In spite the efforts being made by the insurance industry regulator, operators and other stakeholders, most Nigerians are yet to come to terms with the working of the business. The Managing Director Riskguard-Africa Nigeria Limited Yemi Soladoye in this interview with National Association of Insurance Correspondents (NAICO) spoke on challenges stemming the industry's growth and steps taken to address them. Chuks Udo Okonta was there.
How has MDRI fared?
The biggest achievement of Market Developement and Restructuring Initiative (MDRI) is one; the Nigerian insurance industry now have a united focus. We all know, whether you appreciate it or not, key into it or not, it is very clear about where we are going, it is very clear about the milestones we want to achieve, the time we want to achieve it, and the vision, the new mission and the objectives of the industry have also become clear.
Before the MDRI it was the operators that were leading the regulators. Now, unlike before, the operators were even blaming the regulators; at public fora, you will hear operators complaining that if there had been serious regulator in insurance industry, things would not have been like this! You wouldn’t hear that again. Now, the fear of the regulator is the beginning of underwriting wisdom in the business.
The MDRI is like a house, in the sense that even if you have everything ready, that is all the money needed, say you want to build a storey building you have to give it some time for the decking to become solid before you can put the next floor.
Basically, that is what is happening because MDRI is something that remains evergreen any day, it cannot be wished away, by anybody either the operator or the regulator, one thing that we took for granted is the business culture of our operators, we thought that being a new business model that is better than what they had, that they will quickly embrace it, but that was not the case, because I think they are so comfortable with the wholesale market. They are comfortable going to brokers to get N10 million, N50million business.
Even the business of Head of Service it is very possible for an underwriter to get N1 billlion, so they are very comfortable with the wholesale market than the retail market.
The retail market takes some time to mature, it requires a lot of expertise in that segment, it requires a lot of infrastructural provision. So, I think their own business concept was not looking at the retail market, it is very possible for an insurance company with four branch offices in the wholesale market to make N10 billion premium, when you are looking at the retail market the bricks and mortal has to be there so they are almost everywhere. Along the line, I think we have seen some measure of improvement, because when MDRI started especially in the area of agency operation the numbers of insurance agent registered with NAICOM was 1,596, a year after, we had about 3400 names forwarded by the underwriters as their insurance agents and I know that within the different companies at the moment, they are making concerted effort. They have seen that the only way out is the retail market so they are really working on it. Those are the basic things I can say are the achievements of MDRI, but I don’t want to talk about the Naira aspect of it, because I know that will still be achieved, it is just a matter of delay, the time we give that initiative, the capacity in the market going by the insurance gap which is 94 per cent at that time, going by the capital requirement in the Nigeria insurance market which US$33.3 million, looking at the bassel ratio i.e. when you look at one naira of the shareholders fund, how much premium can it support? In the insurance sector we have a situation where N1 of the shareholders fund is capable of supporting N20 of premium income, even by 2007 when we had that capital increased to N5 billion, when we have 94 per cent insurance gap, the market was to operate between N1.5 and N2 trillion, premium income by virtue of the capacity put in place.
So, the N1 trillion premium income is not an ambitious projection. Under normal circumstances, by 2012, we should have really exceed N1 trillion, but I think there were constraints that made that no to happen.
What is responsible for the delay in the full implementation of the MDRI?
The reason why it is taking long is that the infrastructure and mental business re-orientation that ought to have been put in place or that could have come automatically were not there.
In the Nigeria insurance industry before 2007 and up to around this time, I will say that we had about four areas of weaknesses, the first one is access to insurance; it wasn’t there. Almost all the insurance companies in the country, except three have their head offices in Lagos. The branch offices of almost all the insurance companies are in the state capitals. The next biggest town in the state, you would not find any insurance company there.
You will agree with me that, that is not the case with banking. That is not the case with micro insurance, it is so bad that when we were doing the country's study on microinsurance, almost all the insurance companies are in Abuja, but no single insurance office in Keffi which is just 30 minutes drive from Abuja. Access to insurance is a problem. We took it for granted and it has remain a challenge to the industry.
