Fola Daniel: Tenure Policy is Not Feasible in Insurance Sector for Now

      

The Commissioner for Insurance, Mr. Fola Daniel, in this interview with Festus Akanbi, explains why the National Insurance Commission cannot yield to calls to peg the tenure of chief executives of insurance firms as it is being practised in the banking sector. He speaks on other topical issues in the sector

How will you assess the role being played by the insurance sector in the Financial Inclusion drive of the current administration?

Financial inclusion is a major development plank of the federal government. The government is pushing this policy having realised that majority of Nigerians have no real interaction with the banking sector, insurance or the stock market due to lack of knowledge. Some people don’t have the knowledge or they are completely financial illiterates. So the government decided, as part of its developmental agenda that special attention should be focused on financial inclusion as a major project. We have a committee known as the Financial Services Regulators Coordinating Committee (FSRCC). It’s chaired by the Central Bank and its membership includes, NAICOM, Securities and Exchange Commission, Nigeria Deposit Insurance Commission whilst Nigerian Stock Exchange and Corporate Affairs Commission are there as observers. So, once the government made the pronouncement on financial inclusion, it became incumbent on the FSRCC to look at it critically and assign responsibilities to each of the regulators.

So, for NAICOM, the financial inclusion strategy is even more important. If you look at the insurance sector, you will discover that the depth of insurance is not much. Only few Nigerians are buying insurance. So what we have done in NAICOM as a contribution to the general pool of financial inclusion is to ask ourselves some pertinent questions. Who are the people excluded from insurance services in Nigeria? There is a perception by some Muslim faithful that insurance is anti-Islam or there are a certain elements of insurance practice that are not consistent with Islam. If that persists, then it means a good number of Muslims, rightly or wrongly, are completely excluded from insurance.

The next question is how to get them included without offending the tenets of Islam. We looked at Takaful Insurance as a quick win to bring them into the fold and that is working quite fine. Takaful insurance is an ethical business. It does not operate like the conventional insurance. Under Takaful Insurance the element of uncertainty, gambling and interest rate which are not permissible in Islam are completely excluded. The practice involves pooling resources by a group of people in order to meet the losses of the few. If at the end of the year, a surplus is made, it is shared by members of the group after provision for administrative expenses. The Muslim faithful see this as equitable and fair than the conventional type of insurance.

Under the conventional insurance, resources are also pooled together by several people in order to meet the losses of those who have been involved in one mishap or the other. However, if at the end of the year, you suffer no loss, no money is paid back to the insured. He has to wait until he suffers a loss to get compensation.

But it is not just the Muslim faithful that are embracing Takaful Insurance. Even Christians do. In South Africa and the USA, which are predominantly Christian societies, Takaful has been largely accepted. In the United Kingdom where insurance originated, Takaful insurance is also beginning to sell very well there. We therefore see that introducing Takaful insurance into the market this time is an important instrument for financial inclusion.

A common man can say, well, I don’t have houses to insure; I don’t have a vehicle to insure, but it is an acceptable fact that everyone that is living runs one risk or the other, so we introduced micro insurance to take financial inclusion to the grassroots. The loss of N10,000 investment by the peasant farmer could make him go bankrupt; the loss of a fishing net that cost only N7,000 could completely wipe away the fisherman’s source of livelihood. These are the kind of people that were excluded from taking advantage of insurance as a mechanism managing risks. The National Insurance Commission leverages the financial inclusion project of the federal government as an opportunity to entrench and deepen insurance penetration in the country.

How many organisations have applied for Takaful Insurance licence so far?
We have just released the guidelines on Takaful and Micro-insurance but there is an amazing enthusiastic response and this is demonstrated by the number of enquiries and outright applications for licences and this is very encouraging. Even the existing insurance companies are queuing up to have Takaful as a window operation, which means they are not going to apply for a new licence. They want us to grant them authorisation for window operation which we are considering. For those who have indicated interest for window operation, we are saying to them that they cannot do micro-insurance business sitting in the comfort of their offices in Lagos or Abuja. We want them to take it to the rural areas; to the grassroots. Therefore we have asked them to give us a roadmap to taking micro insurance to the grassroots. We have to be convinced that our authorisation will take insurance to the unreached.

Why is it difficult for NAICOM to remove insurance chief executives who have overstayed their tenure as a way of enhancing corporate governance in the insurance sector?

