Insurance: Appraising the Past, Looking into the Future

In this article, EDET UDOH takes a retrospective look at some key activities that took place in insurance industry in 2019 aimed at driving the industry’s growth, including National Insurance Commission’s (NAICOM) and stakeholders’ position in the ongoing recapitalization exercise in the industry; NAICOM’s plan for 2020 and its 2019 scorecard as well as what players say about the future of the industry.

In every country of the world, the economic situation of that nation determines the performance of other component sectors of the economy as well as that of the social and economic well-being of the citizens.

In Nigeria, the economy is still in the growing stage and because of this, is affecting other sectors, insurance inclusive.

To this end, the Federal Government is doing everything within its powers to address these inadequacies in order to deepen the economy and attract the needed growth.

Chiefly among the initiatives of the federal government, are the ease of doing business and the financial inclusion aimed at ensuring a conducive business environment for those doing business as well as encourage more people to go into business establishment and also allows individuals and businesses to have access to useful and affordable financial products and services that meets their needs, that are delivered in a responsible and sustainable way.

In spite of the harsh economic situation and challenging business environment in Nigeria, insurance sector has continued to evolve, engaging in various growth initiatives and activities in year 2019 to deepen its growth that would enable the industry play its part as the economic shock-absorber, thereby contributing significantly to the nation’s growth.

In order to make its presence felt in the industry, the federal government through its agency, the National Insurance Commission (NAICOM) and other sub-regulatory organs and institutions have continued, in their respective capacity, contribute to the growth of the industry during the year under review.

These sub-regulatory organs are Nigerian Insurers Association (NIA) – the umbrella body of all insurance and reinsurance companies in Nigeria; the Nigerian Council of Registered Insurance Brokers (NCRIN) – the umbrella association of all registered insurance brokers in Nigeria; the Chartered Insurance Institute of Nigeria (CIIN) – an institute responsible for insurance education as well as maintaining high ethical standards for insurance practice in Nigeria.

Others include Association of Registered Insurance Agent of Nigeria (ARIAN) – the umbrella body of all registered insurance agents in Nigeria and the Institute of Loss Adjusters of Nigeria (ILAN). ILAN is the body regulating loss adjusting business in Nigeria.

In 2019, one thing that happened that will change the insurance industry’s narrative, according to stakeholders, is the NAICOM’s recent initiative to engage various interest groups within the insurance value chain such as the shareholders associations; insurance products consumers association among others by bringing them together in a round table to inform them on the plans and programmes of the commission as it affects insurance industry.

The representative of one of the insurance shareholders associations, in one of the interactive session with NAICOM in Lagos, commended the effort of NAICOM at giving a listening ear to the various segments of the industry, noting that that would have been the first step the regulator would have taken before announcing the aborted Tier Based Minimum Solvency Capital (TBMSC) policy in 2018 and the ongoing recapitalization to get the inputs and the consent of all stakeholders in the industry.

Suffice to say that NAICOM in 2019 stepped up its engagement programmes with various organs of the sector including the Directors of insurance companies; the shareholders associations with interest in insurance companies; insurance products consumers association and insurance journalists aimed at creating adequate awareness on government’s plans and programmes for the growth of insurance sector as an instrument to deepen the federal government’s financial inclusion initiative.

Some of the milestone activities that took place within the year under review which will shape the sector’s business landscape for growth included the launch of Unstructured Supplementary Service Data (USSD) *565*11# in February by the Nigerian Insurers Association (NIA).

The code was launched to check fake insurance certificate in the market as well as educate the insured on the need to always go for original insurance certificate to reap the benefit and value of insurance.

The code enable insured to check and authenticate the genuineness of his/her insurance certificate as well as know when the certificate will expire using mobile phone even without internet connection.

In March, the Federal Government through President Muhammadu Buhari, unveiled the much awaited Micro Pension Plan (MPP). The micro pension plan was launched to ensure that Nigerians in the informal sector such as the artisans; film sellers, hairdressers and barbers; mechanics; keke and okada riders are brought into pension net.

Pension is an instrument of wealth creation, poverty alleviation and social empowerment.

The objective of micro pension plan is to make arrangement for pension to the self-employed and persons operating in the informal sector through the Contributory Pension Scheme. The primary objective of Micro Pension Plan is to provide retirement benefits to the Micro Pension Contributor.

On May 20, NAICOM, in demonstration of its regulatory powers as enshrined in the Insurance Act 2003, issued a circular and announced a new capital regime for all insurance and reinsurance companies. This, industry watchers believe, was a replacement of the earlier cancelled and withdrawn TBMSC policy.

