Insurance Industry Growth: Buhari Assures Insurers of FG Support

President Muhamadu Buhari

*Urges Stakeholders to support Recapitalisation

*Lists Expectation from Insurance Industry

President Muhammadu Buhari has said that the government will continue to support the insurance industry to enable it contributes effectively to the growth of the nation, calling on insurance operators not to work against the present recapitalisation which is aimed at taking the industry to lofty heights.

The President, who was represented by the Permanent Secretary, Federal Ministry of Finance, Dr. Mahmoud Isa-Dutse, said this at the on-going 2019 National Insurance Conference in Abuja, with the theme: Disruption, Innovation and Business Growth.

He urged the operators not to fight the recapitalisation just because they could not raise the expected capital, stressing that the act to deepen insurance penetrations remains a responsibility to be carried out by all stakeholders.

The President called for operators’ compliance with the directive of the National Insurance Commission (NAICOM) ordering the underwriting segments of the market to increase their capitalisation.

It would be recalled that the insurance regulator, NAICOM, had in a May 2019 circular announced new capital regime for both insurance and reinsurance companies, increasing it by over 200 percent in an exercise which deadline is June 30, 2020.

In the circular to its regulated entities, capital for life insurance companies was raised from N2bn to N8bn, general companies from N3bn to N10bn, while composite insurance companies’ capital was jerked up from N5bn to N18bn, that of reinsurance was also increased from N10 billion to N20 billion.

Buhari said the recapitalization directive would make the insurance industry to be more responsive to the objectives of his administration to the economy.

He gave the Federal Government’s expectations from the sector as increase in financial capability to enable local risk retention, and prompt payment of claims. Others are transparency in dealing with potential policy holders to engender consumer trust, expansion in current portfolio of insurance products to better address client needs, increased focus on outreach and specific success such as lower income segments and expansion of insurance firms’ operation to cover the Nigerian federation.

He said, “The insurance sector plays a vital role in the financial sector because it reduces the poverty line, assist people to manage their risks, protect them from adverse effects due to unforeseen circumstances and increases access to other financial services. “This administration is very passionate about these and the ministry will continue to closely monitor activities in the sector. “With the recapitalization directive issued recently, we expect operators to be true to themselves and consider all opportunities available for continued existence. “While this will include mergers and acquisitions, it should not include fighting the policy just because you cannot raise the original capital. “Your industry should be more responsive to the desires of the economy.

The President said the insurance industry can do more to contribute to the development of the economy. “It can do more in reaching more uninsured and financially disadvantaged segments of the society, it can do more to the creation of employment and indeed it can do more to support the Nigerian ecosystem.” Kari in his speech said the need for radical reforms has been accentuated by the disruptive impact on the insurance industry of a series of digital innovations in areas such as online sales technologies, and machine. He said while these new technologies are already making it easier for consumers/policyholders to benefit from superior service and more choice as well as lower prices, there are corresponding challenges.

In order to remain relevant and become a critical contributor to the national economy, he said the industry must consciously be proactive and organized so as to take advantage of the opportunities provided by these disruptive developments while at the same time curbing their corresponding negative impacts.

The Commissioner for Insurance, Mohammed Kari, said the need for radical reforms has been accentuated by the disruptive impact on the insurance industry of a series of digital innovations in areas such as online sales technologies, machine learning, the Internet of things, advanced analytics and virtual reality, among others.

He added that while these new technologies are already making it easier for consumers/policyholders to benefit from superior service and more choice as well as lower prices, there are corresponding challenges.

“Therefore, in order to remain relevant and become a critical contributor to the national economy, the industry must consciously be proactive and organized so as to take advantage of the opportunities provided by these disruptive developments while at the same time curbing their corresponding negative impacts.

“It is important to note that firms will only benefit from digital technology only if they embrace its potentials along the entire insurance value chain, including underwriting and claims management.

