Highlighting COVID-19 Effect on Insurance industry Recapitalisation agenda

Mr Sunday Thomas, Ag. Commissioner for insurance, NAICOM 

As the corona virus continues to wreak havoc killing hundreds of thousands of people and millions infected with the virus globally without any solution to stop the spread of the pandemic in sight, EDET UDOH highlights the effect of the pandemic on Nigerian insurance industry and the ongoing recapitalization exercise.

Indeed, since the outbreak of Corona virus was first identified in China early this year, its effect on economic and social life of the people of the world is enormous leading to various countries introducing different measures to save life of its citizens and contain further spread of the dreaded virus. Some of the measures adopted by some countries like the United States of America, China, United Kingdom, and Italy among others include social distancing, movement restriction and total lockdown etc.

COVID-19 Effect on global, local economy
Speaking in an interview recently, the Managing Director/CEO, Universal Insurance Plc, Mr. Ben Ujuatuonu, said, its no longer a secret that the global economy as well as the local economy have been affected by this epidemic, because the world is now a global village.

He said companies are already closing down across Europe and Asia and were having financial challenge, he said, the drop in global crude oil price already has its implications on the nation’s 2020 budget that has made the federal government cut it down by N1.5 trillion. The foreign loans meant to augment the budget, he said, might not be coming anytime soon, meaning that, the country will struggle to implement its budget, saying, insurance industry is not isolated from it.

Effect of COVID-19 on Nigerian Insurance industry
It has been discovered that insurance companies are currently battling the ravaging scourge of corona virus pandemic with their physical and financial energy to ensure the containment of its spread, putting issue of recapitalization behind, at least for now.

Speaking on the effect of COVID-19 lockdown on insurance industry in a telephone interview with the Blueprint in Lagos, the Managing Director/Chief Executive Officer, Law Union & Rock Insurance Plc, Mr. Ademayowa Adeduro, said the effect of the lockdown on insurance industry is enormous.

He explained that the lockdown is gradually taking its tolls on the peoples’ economy, adding that the effect has seriously affecting their financials and purchasing power which might affect their decision making.

Mr. Ademayowa posited that if the lockdown is allowed to last more than necessary, policyholders who always consider insurance as the last option on their scale of preference, might have no option than to completely forget about payment of insurance premium since they will be thinking of how to take care of their basic needs.

He said with the lockdown leading to closure of companies, that when the order is lifted it will be difficult for those companies to pay their insurance premium as they will be thinking of how to get back on track.

Mr. Ademoyowa said with many people dying all over the world as a result of the virus, life insurance companies will face the challenges of paying claims arising from the deaths of policyholders.

He said with the reduction of Nigeria’s 2020 budget by about N1.5 trillion from N10.59 trillion as a result of the fall in global crude oil price occasioned by COVID-19, the insurance premium of the various Ministries, Departments and Agencies (MDAs) including that of the Federal Government accruable to insurance industry will reduce.

“With companies closing down globally and having financial challenges, it will be difficult to get Foreign Direct Investment (FDI) into the Nigerian insurance industry. Companies that wanted to invest in Nigeria before now, are, by themselves needing financial bailout. So, the recapitalisation exercise is going to be tough. Even, if the investors are to come, the closure of the two international airports will prevent their entry, at least for now,” Mr. Ujuatuonu said.

The other option, he said,  is to look into the local market for funding, but that the reality is; most of these local investors might not have that financial muscle to invest now, if the virus continues to spread.

Life insurance companies most affected
On the other hand, Actuarial Scientist, Mr. Pius Apere said, there is no direct impact of the epidemic on the insurance industry recapitalisation exercise, as most of the foreign direct investment deals into the Nigerian insurance industry must have been concluded by relevant parties before the virus outbreak.

However, he felt the outbreak would be more felt by life insurance companies who have sold life and travel insurance covers to policyholders, adding that, they are expected to witness huge claims emanating from death as well as flight cancellations.

Crash of global crude oil price
Managing Director/CEO, African Alliance Insurance, Mrs. Funmi Omo, said: “Naturally, the slump in global crude oil, world recession (technically), economic meltdown and interest rate crash will result in low drive for investments because the economic indices will not stimulate investments and economic growth.

For recapitalisation, Mrs. Omo said, since plans have gone very far before the pandemic of Covid-19 erupted, it is not expected to impact on recapitalisation except the pandemic is not arrested within a short time frame. That to me is doubtful. The virus, like every other virus, has a lifespan. The only thing is that within the timeframe, its impact will be far-reaching on economic growth.”