TMBSC policy was to compliment the risk based supervision model where insurance companies are expected to take risks in accordance with their capacity.

In the new capital regime, life insurance operators are asked to raise their capital from N2 billion to N8 billion; operators in general business class required to jerk up their capital from N3 billion to N10 billion; while those doing composite business are expected to raise their capital from N5 billion to N18 billion and reinsurers are asked to increase their capital from N10 billion to N20 billion.

On July 23, 2019, NAICOM again issued another circular calling on insurance companies to submit their recapitalization plans with August 20 as deadline for submission. June 20 was given for all insurance and reinsurance companies to recapitalized to the new capital threshold.

The June 20 recapitalisation deadline elicited reactions and counter reactions by industry stakeholders including the players themselves, calling for the extension of the deadline to give them enough time to put their houses in order.

Some stakeholders who reacted to the June 2020 deadline for recapitalization as inadequate, condemned NAICOM’s action describing it as inimical to the growth of the industry and unnecessary interference in the internal operations of the industry.

Industry operators in their various engagements with NAICOM had called for extension of the deadline to enable them put their act together so that those that have chosen the option of merger and acquisition can carry out due diligence for a smooth and hitch-free recapitalization exercise.

The objective of the ongoing recapitalization exercise, according to NAICOM, is to ensure a strong insurance industry with increased retention capacity and ability to pay claims and eliminate premium flight by ensuring that those risks hitherto ceded overseas are retained in Nigeria.

The recapitalization, NAICOM said, is also to protect shareholders investment and ensure that investors are given value for their investment through adequate returns.

In August, another event that took place in the industry which the industry analysts described as significance, is the appointment of the former Deputy Commissioner for Insurance (Techchical), Mr. Olorundare Sunday Thomas, as the Acting Commissioner for Insurance, following the expiration of the tenure of the former Commissioner for Insurance, Alhaji Mohammed Kari.

On December 30, in what some of the industry players described as a good omen, was the circular by NAICOM to all insurance and reinsurance companies, extending the recapitalization deadline from June 30 to December 31, 2020, additional six month.

Reacting on this, industry stateholders, including the Managing Director of FBN Insurance Limited, Mr. Val Ojumah; Managing Director, Niger Insurance; Edwin Igbiti and the spokesman of Sovereign Trust Insurance Plc, Mr. Segun Bankole, among others, commended NAICOM for the extension.

They said the extension will give the operators enough time to do what they need to do to be able to recapitalize just as they charged the operators not to relent rather see the deadline extension as ample opportunity for them to meet up.

During the period under review, the House of Representives beam searchlight on insurance companies, promising to conduct forensic audit of the insurance sector with a view to tackling the endemic corruption in the industry.

The decision to probe the industry followed the adoption of a motion on the ‘Need to investigate into the breaches, impunity and other infractions of some Federal Government institutions on insurance and actuarial and the need to ensure probity’ sponsored by Hon. Gideon Gwani.

In his lead debate, Hon. Gwani who observed that Section 88 (1 & 2) of the 1999 Constitution (as amended) empowers the House to expose corruption, expressed concern over the level of impunity being perpetuated by public servants in connivance with insurance companies to carry out fraudulent practices.

“These institutions are currently renewing their insurance with suspected existing breaches which will put Nigeria and the Nigerian populace at serious economic and social disadvantage hence, Nigeria will lose millions of naira thereby, worsening the political and social disequilibrium the nation is currently facing…,” he said.

Consequently, the House mandated its Committee on Insurance and Actuarial Matters, to conduct an investigative hearing involving all relevant stakeholder to identify any breaches and ascertain the veracity of the suspected infractions by the aforementioned Institutions

Also the Minister of Finance, Budget and National Planning, Zainab Ahmed had during the period under review, expressed concern over the poor penetration of insurance products in Nigeria and other African countries, a situation she said should be a source of concern to regulators and operators of insurance sectors in the continent.

“The penetration and insurance density in African countries remain very low, and thus, a serious source of worry,” the minister said yesterday at the opening session of the General Assembly of the Association of African Insurance Supervisory Authorities.

Mrs Ahmed also said the recapitalisation of the insurance industry will reduce risk of insolvency and protect policyholders in the sector.

In November, 253 insurance broking firms bided for Nigerian National Petroleum Corporation (NNPC) Oil/Non-Oli Assets and Liability insurance for the Year 2020/2021.

