NIA's research shows how insurers use shareholders' funds to support clients

Chuks Udo Okonta

The former Chairman Nigerian Insurers Association (NIA) and Managing Director LASACO Assurance Plc, Olusola Ladipo-Ajayi, has said a research conducted by the NIA has revealed how operators used shareholders funds to support clients.

Ladipo-Ajayi, who spoke at brokers' event in Lagos, said the problem of premium rating has affected the industry's growth negatively, adding that using the shareholders' funds to support businesses that add no value is inimical to the industry's development.

He Said: "Another problem that we have, that we have been passing the buck from NIA to Nigerian Council of Registered Insurance Brokers (NCRIB) and NCRIB to NIA, is premium rating.

"The NIA conducted a research and they asked all underwriters to show their premium records in life, loss ratio, premium ratio, expense ratio and total of all the ratio. When I saw my company's own, I was afraid because, what it means is that we have been using our shareholders' funds to support businesses that are not adding any thing to our value. If I spend my shareholders' funds to support my clients, I am not helping them and it is not fair."

The National Insurance Commission (NAICOM) has said 80 per cent of what ought to have been return on investment for shareholders are used as operating expenses by some insurance companies.

Deputy Commissioner, Technical NAICOM, Ibrahim Hassan, who disclosed this said Nigerian Insurance Companies has the highest operating expenses in the world.

He noted in spite the huge insurance opportunities in the country, the industry is placed at the eight position in Africa in terms of penetration.

He noted that the deployment of about 80 per cent income into expenses is unhealthy for the industry, adding that urgent steps must be taken to reverse the situation.

He urged shareholders to always querry the management of their firms over misuse of funds, adding that NAICOM has directed that all infractions should be well reported in the annual accounts of companies.

"The Commission has facilitated through the adoption of the International Financial Reporting Standard (IFRS), improvements in financial reporting practice in the insurance industry in line with international best practices. This should be able to attract foreign investment to the insurance sector.

"We also directed that all infractions should be well reported in the annual accounts of companies. This was for you to raise questions during annual general meetings because it is what should come to you as dividend that is being used to pay fines for avoidable offences," he said.

He said the commission has through several initiatives created opportunities for underwriters to boost their operations, stressing that shareholders should colloborate with managements of their firms to reposition insurance business.