By Sola Alabadan
It is indubitably true that the insurance industry makes significant contributions to the economy in the developed countries of the world. This has not been the case in Nigeria due to the multifarious factors hindering the growth of the industry. It therefore means the factors responsible for the stunted growth of the industry have to be addressed.
In fact, while the rebased GDP of the nation’s economy in 2014 placed Nigeria first in Africa and 26th largest economy in the world, the contributions of the insurance industry to the rebased GDP, however, decreased from 0.7 per cent to 0.6 per cent.
In appreciation of what the insurance industry can contribute to the nation’s Gross Domestic Product (GDP), it gladdens the heart to note that the Federal Government has identified the insurance sub-sector as a very important one towards making the country achieve its vision 20: 2020.
The Coordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala, confirmed this at the maiden Insurance Summit in Abuja last December, when she identified the challenges facing the industry as lack of consumer trust, fragmentation of the industry, low enforcement of compulsory insurance policies, lack of professionalism by some agents and brokers in the industry, and a general shortage of skilled professionals in the entire industry.
She noted that if the potentials of the industry must be harnessed, the challenges must be tackled head-on, adding that due to lack of consumer trust, many Nigerians are skeptical and hold a negative perception of the industry.
She said: “Low enforcement of compulsory insurance: I would want to touch on the low levels of enforcement of compulsory insurance in the country. And in this case, the regulator and most of our government agencies have more work to do.
“If you take the case of compulsory motor vehicle insurance (third-party liability), only one in eight Nigerian cars (13 per cent) have genuine insurance. Compare this to Ghana, where the compliance rate is reportedly about 60 per cent. Or, take the case of mandatory group life insurance for large businesses and organisations; again, only a few large corporates in the oil and gas sector, the Federal Civil Service and the Police Service are compliant. Many of our CAC-registered businesses do not comply with the law.”
The minister noted that to develop the potential of the industry, all stakeholders will need to work together to address the several challenges, stating that the Federal Government has an important role to play in this sector and that it will need to get better at enforcing compliance for some compulsory classes of insurance such as for motor vehicle insurance and group life insurance.
She said the government will also need to clarify various regulations, for example on bancassurance and the use of corporate agents. And will need to work on strengthening the supervisory powers of NAICOM.
Insurance as a critical part of economy
As pointed out earlier, the insurance sector is a critical part of any nation’s economy, especially as it has the potential of galvanising the optimal performance of other sectors.
In this regard, the insurance mechanisms reduces the capital needed by firms to operate, increase investments, fosters entrepreneurship by reducing uncertainty and expand available risk management options.
It also offers social protection, alongside the state, and reduces pressure on public sector finance.
The regulatory authority in the nation’s insurance industry, the National Insurance Commission (NAICOM) should therefore be strengthened to facilitate the orderly conduct of insurance business through appropriate regulation.
While it is on record that NAICOM had, in the past, implemented the requirements of the law as it concerns minimum capital requirements for operation of insurance companies, consumer protection, solvency and orderly exit of companies, the commission still need more support from the government to achieve its laudable objectives.
To move the industry forward, NAICOM’s strategy has been to deepen insurance penetration, strengthen insurance institutions through effective regulatory framework, improve communication with all stakeholders to ensure transparency, public trust and confidence, as well as transform the commission’s processes, people and systems, and optimise revenue collection and effective management of assets.
Facilitating the growth of insurance industry
For some time now, experts have argued that the nation’s insurance operators have not been able to compete favourably with their counterparts in other parts of the globalised world due to lack of legislations to support its growth.
Incidentally too, the International Monetary Fund (IMF), in its Detailed Assessment of Observance of Insurance Core Principles, also highlighted the need to thinker with laws governing insurance practice in the country.
In realisation of the issue at stake, NAICOM Director, Inspectorate, Barineka Thompson, said the commission would fast track on-going transition to Risk-based Supervision, enhance the Solvency Management Framework, including consideration of Solvency II equivalence and early warning system, as well as review and consolidate existing insurance laws.
Similarly, plans are being made to ensure adoption of uniform financial reporting template for insurance reporting, consolidate the guidelines issued by the commission, issue licence to applicants for microinsurance and takaful insurance, while also developing the regulatory capacity on microinsurance, takaful and risk based supervision.
Besides, efforts are being made to facilitate ring-fencing of assets covering policyholders’ funds, and also review the investment guidelines to facilitate allocation of insurance and shareholders’ funds to infrastructure and mortgages.
