'Retail strategy panacea for insurance growth'

'Retail strategy panacea for insurance growth'

Insurance operators have planned to raise their premium income from N200 billion to N1 trillion this year, but available statistics show that the projection cannot be achieved. The Managing Director Riskguard-Africa Nigeria Limited Mr Yemi Soladoye in this interview with Chuks Udo Okonta, said insurance growth and development hinge on the adoption of retail marketing strategy.

How has the Market Developement and Restructuring Initiative (MDRI) fared?

The MDRI is the turning point of the Nigerian Insurance Industry. To access a project effectively, you must look at where you are coming from. The initiative is a turing point because the operators, regulator,support service providers, journalists and government realise the fact that there is something going on in the industry. MDRI is also a turing point because it is from that stage we saw the regulator leading the market. There is a united focus for all of us. Whether you adopt it or not, we all know that there is a project on ground and there is a destination to reach and there is a direction as to the way we can go for us to secure increased penetration for insurance business in this country. Every where in the world, implimentation has always be the challenge to achieving projects. MDRI is a case of delayed implimentation. Most people are reading the strategy document and not relating it to when implimentation took off. If there is a projection that in year four, we will get N1 trillion and as we could see from the paper, we were to start in 2009, we had what we are to achieve in 2009, 2010, 2011 and 2012. So, N1 trillion is in year four which is 2012. If implimentation started in 2011, it will be a case of shifting the deliverables forward base on the difference on the ground between the strategy crafting and the implimentation. The initiative is a watershield in the history of the industry and it is also an evergreen thing . You cannot wish it away, as it has brought about many developments. When you read the strategy document, you would see that micro-insurance is part of the area that was recommended as were the industry will get development. Takafu is also an aspect of the initiative. As MDRI is targeted as restructuring, therefore, all the restructuring that are happening in the market are embedded within the the programme.

Will the delay necessitiates an adjustment of the MDRI programme?

The initiative is a business agenda, which entails enforcement of compulsory insurance, entrenchment of retail insurance system and development of micro-insurance. All these were used to arrived at the N1 trillion premium target. So, N1 trillion is an effect, the things that will cause the effect are the enforcement of compulsory insurance, prominence of retail insurance system and development of micro-insurance and that insurance companies adopt retail system, whereby they would have a lot of foot soldiers. We also projected that by 2012, we should have about 5000 insurance agents in the market. The insurance companies feel that retail system is not the area they want to adopt, despite the fact that the regulator has put in place for them a lot of incentives to make them go into agency recruitment. Note that the National Insurance Commission (NAICOM) does not have underwriting license neither does it has a brokering license. The regulator has done all it could, believing that this is what is operating ease where and if underwriters adopt the initiative we will get there. From the reports available to us, we have observed that the underwriters are now realigning to embrace the initiative. The delay by operators which has to do with preparation really affected the implimentation. We believe that very soon we will achieve the N1 trillion mark which is for 2012, while N2.5 trillion for 2015 and N6 trillion 2020. In essence, MDRI has not ended, but since there was delay, we can as well adjust. Whether we like it or not, one day we will reach N1 trillion, and we will reach it faster than we have started. The results in the past five years that the Commissioner for Insurance Fola Daniel has been in position, is an indication that the industry will meet the projections.

What is the level of implimentation of the MDRI programme?

