacity and retaining some money internally to develop the sector we are talking about. But generally, I can tell you that the industry has been greatly transformed by this law.
What is the claims profile in oil and gas like?
In terms of the risk management of the energy business, it is a class of risk that the frequency of occurrence is very low but the severity is enormous. Oil and energy risks are so volatile; they hardly occur but when they do, they occur in big numbers. On the local market’s readiness for it, the fact of the case is that most of the losses that this market gets involve the smaller ones that fall within the collection of the local market. And as far as that is concerned so far, the market has been measuring up to standard and paying all those claims as at when due.
What effect will the recent crash of an aircraft in the local market have on aviation insurance?
The effect is a mixed one. Dana air crash had occurred, and I could see some of these compulsory insurances have also increased, because so many householders suddenly woke up to know that they don’t have to have combustible materials stored in their houses: something from the sky can just drop overnight and make a mess of their life savings and investment. That was what Dana revealed. Dana’s claims will create awareness and make people to desire insurance. The response of the industry is also commendable because from what I read from the papers, this industry is ready to respond to the claims promptly. What it does in the international market is that rates will go up. Immediately Dana crashed, survey was done on the Nigerian aviation industry. Certain reports were released from the aviation regulatory authority that showed the ages of the airlines. What that information will do in the international market is to highlight the risk factors of aviation business in Nigeria. Of course, rates will go up, not just Dana rate but other exposures are going up.

Source: PUNCH