NAICOM further informed that it would be issuing market conduct guidelines, implementing on-going strategic objectives of the commission, embrace risk management approach, ensure market conduct and consumer protection, employ aggressive publicity strategy, group wide supervision, digital transformation, restructuring of intermediaries and distribution channels as well as ensure the effectiveness of the claims dispute resolution mechanism to facilitate cordial relationship between the insurance companies and their customers.
Expanding the insurance distribution channels
As part efforts to ensure that majority of Nigerians embrace insurance as a way of life, NAICOM is strategising to increase channels for distribution of insurance products taking into consideration that the existing distribution channels are limited and not widely spread, there are insufficient agents to serve the market while the licensing and supervisory requirements are being reviewed.
The Commissioner for Insurance and Chief Executive of NAICOM, Fola Daniel, affirmed that since the potentials of insurance industry remains grossly untapped in the country in spite of the enormous opportunities available in the market, efforts must be made to address the anomaly.
Speaking at the seminar with the theme: “Transforming the Nigeria Insurance Sector: The Three Years’ Agenda”, in Benin City, Edo State recently, he stressed that efforts must be made to address the challenges facing the insurance industry especially as the federal government is desirous at transforming the industry to make it contribute its expected quota to the nation’s economy.
The NAICOM boss added that the commission would issue guidelines on how the intermediaries could help take insurance to the unreached and make insurance products easily accessible for the public.
He said the insurance transformation initiative is expected to translate into enforcement of public insurance, delivering more job/skill, building consumers trust and awareness and increasing access to insurance.
Similarly, NAICOM Director, Inspectorate, Barineka Thompson, informed that the broking sub-sector would be restructured into individual brokers, universal brokers and partnership brokers.
Besides, he said the agency business would be restructured into individual agents, corporate agents, insurance company agents, microinsurance agents, web aggregators and referrals.
It is also interesting to note that NAICOM is equally working out modalities to enable vehicle dealers, fuel filling stations and shopping malls, among others, outlets to sell insurance.
Making Nigerian Insurance Industry Database effective
About three years ago, the Nigerian Insurers Association (NIA) introduced the Nigerian Insurance Industry Database (NIID) portal as the only central record of all insured vehicles in the country to ensure that only insured vehicles are driven on the roads. It was also envisaged that the website will be used by the police and other agencies to enforce motor insurance law.
Once a motor insurance policy has been arranged by a licensed insurance company, the NIA ensures that the details of such an insurance policy are reflected on the website within 24 hours.
However, out of about 13 million vehicles registered in the country at present, only about 1.5 million vehicles are captured on the NIID, indicating that those are the only ones with genuine insurance cover in the country.
Although the NIA had promised to include marine insurance module on the portal since 2014, this is yet to become a reality.
Nonetheless, the NIA has added modules on claims reporting, stolen vehicles reporting and auditors’ platform to the NIID portal.
The claims reporting module enables the insurance companies to report and upload the claims paid so that once the NIA flags it, it will broadcast to other companies to avoid double and fraudulent claims.
The stolen vehicles reporting module is basically for insurance companies to upload information on stolen vehicles and once NIA approves it, the association will alert other companies.
The auditors’ module allows the auditors to view policies uploaded on the website to ensure that it correlates with the revenue reported by the respective insurance companies.
Extending bailout to insurance sub-sector
In view of the fact that the many insurance companies, just like the banks, lost substantial volume of their assets as a result of financial meltdown and crash of stock market in 2008, the insurance operators, in 2014, clamoured that the bailout by the Federal Government should be extended to the insurance sub-sector.
The argument is hinged on the fact that the Asset Management Corporation of Nigeria (AMCON) was set up by the Central Bank of Nigeria and the Ministry of Finance in 2010 to clean up the banking system in the country following a $4 billion rescue of nine lenders that came close to collapse.
Like many institutions and enterprises all over the world that benefited from bailout plans by their Government after the economic crises and financial meltdown, if the nation’s banking industry, aviation and manufacturing industries benefited from the bailout by the Federal Government, same should be extended to the insurance industry so that the industry can equally make meaningful contribution to the economy.
Making people embrace the insurance culture
A. M. Best, the world’s oldest and most authoritative insurance rating and information source, had posited that Nigeria is underinsured considering its population of 174 million people and very low insurance penetration of less than 1 per cent, whereas countries like Kenya and Morocco have insurance penetration of 3.2 per cent and 2.9 per cent respectively.