Appeal for extension of recapitalization deadline to 2021
Similarly, an anonymous operator has pleaded on NAICOM to extend the recapitalisation deadline till next year, following the virus outbreak that is obstructing funding to meet the New capital threshold.

According to him, “It is important for the market to appeal to NAICOM to extend the recapitalisation deadline ‪from December 31, 2020‬ to 2021 because of this coronavirus issue. If the COVID-19 problem does not go away by the third quarter of 2020, it would be rather difficult for many operators to meet the ‪December 31, 2020‬ recapitalisation deadline set by NAICOM. The reality is that the current situation is adversely affecting all our strategies and plans to recapitalise on or before the deadline. I believe that if the market decides to approach the regulator on this issue as a body, something positive could be done.”

NAICOM’s Palliatives for underwriters
In its bid to lessen the burden occasioned by effect of COVID-19 on the players, NAICOM has issued regulatory incentives to players in insurance industry as part of measures to ensure availability of insurance services and protections of insurance policyholders during the COVID-19 Movement Restriction.

In a circular signed by the Director, Policy and Regulation, NAICOM, Mr. Pius Agboola, the commission said, all renewals or extensions of the foreign reinsurance proportions that become due during COVID-19 movement restriction are permitted for renewal on existing basis, especially, where Approval-In-Principle for the preceding insurance period had been granted.

According to the regulator, “Where Approval-In-Principle for the foreign proportion of a new insurance placement is required during the COVID-19 movement restriction, it shall be treated on the basis of “Use and File” subject to prior exhaustion of in-country capacity.For the avoidance of doubt, after utilizing available local capacity, the lead insurer ispermitted to reinsure the excess of the risk offshore and submit relevant documentations to the Commission thereafter.”

All Post Placement Reports, Reinsurance Treaties and other related special risk foreign reinsurance documentations due for submission during the COVID-19 restrictions, it said, are to be submitted when movement restrictions are lifted.
In the same vein, the commission has granted one month extension to insurance companies for the submission of their quarterly returns.

The extension becomes necessary, after government at the state and federal levels took some drastic decision that affects the normal business operations and well as restricting the movement of people and goods.

Waging war against COVID-19 pandemic
Already, insurance companies, under the aegis of the Nigerian Insurers Association (NIA), are set to provide free life insurance coverage for all the medical personnel that will be attending to victims of the outbreak.

The Life insurance scheme, it was learnt, covers each medical staff to the tune of N1 Million which is redeemable as a result of death or permanent disability in the discharge of their duties.

Speaking at the Media briefing to unveil the Intervention Initiatives in Lagos, the Chairman, NIA, Mr. Tope Smart, said: “In line with our profession as risk managers, NIA has decided to arrange a special life Insurance cover for all health personnel and allied professionals who are attending to victims of COVID-19. The policy has N1 Million Sum Assured in the case of death or permanent disability.”

Stating that the frontline staff are exposed to a lot of risks, as an association, he said, insurance operators would be liaising with the Ministry of Health, NCDC, and the State Governments to provide NIA with detailed information about these personnel so as to arrange appropriate cover for them.

Smart, who is also the Managing Director/CEO, NEM Insurance Plc, added that, arrangements are on to procure testing kits and protective materials worth about N100 Million, for the use of medical personnel saddled with this responsibility.
Similarly, a coalition of six insurance companies in Nigeria announced an insurance cover of N5billion Sum Assured for health workers and volunteers in the fight against coronavirus outbreak in Lagos State.

The policy, according to a statement signed by the Chief Executive Officers of the concerned insurance firms, covers; medical, disability, incapacity and term life insurance for up to 1000 doctors, nurses, and other health workers in the state.

The companies and their MDs are;  Tunde Hassan-Odukale (Leadway Assurance Company Limited), Wole Oshin (Custodian & Allied Insurance Plc), Segun Balogun (Lasaco Assurance Plc), Babatunde Fajemirokun (AIICO Insurance Plc), Livingstone Magorimbo (Tangerine Life Insurance Limited), and Kayode Awogboro (Ark Insurance Brokers Limited).

Speaking on this development, its Managing Director, Mr. Tunde Hassan-Odukale, said,  the insurer understands the magnitude of the risk taken by health workers who have elected to support the government to take care of Nigerians in the wake of a pandemic that is ravaging worldwide.