As individuals and businesses struggle to contend with economic downturn over declining revenue, falling oil prices and declining value of naira, new strategies must be deployed to remain profitable and create shareholder value. Chike Mokwunye, group managing director, Royal Exchange plc, in this interview with Modestus Anaesoronye in Tunis, at the recently concluded African Insurance Organisation (AIO) conference, believes that diversification is critical. Excerpt:
The economy at this time is tough for businesses and individuals, meaning that priorities for insurance buying might be affected. How do insurers intend to cope with this situation?
The economic situation in Nigeria at this time no doubt is challenge and not only to insurers by all lines of businesses, though worse for insurance segment. This is because insurance comes at the bottom of most individuals and businesses scale of preference. If you look at an average company and when there is situation like this one of the things they do is to reduce spend on insurance. Even as of last year, it was already affecting us as a business because a lot of government businesses were not renewed and most of the oil businesses were also not renewed. Most of the oil companies held back on their investments and that also affected us. But be that as it may, we understand that it will not be forever because business must go on.
Having understood this as a problem, any organisation that wants to survive should think of diversification. One problem with us as insurers is that all of us are pursuing the same line of business. We are pursuing government business, pursuing the oil companies and pursuing the major industries, and we forgot that there is the neglected majority in the pipeline that should help us survive.
We have to face the middle level people and the informal sector because those are the sectors that are very-very important in the economy. If you look at the recent rebasing of the economy, you will understand that those are the important sectors of the economy. You will see that any company that is pursuing them by developing product that people in that segment will appreciate, products that will meet their needs will be able to survive the economic crunch.
Before now, Royal Exchange has invested in retail products and e-insurance for product distribution, how will these efforts keep you above board in line with present realities in the economy?
Incidentally, by the time Royal Exchange got into the retail business using e-business channels of distribution, we never knew that the economy was toeing this direction. But we felt that we were all pursuing the same line of business and it was necessary we develop alternative channels. We needed to be different from others and that was what made us go into that area and we made heavy investment in alternative distribution channels. Remember we started with using recharge card, and from there we extended to platforms where you can use your credit card and debit card in form of transfer to pay online, and it has helped the company in coping with the problems associated with economic downturn. So, we were able cover up losses from those place with benefits associated with the retail segment. I can assure you that delving into retail segment of the business has really helped Royal Exchange to survive the economic downturn. It is a profitable line of business and less prone to claims.
Royal Exchange has recently released a five year development plan, what is the key plank of the document?
If you look at that document, the key trust is about diversification of our income base, and again reemphasising that Royal Exchange is not just an insurance company but a financial services provider. That is, we are talking about the risk management competence and the asset management competence. Risk management will have to do with insurance and health segment of our business while asset will have to do with our finance, wealth management and micro finance segment. That is what that particular document is trying to drive. It wants to make us different and expand our sources of income and place us at better position to withstand economic shocks. Some insurance companies do these businesses as composite, but we felt it was necessary to have experts in each of these areas, so that each segment of the business will be given the required attention.
The five-year plan could be adjudged a medium term plan, in the short term what do you intend to achieve?
In short term, what we want to achieve is to ensure that we are able to get back to the leadership position in the industry. Ten years back, we were in that position, but we want to get back to the best three in the industry in terms of revenue base and in terms of value creation to all our stakeholders.
Topical at the just concluded AIO conference was the desire of the industry to establish pools along regional lines to contain rising political and terrorism risks. How prepared is Nigeria for this?
For now, Nigeria is not prepared for this but it’s a wakeup call and we should begin to discuss about it. Terrorism is gradually coming into the country and the Boko Haram experience is a typical one and people and businesses have incurred a lot of losses particularly in the North East part of Nigeria.
And unfortunately, most of those losses were not covered by insurance because the level of insurance penetration is low. There is need for us to consciously plan for such things because it will surely come and it has started and it will continue to come. One of the key areas that will enable us handle it for now is reinsurance, and if it’s not available, then we can begin to talk about pool to enable us handle it. In handling it also, a lot of factors are important. If we have a pool, how do we manage it because the management of the pool will determine whether it will be sustainable in the longrun. But at individual levels, many of the reinsurers will say the statistics are not there and so are not willing to accept the risks. So, it’s what we could consider in the future.
Recently, you directed your subsidiaries to intensify efforts towards customer service, what prompted this?
For Royal Exchange, customer satisfaction is our key objective because we are in business because customers are there. The day the customers do not want us, that day we close shop. Customers are the essence of our existence and for that reason, we must think of customers from the point of view of improving our services regularly and creating value on what we offer to them.
Modestus Anaesoronye
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