The second weakness is usage; people or oragnisations, understanding the fact or understanding the competing collaborating influence of insurance on other financial services operators. Mortgage cannot develop without a well developed insurance market, because it is only in insurance that you can get funds of long term gestation and once you don’t have that, you don’t have mortgage. We have houses all over Lagos, but nobody is buying them or renting them because the insurance aspect of it is lacking. The mortgage sector has not seen the need or the importance of insurance in its activities, the insurance people instead of seeing the banking sector as collaborators, five years and below they were seeing bankers has competitors, whereas we can get a lot from bank assurance which is a collaboration between insurance and banking sector. When I look at the aspect of usage, this may take me to the fact that we have restricted ourselves to the traditional distribution, which is using insurance broker as the sole channel.
Whereas for MDRI, what we packaged is that the regulator should open the channels to non-traditional areas, the cooperative societies; they are a veritable means of distributing microinsurance, Shoprite, Mega plaza, those are places where you could distribute microinsurance. We do have what we call independent network providers, it is possible for those who have stayed close for long to think they has learnt enough about insurance and now he can now run an insurance marketing outreach and they will be licensed a such.
The microfinance banks are there, we do use what we call franchise administrator to run agency, we have restricted ourselves to the traditional distribution channels, it is this that make the usage very low in the market, that is a weakness that we thought will go on its own once the model is right.
The third weakness is the product; we do not have relevant products, in the system, we still operate with the "off the shelve" product. The purpose of MDRI is that the insurance companies will develop products that are relevant and problem solving to Nigerians, products that are peculiar to our own risk exposure, I can say that up till now we still have a lot of irrelevant products which was indicated there that tailored made product will be the ideal under MDRI.
The fourth problem is customer services; the customer service in insurance at the moment is poor, up till date customers still have to remind insurance companies that their policy is due, that is a problem. The people that we send out to market individuals across the country especially on retails are not well trained, Nigerians even find out that they know more than the people we sent to them. When we look at claim, claim administration comes under two headings: the claim servicing cost and the actual payment of claims itself. I’ll give you an example if your car is involved in an accident, your insurance company may give you a replacement car while your car is been repaired, if your house was destroyed by fire your insurance company will pay for hotel accommodation pending the repair of your property, even as a tenant you will be given rent of alternative accommodation or return to you the rent that you lost in the damaged property and in most countries that cost itself i.e. the claim servicing cost is up to 25 per cent of the insurance net premium income, we don’t do all of those here. It is when you satisfy that, then you have come to the actual cost of the claim which in most countries gets to 60-70 per cent of the net premium income, customers who at the end of the day feels that they are not getting any thing from insurance. In a situation where we are reporting a particular company making a certain billions of naira as net premium, people will feel that look am not needed here, this people are only smiling to bank at my expense, that problem of customer service is there, if there is no good customer service approach there will not be customer trust and confidence, that is equally not there, all these are issues addressed within the MDRI package.
What is NAICOM doing to enforce MDRI?
NAICOM tried within its own understanding of the project that time, let me make a confession to you, even as a consultant sometimes, if you have a project say January 1, and you write out the items you want to treat under the project by December, if you go back to the project you may discover that there is no correlation between the two, events within the system, new understanding, new reading will start to shape your write up. I will like to say that I think NAICOM had that problem it was a beautiful blue print, they accepted it and was appreciated internationally, but NAICOM itself do not appreciate the enormity of that package, it was just a total package, it is everything about insurance development and restructuring in this country, yet the objective of a regulator is to create a safe, stable, fair insurance environment, promote growth and competition then protect the customer, but for a regulator to perform these roles three things are very key, the technical expertise of the regulator itself, the level of financial knowledge and inclusion of the regulator, the managerial capability of the regulator, working in NAICOM does not automatically make me a regulator, you have to understand this as the foundation upon which you can change the system in which you are operating, NAICOM has a beautiful package, but lack in terms of man power needed for the project, part of our recommendation is that NAICOM ought to have at least 200 inspectors in their inspectorate department. Once you have those inspectors, you can collaborate with the police and the Federal Road Safety Commission (FRSC). By the time we started this project, NAICOM had three offices all over Nigeria, how is it possible for a regulator with only three offices to know what is happening in Maiduguri or Sokoto? Now, the commission have gone to Ilorin, Port Harcourt and it is like that expanding based on issues in it. For insurance, the cost of its benefit is not about forcing people, by the time there is adequate insurance education, people will understand the benefit of it and its enforcement will just come once in blue moon, a way of just going round to know if people are complying. The aspect of insurance education, public enlightenment was also lacking, we tried to enforce it in three places and funny enough people complied, I remembered in Ibadan with FRSC and the Police, we blocked the road going to Ife and the road coming to Lagos and some underwriters heard of it and they came to join us, they started to issue third party motor insurance right on the spot and within one hour, they made about N300,000 at N5000 and NAICOM printed handbills showing the logo and the names of 60 underwriters in the market as at that time and people were even thanking us that they now know the right places to go, on all the compulsory insurances people even when we go the hospitals, were thanking us, and asking why they have not been told the benefits a forehand, so almost everybody was interested, but insurance education was lacking.