In its special report titled “Africa Market Review: Gearing up for Sustained Growth”, A. M. Best said, “In terms of insurance penetration, Kenya and Morocco (with levels of 3.2 per cent and 2.9 per cent respectively) are comparable to some developed markets in Europe as well as Brazil and China. They are followed by Angola at 0.9 per cent penetration. The rest of Africa has historically had very low demand for insurance. In particular, Nigeria and Egypt are considered underinsured, given their large populations of 174 million and 85 million, respectively,” the report said.
However, A.M. Best believes there are significant opportunities for direct insurers and reinsurers in Nigeria.
“In spite of the fact that the world we live is daily prone to risks, both to the individual and corporate institutions, it is a matter for regret that only few Nigerians understand the value of insurance, talk less undertaking it,” the President of Nigerian Council of Registered Insurance Brokers (NCRIB), Ayodapo Shoderu, had lamented.
The insurance operators are enjoined to embark on aggressive awareness campaign that will make the people understand what insurance is all about bearing in mind that the best was to create the necessary insurance awareness is to ensure that the people are fairly and reasonably educated about industry.
Nigerian insurance companies should therefore stop concentrating their efforts in pursuing opportunities in the oil and gas market, but should rather invest in retail business as a way of achieving sustainable growth.
It must be appreciated that the Nigerian insurance industry is attracted to new foreign players due to low insurance penetration, low insurance density, robust purchasing power of the middle class, strong demographics, and improving political stability in the country. The indigenous insurance operators should also take advantage of this.
Ensuring the compulsory insurances are enforced
The Managing Director of Niger Insurance Plc, Kola Adedeji, has identified ineffective legal framework, poor compliance culture, lack of awareness on the part of the public and ineffective implementation of strategy adopted by NAICOM as challenges hindering the implementation of public building insurance in Nigeria.
In view of the fact that the practice of compulsory property insurance or insurance of public building is not widespread in the world, he added that innovative steps may be required in order to accomplish its objectives.
Be that as it may, the Nigerian insurance operators should embark on lobby of states Houses of Assembly as well as the National Assembly to promulgate laws that will drive public compliance with some of the insurance products made compulsory by provisions of the Insurance Act 2003.
There is no gainsaying the fact that economic wastages will reduce in the country if the insuring public complies with the provisions of the law on compulsory insurance covers.
For instance, the spate of public building collapse and the consequential human and material losses usually recorded all over the country will reduce considerably if there are laws compelling adherence to sections 64 and 65 of the Insurance Act.
Again, the insurance operators should plead with the Federal Government to enforce compulsory insurances the same way the government has made compliance with the provisions of Pension Reform Act 2004 a pre-condition for every supplier, contractor or consultant bidding or soliciting contract or business from any Federal Government Ministries, Departments and Agencies (MDAs).
Taking into consideration the contribution of the insurance industry to the rebased GDP actually reduced from 0.7 per cent to 0.6 per cent, it must be appreciated that this has placed enormous responsibility on the insurance industry and this means more dynamic strategies should be given due consideration to enable the industry make meaningful contribution to the GDP going forward.
In view of the fact that the NIID is part of efforts to eliminate incidences of fraudulent insurance transactions and policies in motor insurance business, the insurance industry should equally ensure that the system is extended to other classes of insurance business without further delay.
After having found out too that the activities of fake insurance operators have cost the industry huge premium loss especially in classes of insurance such as motor and marine business, it is hoped that at all insurance companies in the market will key into the project and make maximum benefit from it.
In the interest of the industry, insurers must keep pace with evolving regulations, which are becoming more stringent, affecting everything from capital requirements, to commission rates and customer care.
The insurance industry should also urgently readjust its governance, operational structures and leverage on the interest and support provided in the policy direction of the commission.
Again, it is expected that insurance companies will begin to review their strategic business and operating models, overhaul product portfolios and distribution strategy, enhance Information and Communication Technology (ICT) capability and other elements that can stimulate the growth of their overall business.
NAICOM as the regulator should remain focused on the issues relevant to the protection of policy holders, growth of the insurance sector and promote financial stability.
This will not only enable the insurance operators to generate their legitimate income; but, it will also assist the industry to make meaningful contributions to the nation’s Gross Domestic Product (GDP).