The group managing director of the firm, Mallam Mele Kyari, had, during the bidding in Abuja, called on insurance brokerage firms that participated in the expression of interest to insure NNPC’s oil and non-oil assets, to be wary of anyone who would promise to help them win the bid as the corporation does not operate in such a shady manner.

Kyari gave the warning in Abuja, during a public opening of bids for insurance broker for NNPC “I want to put it on record today that anybody that promises you that he is going to help you win this bid is a liar, a fraud. If you know anyone who makes such claims, please let us know so that we can take appropriate action,” Kyari charged representatives of the insurance brokerage firms

On the industry performance, it generated a Gross Premium Income (GPI) of N448.6 billion in 2018, reflecting a 12% growth from 2017. The industry also recorded an increase in its asset base by an estimated sum of N1.3 trillion as at December 31, 2018, reflecting a 17% Compound Annual Growth Rate over the last three years.

According to the National Bureau of Statistics, the Insurance sector recorded a nominal growth rate of 6.69% and a real GDP growth rate of 3.96% in Q3 2019 from 4.48% in Q2 2019 and 1.03% in Q3 2018.

Although this data indicates a positive outlook in the Nigerian insurance industry, the reality and headwinds faced by operators in the sector are quite formidable. Many licensed insurers are largely undercapitalized, thus limiting their ability to take on big ticket in-country risks, as is often required in the oil & gas, marine and aviation sectors.

As at Q3 2019, the insurance sector contributed less than 1% to the Gross Domestic Product (GDP) of Nigeria; having a penetration rate of 0.31% and an insurance density of 6.2%, the Nigerian Insurance Industry still lags behind its African counterparts – with South Africa having a penetration rate of 14.7%, Kenya 2.8%, Ghana 1.1% and Egypt 0.6%.

Industry analysts believe that the insurance industry presents perhaps the most remarkable investment case of any industry in Nigeria and despite present challenges; it presents numerous opportunities for enhancing the economic fortunes of this country. Foreign investors, recognizing these opportunities have acted accordingly with the likes of AXA, Prudential, Liberty, Swiss Re, SUNU Group, Saham Group, taking strategic positions in the industry.

An estimated capital of N200 billion is expected to be injected into the Nigerian insurance industry post-recapitalization  and expressed optimism that recapitalisation would enhance performance, bring about efficiency, innovation and profitability, adding that the industry needs significant support to unleash its growth potential.

NAICOM on Monday in Kano at a seminar organized for Insurance Journalist, the Acting Commissioner for Insurance, Mr. Olorundare Sunday Thomas, in his keynote address unfolded the Commission’s strategic plans for 2020 and the 2019 scorecard.

Thomas who commended the efforts of the journalists for publicizing the activities of the Commission in particular and that of the industry in general solicited for a sustained mutual working relationship between the journalists, the Commission and the industry just as he charged the journalists to always be objective in their reporting in order to project the image of the industry in a positive way.

According to Thomas, “The Commission as always must commend your contributions and support in the preceding years while also looking forward to a better working relationship and continuous collaboration with you on a sustainable basis. Your efforts in reporting the initiatives of the Commission and other information that have impacted positively on the image of the insurance industry is commended and well appreciated.”

In reviewing year 2019, the Acting NAICOM boss said, “The year 2019 obviously had its low and high moments, benefits and turbulences. Apparently, we all experienced its positive and negative consequences, leaving us with the bitter-sweet lessons that will ultimately shape our decision making in this and subsequent years.”

He said the theme for the seminar “Strategic Focus of the Commission in the year 2020; from Compliance to Development” is apt and timely as the Commission is shifting focus from compliance issues to emphasise more on its market developmental responsibility.

Thomas said as the Year 2020 continues to unfold, giant strides will be made by the Commission in all aspects of its statutory responsibilities, positing that “this is the time to put the past behind us and look forward to a better and more vibrant sector.”

He reminded the industry stakeholders that “the task of building an insurance sector of our dreams is a collective one and thus, all hands must be on deck to ensure our dreams become realities.”

He added, “We recognise the impact of conducive work environment to effective and efficient regulatory system and this will always remain our priority.”

NAICOM boss said that the second phase of the Market Development and Restructuring Initiative (MDRI) will soon be unveiled and it will mark out clear targets and tasks for all stakeholders in the industry.

He said going forward, the Commission shall vigorously pursue the continued implementation of Compulsory Insurances in every nook and crannies of the Country.