There is the wrong tendency to compare the banking sector with the insurance sector. I know there is a policy by the Central Bank that chief executives that have stayed for 10 years must leave their seats. The manpower requirement in the banking sector is completely different from that of the insurance sector. In the banking sector, an economist, zoologist, historian or any discipline for that matter, who has worked in the bank for some time can become a managing director. As a matter of fact, the professional qualification of bankers is the Associate of the Institute of Bankers. On the other side, chief executive officer of an insurance company must have certain professional knowledge and other managerial acumen to manage an insurance entity. So there is the dearth of manpower in the insurance sector, thus we might not be able to mimic what has happened in the banking sector at this developmental stage of the industry. It is a developing governance issue and we are looking at it. If we have managers that still have competence and experience, I don’t see why we should copy what the CBN did.

To what extent will you say your policies in NAICOM have aided national growth as you claimed on your website?

Let me tell you this. Insurance is the only sector that exists so that all other human endeavours can prosper and continue to exist. Imagine we have 10 textile industries and three of them got burnt. If there is no insurance in place, you are going to have loss of jobs, arising out of stoppage of production. We are going to have loss of revenues to government because when the factories are not producing, they cannot be taxed. However, as a result of operation of insurance, we are able to bring back these industries; they are able to continue production at minimal interruption; so employment is not lost and revenue to government is not lost as well.

There are businesses that people hitherto will not touch at all if there is no insurance in place. They are just too risky to venture into. But as a result of the availability of insurance, people can go into diverse businesses. Insurance therefore is truly the brain box of economic development and sustainance.

What is the latest on the recommendation that government’s subventions to NAICOM be stopped?
One of the recommendations of Steve Oronsaye-panel reports is that the Federal Government should stop giving us financial support as from 2013. We are very okay with it. We recognised that the government has enormous responsibilities, we are therefore happy to be self sustaining and a contributor to the nation’s treasury.

How much exactly did you return to the treasury?
We returned up to N600 million to the treasury last year and we got budgetary support of N300 million.

One of the objectives of NAICOM is to ensure stable and safer insurance sector, what is the level of achievement of this objective?
You will recall that prior to 2007 which was the latest recapitalisation exercise, we had about 100 insurance operators and government recognised that many of these companies were fringe players. It means they were unable to deliver on promises of timely settlement of claims. The new capital requirement incepted in 2007, was to inject quality to the practice of insurance and ensure world class service delivery to the citizenry. To some operators, our capital requirement is most draconian. Government took that measure to ensure that only serious players remained in the insurance industry and that was largely achieved. The incidence of delayed settlement of claims has reduced dramatically and we are having a measure of stability in insurance industry. Even now, there is a quiet revolution in the sector with a number of voluntary mergers and acquisitions. We have also opened insurance hemisphere to foreign players. We are having respectable investment inflow to the sector as a mark of enhanced confidence in the Nigeria insurance sector.

What mechanisms have you put in place to ensure compliance with your recent directives on commissions and rebates?
The issuance of that circular was derived from the existing law and it is not negotiable. We intend to keep all insurance operators within the confine of the law. The NAICOM act recognises the fact that insurance brokers must be paid certain amount as brokerage and insurance agents being paid certain amount. Anything outside this recognised payment is illegal and we intend to enforce it.
Operators in the Nigerian insurance industry are aware and they know the consequence of flouting those directives because they are not administrative directives, it is the position of the law and we intend to enforce the law.

A federal high court recently struck out a case against you, where you were alleged to have erred in your sanction against an insurance firm. Is that the end of the case? Can you tell us what really happened?

A lawyer applied to the Attorney-general of the Federation asking for fiat to prosecute me for misrepresenting what they called facts against these companies. There are ongoing suits under which the court had asked us not to do certain things and as law abiding organization we will continue to obey court orders. But I think having failed to get the desired outcome on time from those suits; they decided that Fola Daniel should be charged personally to court for an official act which I consider to be an act of desperation. There is no precedence for that kind of thing because it was not a personal action that was taken. Whatever NAICOM did, was done in accordance with the rules, in accordance with the laws and in accordance with the mandate given to us by the National Assembly for the protection of policy holders. So to charge Fola Daniel personally, was intended to cause me some personal embarrassment. Good enough, the Attorney General, who has been very professional in his responsibilities, has in his wisdom decided that the charges be withdrawn and it has been withdrawn. It is an episode we want to put behind us and really move on.