It seems the effect of MDRI is no longer seen in the market, is that the end of the road?
The answer is capital no. I know that NAICOM is repackaging to come back and hit the thing very well to address these problems which I mentioned to you which are actually in blue print. I also know that some insurance companies, that have embraced the initiative. What I did in the past one year, is to go to the sides of the underwriters, the operators and the consumers, with my own personal initiative and money to encouraged people to start doing things right. Because there are three parties involved - the regulator, operator and consumers, there is need to understand their views. Sometime, you hear of things like mortgage endowment all these are products that you can sell through the estate agents and valuers, you can imagine the number of houses under their control.
Some companies are coming up along that line and I know of two that are really coming out big in the area of retail market and that is why I tell you that actualisation of MDRI deliverable is a matter of delay and we are going to get there and I think things have started crystallizing.
With the low performance of MDRI, on what percentage will you place it?
Base on it present status, I will give it 75 per cent at the moment. Though you may be surprise, there are three parties involved in making MDRI work, the regulator, operator and the consultant. Incidentally, two of these stakeholders don't have operating license and MDRI is a business model, no one has ever come out to say it cannot work. The present opportunity and potentials for insurance at the moment is not the same what we had in years past.
In every country, especially in Nigeria, strategies that are implemented are not more than five per cent in total. MDRI is a strategy, in itself the regulator saw it as the way out. It is a nice blue print that regulators has adopted in some other countries. Because it is a business model which you are free to either adopt or discarded, the operators are still interested in it, but it is left to them to implement it, but everything that needs to be done is already on the paper. The MDRI objective will take 75 per cent from me and what is left is to the operators, everything that needs to be done is already in the paper submitted if it will be implemented.
As consultant, is it true that Nigerians don't like insurance?
The problem of insurance is 100 per cent from the operators and regulators. According to a report submitted to NAICOM at the end of the visibility study for sales of microinsurance. It will interest you to know that we have been misled for so many years believing that Nigerians don’t like insurance; the report revealed that 40 per cent of Nigerians don’t have any opinion about what insurance is all about, either negative or positive. We were asking them what is insurance, what does an insurer do and others, but they don’t know even at microinsurance level, some of them were saying "maybe if you want to buy a car and your money is not enough then you can go to an insurance company to help balance the money", you can imagine people with such understanding. When we were doing enforcement of compulsory insurance, God is my witness, 100 per cent of people who don’t have insurance were ready to buy insurance right at the spot.
There are some basic problems from the part of operators and the regulator; the problem of access to insurance, usage: the mortgage sector has not seen the usefulness of insurance in their business and such is a serious problem. Low level of awareness is another problem and the irrelevant products in the market is another major problem.
One of the regulator that has an overwhelming power out of all the financial services in Nigeria is the commissioner for insurance. You cannot have problem with the CBN governor if you don’t borrow money from the bank or do money laundry, but for insurance operators; you do insurance you can run into his problem and if you don't do insurance you can also run into his problem. You run an insurance outfit and everybody that deals in insurance are under the power of the commissioner for insurance and other details as contained in the insurance Act. When you look at other countries law, the insurance regulator has self executing power which enables them to handle any one that may breach any part of the insurance law. When you read our own insurance law, it act on another body. The law enforcement agents don't know the importance of the insurance activities as far as motor insurance is concerned. There is no education on the side of the people and until all these are addressed; when the law is reviewed and the regulator have some reasonable level of autonomy, when it have executing power in the country, then we can be there.
