Tidjane Thiam, chief executive officer of Prudential Plc, one of the world’s leading insurers, in describing what insurance is or at least should be, once said, “We take the worry out of risk. We enable people to go about their lives with confidence and we help businesses function. Our industry offers long-term protection, savings and investment to individuals, families and to businesses.” So how does Nigeria measure up?
Here are well-known key statistics for our country – gross premium per capita of $8.9, which is low when compared to $1,072, $29.9 and $49.3 for South Africa, Kenya and Ghana, respectively; insurance penetration as a percentage of GDP is 0.43 percent; and only an estimated 6 percent of the population has any form of insurance. The opportunity is big for Nigeria to move up insurance rankings on the continent but insurance leaders need to deploy certain corporate, market and regulatory strategies to adequately address the market.
Prompt financial disclosure and effective corporate governance: Listed companies are compelled by law to live by this principle and the benefits of compliance usually translate into higher share prices. However, as at August 2014, only 14 of the 30 listed insurance companies had released their 2013 audited financial statements. Other than if it is a one-off aberration, companies that have not complied send the wrong signals to investors and regulators. Privately held insurance firms whose leadership has a long standing, voluntary commitment to transparent and timely financial reporting will usually command a valuation premium in today’s very active M&A market. The board, CEO and executive management must pay attention to how the public, especially the apathetic retail segment, perceives and receives its value proposition of which effective corporate governance is a key enabler.
Market regulation: It is arguable that there are overlaps between and amongst the functions of pure-play banks, asset managers, pension fund administrators and insurance companies, all of them being asset and liability managers. The Financial Services Regulation Coordinating Committee (FSRCC) is the forum where market operators (shouldn’t NIBSS and AMCON be members of that committee?) speak to one another. Will FSRCC at a point in the near future evolve to a “more permanent global” independent financial regulatory authority similar to the Financial Conduct Authority (FCA) of the UK? There will be benefits therein for all operators, our economy and, ultimately, the consumers of financial services in whose favour all laws, rules, regulations and policies should be geared.
Human capital development: Have you had a retail insurance broker or agent try to sell you a product? Did she or he sound or appear knowledgeable and persuasive enough of the product for sale? I salute the persistence of brokers but insurance companies stand to gain more from well-equipped salesmen and women. Or are insurance companies re-evaluating their distribution models with a view to deploying more direct marketing strategies using social media and other technology platforms such that they are less inclined to invest in people? That sounds like a plan that will impact business positively, although sidestepping middlemen has recorded varying levels of success/failure in different parts of the world across different industries. The optimal model will be to give clients the choice between direct and indirect access to insurance products and services.
Product development: Of all the financial services industry operators, the insurance sector benefits the most in terms of legal backing for sale/purchase of its products – Motor Third Party Liability Insurance, Builders Liability Insurance, Group Life Insurance, Occupiers Liability Insurance and Healthcare Professional Indemnity Insurance. So why is the industry still so far behind the banks, for instance? Maybe insurance companies in their advertising (which budget needs to be ramped up) should seek to persuade the public more subtly and emphasise less the legal implication of not complying with rules and regulations. The Market Development and Restructuring Initiative of the National Insurance Commission (NAICOM) vis-à-vis the afore-outlined products may achieve results but the cost of enforcement is usually steep and it takes time. Insurance practitioners should develop more products for the retail segment. Terms and conditions of existing products should also evolve and take cognisance of new market realities and client-specific attributes. For instance, why should a client who has bought comprehensive motor insurance policy for the past 10 years and has never had an accident and never made a claim not have his premium rate reviewed downwards? It is also important to remember that as an insurer, competition is not only other insurance companies. Banks, asset managers and pension fund administrators also seek to convert the discretionary cash of the investing public into certificates of deposit, mutual fund investments and additional voluntary pension contributions. Therefore, insurance products and services need to be compelling.
Mergers and acquisitions: In recent history, the industry has had two seasons of regulator-induced mergers and acquisitions. Will there be another wave or will NAICOM legally take over insolvent companies? I don’t want to hazard a guess. However, what is clear is that mergers and acquisitions in the sector are on the rise, especially intra-Africa – the active acquirers include Old Mutual SA, NSIA of Cote d’Ivoire, Saham Group of Morocco, Sanlam Emerging Markets SA and Metropolitan Insurance of South Africa. Other European and American insurance businesses are circling Nigeria for high quality investment opportunities. If you run an insurance business and you have strong management and clean records and you need to enhance your competitiveness, you should consider inviting an international market leader into your capital structure.
Insurance companies in Nigeria take the worry out of risk for only a small fraction of the population. The insured corporates are likely more satisfied than individuals and families, wherein lies the opportunity, especially as more and more people rise into the middle class.
Concluding on a separate note – did you receive your permanent voter’s card? Will you be voting? Tomorrow beckons. Happy New Year, Nigeria!
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