A total of N1.3 billion claims were reportedly settled through NAICOM intervention in 2012 what was the figure for 2013?
We had a total claim worth N1.3 billion settled as a result of our intervention in 2012, the figure in 2013 is coming down because we are having higher level of compliance by insurance companies. I think for last year, the figure was about N800 million.

What is the level of compliance with the policy of ‘no premiums, no cover’ instituted last year?

The compliance has been very impressive. We have only few aberrations arising from lack of clear understanding of certain elements in our circular. But the compliance level has been very good. For example, we have some foreign insurance firms with some foreign nationals doing insurance business in this country. In the past, they would pay their premiums in four installments not because they lack resources to make 100 per cent payment but because insurance operators condoned fragmented payment of premiums and sometimes pathetic delays to outright refusal. As a result of the operation of no premium no cover policy, some of these multinationals are now paying these premiums 100 per cent upfront. The biggest buyer of insurance is the government and I’m very proud to say that the government has shown enormous leadership in the operation of this no premium no cover policy. The largest single premium paid by the government is usually from the Nigerian National Petroleum Corporation and the first year of enforcement of the policy on no premium no cover was last year. The NNPC cover fell due on April 1. By March 31 last year, they had paid the premium 100 per cent. The same case for this year. So government has shown significant leadership. For the group life which is another major account, the principle of no premium no cover has taken root and the government is paying and the cover and the premiums are paid.

How will you reconcile a clean bill of health you just gave the federal government in premium payment with a recent report that government agencies owe insurance firms over N25 billion last year?

It is a very tricky situation because the no premium no cover which is contained in section 50 of the Insurance Act 2003 has been tested in law courts. We had four decided cases which clearly came out with the declaration that all covers put in place without payment of premiums are null and void. Reported outstanding premiums with the government are something we are looking at within the stipulation of the law and decided cases. Can the government be validly said to owe money when courts have decided that for all policy taken without the payment of premiums in advance are null and void? We need to know when these debts are owed and find out if they are valid. If they are valid, we will do our best to persuade the government to pay.

Can you give us the figure for net premium income for 2013?
I won’t give you a figure for 2013 because the accounts are just coming in. As at this morning, only six companies have submitted their audited financials and unless I’m giving you figures from audited financials, those figures will be very speculative and I do not want to speculate.

What is responsible for late submission of accounts? Is there no deadline?
Some of the insurance companies are quoted in the Nigerian Stock Exchange which requires them to submit their accounts to the Exchange latest March 31, of every year. The Insurance Act 2003, on the other hand, allows submission of accounts up to end of June. As the primary regulator of the insurance sector, we have stressed the imperatives of compliance with all regulations. The consequences of failure to abide by the rules are well known and those in default of the rules are taking definite risks. While we regret any compliance gaps, we make no excuses for the offenders which we believe have learnt their lessons.

How helpful are the police in your bid to frustrate fake insurance practitioners out of the market amidst the report that police have not been cooperating?

We have enjoyed the support of all law enforcement agencies including the Police in our efforts to eradicate hawking of fake insurance certificates, particularly motor insurances. Those hawking fake insurance certificates are committing a great crime against humanity.
If a man buys a third party insurance paper and continue to drive round the town and he hits anybody in an accident, the victim should be compensated for the injury, if the cover was procured from a licensed insurance company. On the other hand, procurement from unlicensed company, have no compensation value and the victims or dependants left to fate. I seize this opportunity to advise Nigerians to desist from patronizing fake insurance certificate sellers and obtain their covers from registered insurance companies with the assurance that in the event of any mishap, appropriate remedies are obtainable under such policies.

What is the total number of registered insurance companies for now?
We have 60 insurance firms

What were your achievements last year and what are your plans for the insurance sector this year?
Two things happened last year. One, we successfully began the implementation of the policy of no premium, no cover and that has significantly improved the cash flow of insurance companies. Once you have an improved cash flow position, the ability to settle claims on time to the satisfaction of customers significantly improves.

Another achievement is the successful migration to IFRS. Under this dispensation, there is more transparency, more information is given and our financial is achieving the desired credibility that is comparable with other jurisdictions. These are the two significant events in the last one year. Another milestone is the successful launching of Takaful and Micro-Insurance as developmental tools of deepening the market.

This year, we are going to consolidate on all the new things that we introduced last year and ensure they are properly entrenched and of course we are looking more closely at governance issues of insurance institutions.

 

Source Thisday