Before the coming of the commissioner the best we had on the premium income was 24 per cent increase, now it has increased to 36 per cent. With our projection, by the time all the insurance companies that are engaging agents fully commence operations, there will be tremendous increase. By December 2009, in the records of NAICOM, they have about 1695 agents registered with them by different insurance companies, by December 2010, the number increased to 3404, so, within a period of one year, there was like 2000 increase. While these are the numbers registered with NAICOM, it is on record that about 70 per cent of insurance companies do not register their agents, because they want their agents to perform before they can start paying huge fees on them. Today, I believe we should have up to about 10000 agents in the market. NAICOM cannot be solely responsible for the implimentation of the initiative. It has created the enabling environment for it, the operators and the public have a lot to do on the implimentation. When the operators fail to educate the public, NAICOM would not be able to do more. Like under the builders liability, it is when the public understand their rights and report infrations that NAICOM would be able to enforce the provision on section 64 which is on infraction. NAICOM has even gone further to help operators to sencitise the public on compulsory insurance, but the business culture of operators has not helped the situation. The operators like going to a broker to collect cheques, forgeting the fact that under the MDRI, there is focus on groups and alliances. Take for an example a group like the Nigerian Bar Association (NBA), I am sure it has about 20,000 members, if an insurance company designs a product for all members of NBA, and each of them pays N10,000 in a year, that would amounts to N200 million. The cost on this type of business is always low. This and many other types of business initiatives are what the MDRI focuses, which the underwriters are slow and failed to adopt. Despite the challenges, NAICOM is not relenting on its oars, as it has also gone to established the Insurance Consumers Association, which would very soon begin to educate the public on the need for insurance. On micro-insurance, NAICOM commissioned a consultant and colloborate with a foreign consultant to put it in place. That is also is aspect of the implimentation. NAICOM has almost perfected its work on consumer education, which is massive insurance education in the country, it would involve distributions of hand bill and media advertorials to dissiminate the information, so that within the next two years, no body in the country will be in doubt as to the benefits derivable from insurance operations and the rights of the public.

What is the present state of the micro-insurance initiative?

The final presentation of the micro-insurance initiative was made on October 24. NAICOM has also come up with the guidelines on its implimentation. The next stage is the implimentation. From personal observation, the commission is very prepared to commence implimentation of the initiative.

What are those things that have helped foreign underwriters that are lacking in the local market?

There are three things that are lacking in our market why it has not developed and until they are adopted the market cannot develop. The first thing is full adoption of retail insurance. The secord is full adoption of retail insurance and third full adoption of retail insurance. There is no other thing. We have a population of over 170 million people. Unless underwriters understand that insurance is like banking which focuses on retail and create access to insurance products, through the foot soldiers, wide spread offices, train people to sell products, give good services to customers, design and develop products that are relevant to the public and enter into strategic alliances with no traditional channels -what we are doing is using brokers who only engage in corporate and government business to distribute our product. If the Nigerian Insurers Association (NIA), would sit and agree to face the retail market, and strive to insure atleast 10 million people within the next five years, for about N3000 that would amount to huge premium income. To me, it is a national duty that insurance companies should give us financial protection in this country, but that is lacking.

What is you take on the call for reduction on the number of operators?

We do not have what I would call real insurance company in Nigeria. What we have is what I can call cuttage companies. What the industry writes as annual premium income, is not up to a premium that a branch or agency of a company writes in a normal insurance setting. For example, look out the results of Fortune 500, American Insurance Group (AIG) and more. These are companies that are generating about $250 billion premium each year. Covert that to naira, it is about N4 trillion. Last year, analysis was done of the 500 biggest companies in Africa, looking at the insurance companies on the report, there were 20, none is from Nigeria. So, we are not there. A small country like Mauratius, with a population of 1.2 million people, is generating 60 per cent of the premium income of Nigeria. This is because retail insurance has taken cetre place there. The number of insurance companies has not really impact the market. China, has a population of about 1.3 billion people, I am not sure the number of insurance firms there are up to ours. India has a population of 1.1 billion people the number of insurance firms is not up to 40. When the right thing is done, when operators have the vision to create a big visionary customers service oriented company, people will see the need to merge. People will see the need to create big companies.

How can the challenge of unhealthy competition in the industry be tackled?