According to him, “We are certainly not unaware of the challenges inhibiting the successful implementation of these classes of insurance thus far hence, our resolve to work with relevant stakeholders to ensure a seamless drive.

“Indeed, the successful implementation of compulsory classes of insurance across the nation will ensure adequate protection of our strategic National Assets. We will be working with the relevant security agencies to guarantee effective and efficient monitoring of compliance,” he stated.

On the ongoing recapitalization exercise, Thomas said that the initiative to recapitalise the insurance sector is no longer news, noting that the essence of the recapitalisation is a move to ensure that the industry becomes more robust in its technical competence and financial base, building confidence, trust and enhancing market value.

Recapitalization, according to him, is aimed at repositioning the sector for self-actualization in terms of growth and development, stating that the recapitalization process is up and running in line with the roadmap and the Commission will see to its logical conclusion come ‪December 31, 2020.

Thomas said that the financial inclusion strategy has been central to the Federal Government developmental plan and the Commission has over the years invested hugely in the development of financial inclusion mechanisms which includes the introduction of Microinsurance and Takaful Insurance products.

The introduction of these lines of insurance, he said, is intended to deepen the penetration of insurance in the country and bring into the fold majority of the populace that are hitherto excluded. “So far, some milestones have been recorded in this regard with three standalone Microinsurance and four Takaful insurance companies already granted approvals.

“The Commission shall continue to deploy more energy and resources in building public trust and confidence in insurance despite years of poor perception. In this regards, your optimum support is required as whatever you write or report about the industry will go a long way in building or destroying the fragile image of the sector.

“I will therefore implore you to carryout thorough investigation before writing or reporting any contentious issue about the sector. You are all professionals and we have so much respect for you in that regard,” he posited.

On annuity business, NAICOM boss informed the gathering that the annuity business made headlines recently with a boost in the contribution of the business to the sector, adding that the public is becoming more exposed and knowledgeable about the workings of Annuity even as he said that the future of annuity business is looking very bright for the business which he said has also shown a positive growth in trust and confidence in the sector.

Thomas assured of the Commission’s commitment to ensuring financial soundness and viability of the insurers and the adequate protection of policyholders at all times, stating that these will continue to be part of NAICOM regulatory priorities.

“We will continue to ensure that genuine claims are promptly paid while also ensuring a reasonable protection of investments of shareholders.

“In demonstrating its willingness to protect the policyholders, the Commission has further strengthened its Complaint Bureau Unit to respond to public complaints over claims settlement. Available statistics have shown that there have been great improvement in this area.

“Ensuring the right pricing of insurance products and effective deployment of technology for ease of transaction are among the key areas the Commission will be emphasising this year. Digitalisation of insurance business is no longer an option, but an imperative which we all have to work towards its actualisation.

“As we may all be aware, the industry is currently lagging behind other financial services sectors in this area. The Commission is working vigorously to see that all its operations are digitalised. The year 2020 is a year for us to turnaround the fortunes of the industry and this cannot be accomplished without digitalising our processes and encouraging the industry to imbibe same.

“The Commission shall in the course of the year continue to introduce new reforms and initiatives in line with international best practices for attaining the level of growth and development we all desire for the sector, Thomas said.

The theme paper presenter, Deputy Director/Head Research, Statistics and Strategy Directorate, Adewale  Motajo, gave details on the Commission’s strategic plans for 2020 and its 2019 scorecard.

He said the Commission’s strategic focus in 2020 is guided by internal and external factors impacting its operating environment, aligned with developmental priorities of the Federal Government.

He said the Commission will continue to give attention to recapitalization of insurance and reinsurance companies; effective administration of Retiree Life Annuity and Group Life Assurance; Market Conduct Guideline; International Financial Reporting Standard (IFRS 17).Other NAICOM’s focus in 2020 are: Launch of the NAICOM Portal; Risk Based Supervision (RBS); Regional Integration; development of Agricultural Index Insurance; market development ; Actuarial Capacity Development; Financial Inclusion  (Micro-insurance); Financial Inclusion (Takaful); Bancassurance Authorization and AML/CFT.

On the Commission’s achievement in 2019, according Motajo, included issuance of circular on new Minimum Paid-up Share Capital; Financial Inclusion Initiatives: Approval for: (a.) two Micro-insurance companies and (b) Two new Takaful companies; Championed West African Regional Integration; Finalized the Code of Corporate Governance (adaptation of the National Code).