Principally, our law is narrow and restrictive in so many areas though it has being reviewed, but until the new one is out, it does not give the regulator any power to execute. Go through the relevant part of the law, the stages the regulator will go through before it can withdraw the license of an erred operator, it will take NAICOM five months before the process is complete to revoke the license of an operator and thereafter the Minister of Finance can still reverse the decision. Originally, a regulator in that kind of environment will see that exercise as a career threatening venture.
The regulator in Nigeria is sometime put in the middle and will be asked to state it's side and the operator to also state it own whenever there is need for the regulatory to take action; with that, why do we call such body a regulator.
Is there no need for further consolidation in the industry?
At the moment, the insurance industry is over capitalised and experiencing undertrading. You don't need to go to school to know that anybody doing business with N5 billion and does not make premium income of N5 billion that it is a bad business. That is why I said if you are looking at consolidation within the context of raising the capital again, is absolutely not necessary. Under the MDRI, the introduction of solvency rule which is item four, it has addressed that. The introduction of Risk based capital has also been addressed in the MDRI.
It is because the companies have excess capital that is why many underwriters that run to countries that it population is not even up to Obalende.
Without mincing word, we don't have what is referred to as insurance company in Nigeria, when we talk of insurance company, go and study the annual account of companies like Allais, AIG, State Farm Insurer. They deals in agriculture and their annually generated premium income is $260 billion and when you convert it into naira, it will give approximately N4 trillion and that is why I said we are not there at all. Study revealed, among biggest 16 insurance companies in Africa, no Nigeria insurance company is there and among 500 biggest companies in the world, no Nigeria company is there.
Though things are better now, there was a time we had 184 insurance companies in Nigeria alone, before the 2007 consolidation, we had 103 insurace companies and as at the time I was conducting research on MDRI; packaging the strategy, India with the population of over 1.1 billion people as at that time only had 32 insurance companies, China with 1.3 billion people as at that time only have 52 insurance companies. Those are insurance companies when you talk about size and capacity.
If we really want to talk of consolidation for Nigeria insurance companies, I think companies will have to merge if they really want to become bigger and serve customers better, but their consolidation is absolutely not in terms of capital.
What is the present state of microinsurance product?
There was a meeting with the management of Association Microfinance Banks in Nigeria (AMFB) both at the national and state level in Lagos.
The body were just lamenting; complaining of none readiness of insurance companies to insure their risks, they said they consider it too small.
It is very clear, that insurance companies, which don’t appreciate the risk of you and I which is retail market, will not appreciate the risk of the poor because that is what microfinance banking is all about; most of the loans they give to them is N250,000 loan and when you charge one per cent as premium on it, it will give you N2,500 or N25,000 and insurance companies will consider that too small. To the companies, that will be too insignificant, but what they forget is that it is not the size of a premium that matters, but the volume. This is because insurance principle is based on large number and look at the biggest company in the world, "Wallmark", it picked up small-small companies and those little ones made the company to become the biggest in the world. There is a lot of money in small-small money when it comes from millions of people.
That was the complaint of AMFB and if insurance companies can look into it, there will be away forward.
We also held meeting with National Association of Corporative Society of Nigeria (NACSN), the microfinance people have 20 million depositors at the moment and looking at the amount of premium embedded in that large number, the same also with National Cooperative Insurance Society (NCIS); this union under it law provide insurance cover for it members, but they only provide motor insurance, surprisingly, they mobilise up to N70 million in a year from a single product and it was at the point of that study that we made NAICOM to realised that in the real sense of it, NCIS should not be seen as an illegal insurance operator, rather, it can be used in the aspect of microinsurance and NAICOM has embraced it instantly.
How will you as a consultant describe the idea of offshore insurance offices?
I do not see it as an ideal development because we have not even utilize the insuring opportunities available in the country and most of those that have offices outside the country have nothing in there and there are better opportunities here in Nigeria. As part of function of MDRI, it could also be handled by the regulator. Countries like India or China; the regulator will not prevent you from opening offshore branch, but it will mandate it that at any offshore branch you may want to open, you must open five of it at the local level.
In some countries, before they give license to open a branch in the urban centre, they will give you a target of number of branches you must open in the rural areas. If the regulator here can do likewise there will not be any problem.
No comments:
Post a Comment