Every problem in the industry is a manifestation of the refusal by the operators to adopt retail as a business policy. That is, the board of the various insurance companies, as a matter of urgency, should compel their management team to adopt the retail marketing. The operators are into the problem of unhealthy competition because they boxed themselve into a very narrow distribution outlet, which is brokering market. In any situation, price becomes the only competitative strategy, when people are not adding value. That the cleints are asking for reduced price every year, and the brokers are doing the same, it is a manifestation of the fact that they are saying that they have not seen any competitative strategy. So, the only thing that the marketers do, is to ask the broker, how much is the rate we gave you last year, we are ready to reduce it. It is the admission of the fact, that no other strategy. The insurance companies, consentrate on premium growth, as against market expansion. The future and the solidity of the operators can only come from market expansion. All the operators want is to ensure that their premium for this year is higher than what it was last year, and they are ready to spend anything to achieve that. If their market position last year was number six and they move to number five this year, their board would laud their effort, not minding the cost. The companies cost of doing business is indeed very high, the claims ratio is quite low. These are pointers to the fact that insurance companies need something new and better. The issue of unhealthy competition will be getting worst, until they look for better, cost effective and non volatile distribution channel. When I talk of retail, may be the operators do not understand what I mean. Bankassurance which is having a colloboration with banks is a retail channel. It also means engaging in strategic alliances with organisations, like Shoprite, Megaplaza and others. Colloborating with cooporative societies and more. It is so wide and until they adopt it, the market cannot expand. It is not a matter of if, it is compulsory, for they are already feeling the bite of the narrow distribution outlet that they are using at the moment. Most of the problems they face - high cost of doing business, premium reduction, unhealthy competition, are all manifestation of the fact that they are using narrow distribution method. If you have an alternative, you would be able to do business on your own terms, but when you do not have alternative, you have to achieve what ever any body tells you. That is the problem with the operators for they are not creating alternative distribution outlets for themselves. I think what they need to do is to go back to the drawing board to examine their operations. Each company needs to sit and draw strategy on how to develop their business and adopt retail marketing strategy. When this is done, issues of unhealthy cmpetition, premium reduction and others will stop.

What is your take on what NAICOM has done in recent time to sanitise the industry?

To day, the fear of NAICOM is the beginning wisdow for any underwriter in the country. Six years ago, it was not like this. Now, every body knows that NAICOM is in charge. It is not that the law is new. it is the same law. What NAICOM is implimenting is the same 2003 Act, which has been there before Fola Daniel came in. It is a matter of who is at the drivers seat. To me, if any body wants to run insurance business, the person must be guided by public policy. All over the world, insurance premium does not belong to insurance companies. It is the policy holders money, that is held in trust by the insurance companies. 99 per cent of the regulator due is the protection of the policy holder. With the step taken by the regulator, members of the public have better confidence and trust in the Nigerian Insurance industry, believing that there is an effective regulator in place. It will now turn round, to help the underwriters. In the sence that once people have confidence on their product and insurance mechanism, they would get more business to the extent that the position and reform been embarked by NAICOM would be yeilding results. I believe with time all the reform strategy taken by NAICOM will be part of the operators and everything will be alright. NAICOM having pushed all these reform and sanctions to the market, in the next three years, should consentrate on how the industry can get quantitative results from all the good things they have done. If they have brought in MDRI, if they need insurance education and enlightenement to get the result - in which case, we can now begin to look at it in quantitative terms. If they would need to help insurers on skill developement they should do that. If they would help them even on product developement, they should do that. If they need to assist them in providing training, they should do that, for there is huge man power shortage in the agency system. Not many people know how to run agency, so many of them do not have experience, so, if NAICOM is to help them on retail market, it will be okay. If they would help them on payment system, especially mobile payment, they should also do that. So, that at the end of the day, NAICOM would consentrate on things that would bring about huge volume of premium.

What is your taken on government attitude to insurance?