Others included Awareness Creation on: (a.) FIRS 17 ahead of its commencement in 2022.(b.) Corporate Governance and compliance for insurance Companies Boards of Directors  (c) Index-based Agricultural Insurance for AAISA members (d) Oil & Gas for Loss Adjusters; Stakeholders Engagement: Interactive sessions with (a) Major Consumers of Insurance Products (b) Shareholders Associations; Collaborations with : (a) Joint Committee of NAICOM/PenCom on Retiree Life Annuity. (b) Discussions with CBN and NCC on Alternative Distribution Channels; (c) Discussions with other SROs on palliatives for Insurance Companies on recapitalization; Capacity Building in respect of AML/CFT compliance drive training organized for insurers and Assistance provided to four Tertiary Institutions in aid of insurance education.

Motajo said the agenda-setting role of the media makes it a formidable ally to have for any social engineering efforts to succeed and called on the continued support of f journalists to the efforts of NAICOM towards engendering the emergence of financially-sound insurance institutions with capacity to bear risks across all sectors of the Nigerian economy, and aid the realization of Government’s social and financial inclusion goals.

The Director, Policy and Regulation Directorate, NAICOM, Pius Agboola, while speaking at the event, said the Commission has extended licensing renewal period for Insurance brokers and Loss Adjusters from one year to two years.

The 2-yearnew licensing regime, he said, is expected to commence from April 2020.

He disclosed that the commission had last week released the guideline for the implementation of the initiative.“Following series of complaints and challenges from brokers and loss adjusters to renew their licenses annually, we have decided to extend it to two-year renewal period. We have released the guideline and implementation will commence in April 2020,” he said.

Some brokers had, in the past, fall prey of the annual license renewal as their licenses were withdrawn because they could not meet the annual deadline. But with the2-Year renewal period set to take effect, market analysts said, this will give more time for brokers and loss adjusters to perfect their books and operation for renewals, while reducing the number of licenses that would be withdrawn as a result of failure to meet the renewal deadline.

On the future of the industry, a research released recently by Coronation Merchant Bank on the outlook for Insurance Sector in Nigeria, noted that with banks after 2004, there exists the opportunity for a recapitalised insurance industry to make enormous gains from 2020 onwards, not only in terms of expanded underwriting capacity but also (as was the case with banks after 2004) by attracting millions of new accounts.

As contained in the report, Nigeria’s insurance penetration, at 0.31%, is less than one tenth of that of India (with similar GDP per capita) which suggests significant untapped potential. The business opportunity exists because of Nigeria’s very low bases in insurance penetration and insurance density.

The Chairman of Sovereign Trust Insurance Plc Board of Directors, Mr. Oluseun Ajayi, who expressed confident in the future of the industry, said the early passage of 2020 budget is a positive omen for the entire nation in general and insurance industry in particular.

He said also that the ongoing recapitalization exercise and the new minimum wage bill recently passed and accented to by the Federal Government will to a great extent increase demand and supply in the economy, adding that insurance service is expected to benefit by the law in terms of premium generation as disposable income of the citizens improves.

The Managing Director and Chief Executive Officer, Law Union & Rock Insurance Plc, and the Executive Secretary, Nigerian Council of Registered Insurance Brokers (NCRIB) Messrs Ademayowa Adeduro and Fatai Adegbenro, said the early passage of 2020 budget the insurance industry will be better for it.

The duo commended the Senate and members of the House of Representative on this feat.

In his contribution, the Chairman, Nigerian Insurers Association and Managing Director, Nem Insurance Plc, Mr. Tope Smart, said the insurance industry in Nigeria is evolving with great innovations to drive it growth.

He said though the industry is not yet there, expressed optimism for a better future, and called on all stakeholders to come together and ensure all hands are on deck for the interest of the industry.

The Managing Director and Chief Executive Officer, FBNGeneral Insurance, Mr. Bode Opadokun, said the industry in 2019 performed above average, saying that the future of the industry is bright.

He said the ongoing recapitalization is a tonic for the industry with high prospect of attracting foreign direct investment into the industry, saying that there will be a lot of merger among fringe players with increased adoption of technology.

According to him, “We expect massive growth in the industry in 2020. Foreign players will continue to find the Nigerian insurance industry attractive. We envisage increased trends in mergers among fringe players. The Adoption of technology will increase as industry players explore means of achieving cost leverage and process efficiency. Innovation will become a critical differentiator among industry players. This is inevitable as consumer demands and tastes continue to evolve.”