I have studied insurance business in so many countries, and I think we should appreciate the effort of government in helping insurance growth. It is government that made the law of compulsory insurance, but if something is there and you are not ready to utilise it, there is nothing that the government can do about it. The Head of Service insurance came as a result of the Pension Reform Act 2004. When it was calculated it was N23 billion. Underwriters went behind to offer all sort of rates that reduced it. Note that it is the way you present yourself that people will take you. Look at the brokering side, do you share your Lawyer fee with him? Do you share your Auditor fee with him? Do clients share insurance commission with brokers? The answer is left to you to answer. It is a matter of how we present ourselve. If building under construction should be insured, you can imagine the number. Also public buildings are to be insured, but do underwriters insure their buildings according to the law? If we are ready to do the right thing, the government would definately do more. Accountants should have professional indemnity insurance, engineers must also have it, that is the way it is done in other countries. Operations like Power Holding Company of Nigeria (PHCN) Should have indemnity, Nigerian National Petroleum Corporation (NNPC) should have indenmity. All these are there but we have failed to utilise them. With the provisions in the insurance law, the Commissioner for Insurance weights the largest power among the regulators. If you do not go to the bank to borrow and save money, the Central Bank Governor has nothing to do with you. But when you do not insure, the commissioner has power over you in the compulsory insurance. The law gives the commissioner for insurance the power to bring everybody to him. And when you did not come near him, it is an offence. The commissioner has power over insurance operators, insurance consumers and non consumers. All these are there in our laws, the government has really helped. Insurance as an industry should show the ability to colloborate and compete with other sectors of the economy. Insurance is an act that should stimulate the activities of other sectors of the economy. It is we the operators that should let the government know that when it comes to the provision of social welfare, that that is part of our work. When you want to stimulate mortgage, come to us, for every sector cannot develop without insurance and that is why you see many houses not sold, for it is only insurance that provide long term funds for the mortgage sector, telecoms oil and others. The government has tried, it is the insurance people that would show the government other areas. The Lagos-Ibadan Expressway concession was canceled because the person in charge could not get money from the banks for the project. That ought to be done by insurance firms. It is when we make the best of the compulsory insurance, personal pension that we will make money. Insurance is the only product where you collect N1 and commit yourselve to a liability of N400. Even the area where we collect huge premium like motor, which the law placed at 10 per cent and the operators reduced to five per cent, they collect N1 to pay N20 and still insurers are like beggers. Until our operators know the importance of their business, they would not be taken serious.

Where is the place of brokers in retail marketing?

The role of brokers in insurance is clearly spelt-out. Take for example the Head of Service would never give its insurance to an agent. That is solely brokers business. Brokers are wary of agents because they do not have adequate knowledge of what retail marketing is about. The fact is that even the brokers need agents. I have been to a country where a broker has 3000 agents. Brokers need to sit and understand what we are talking about. In Kenya, there is a bankassuarnce agreement between two brokers and two banks. What the brokers did was to appoint agents that sell insurance to customers of the bank. Agents can only sell a particular product of a particular underwriter, but a broker sells products of all underwriters.

What is the way forward for the industry?

There must be a trigger from within or a threat from without in the industry. The trigger from within will happen when one insurance company decides to change the market by providing improved customer service that will change the focus of the industry. A threat from without is when NAICOM appreciates the fact that insurance should not be distributed only through the traditional distribution channel. In other nations, places like shoprite, cooperative societies and megaplaza distribute insurance. When NAICOM is confidence enough to open the door for retail marketing there would be tremendous growth in the industry. NAICOM would always say they do not have the capacity to monitor such, but they should start from somewhere. If NAICOM opens the doors, what it gets from the N200 billion that is generated now by operators will be multiplied by five. For example, let NAICOM tells all insurance journalists that have been on ground for the past three years, bring in application to run a micro-insurance company with statutory capital of a car, rent a room and parlour, have a fan not an aircondition and the total cost must not be beyond N1 million, including application fee of N25,000 and renewer fee of N5,000. That will open up the industry. In countries like the Phillipias, they have three tiers of insurance system. just like what we have in the banking sector. The national level operation has its capital base, state has its and the local government. If we do these, insurance will reach every where.