“This would therefore entail a rethink of the industry’s business strategy and alignment of its operational practices to contemporary economic context such as the Economic Recovery Growth Programme (ERGP) of the Federal Government, sustainable and inclusive insurance as well as exploiting the benefits of the implementation of the 2nd Phase of Market Development and Restructuring Initiative (MDRI), among others,” he posited.

Kari noted that from the regulatory standpoint, the need to exploit the opportunities of digitalization and to tame the cumulative consequence of inflation and devaluation of the Naira heightens the necessity for the ongoing reforms of the insurance industry such as, expansion of the insurance distribution channels, financial inclusion, corporate governance enforcement, market discipline, professionalism and the recapitalization exercise aimed at strengthening insurance institutions and increasing the spread of insurance in the country.

“Let me hasten to add that these reforms are in furtherance of the President Muhammadu Buhari’s administration’s determination to revamp the economy as encapsulated in the ERGP in order to ensure that the insurance industry becomes a significant contributor to economy of Nigeria,” he added.

The Chairman, Insurance Industry Consultative Council (IICC), Eddie Efekoha, pleaded with the National Insurance Commission to give favorable consideration to the suggestions made by the Nigerian Insurers Association (NIA) in their on-going engagements on the recapitalisation, so that the necessary guidelines when released will ensure that the objectives of this reform are fully realised.

“This recapitalisation exercise, like every past reform, presents both opportunities and new challenges. As operators, we must begin now and not later to address our minds to the following questions: How do we maximize the use of the additional capital to generate superior returns to investors? How does technology help the industry to deliver superior service and deepen insurance penetration?

“How do we develop a data pool that supports improved pricing of risks underwritten and innovative products driven by consumer insights? What do we do to develop and attract the right skills and talents that can match the fast pace of technology revolution?

“How do we harness the values inherent in partnering with other industries like telecoms and banks to deepen insurance penetration? How do we partner with various arms of government like the NPF, Customs, Fire Service to ensure compulsory insurances are enforced? Above all, how can we cooperate better than we currently do for the good of all stakeholders?”

Director-General of the Budget Office for the Federal Republic of Nigeria, Ben Akabueze, implored insurance operators to embrace the recapitalisation and ensure they revise the notion that they are the poor cousins of the banks.

He posited that the industry is rape for technological disruption, adding that insurance remains one of the tools for mobilizing savings, hence, there is the need for consolidation.

In attendance the event included, the Commissioner for Insurance Mohammed Kari, the Director-General of the Budget Office of the Federation Mr Ben Akabueze, the Chairman of IICC Mr Eddie Efekoha, the Head of Civil Service of the Federation Winifred Oyo-Ita among others.

Below is the Theme Paper

Disruptions, Innovation And Business Growth

By Herbert Wigwe MD/CEO Access Bank PLC

Introduction – Drivers of Business Growth in 21st Century

Every business aspires sustainable growth, but this often does not come easy. The attainment of growth and a prime market position in the 21st century business landscape demands a well-articulated and religiously executed strategy, which often requires the institutionalisation of the right technology, culture, engaged customer base, necessary alliances and the best people. These factors create an environment that stimulates innovation – which is crucial for survival into the future.

Innovation means creating value from ideas. This value could be commercial value or social value, depending on the context and purpose; from multi-million-dollar 5G-powered microchip, to environmentally friendly cars. In business, innovation often results when ideas are applied by an organisation to satisfy the needs and expectations of the customers. The constantly changing consumer preferences and consumption behaviours have created a “new era of innovation”, in which organisations must either innovate or die. This has altered the dynamics across virtually every business sector and will shape business models for decades to come. Putting figures to this, a 2017 PwC survey reports that 60% of 1,379 chief executives believed their sectors have been changed or reshaped, whilst 75% expects to see their market disrupted by the year 2022. Businesses that desire to win in the future must be prepared to shape it – through innovation, today.

Technology has invoked a new era of innovation. Advancements in computing, Artificial Intelligence, Machine Learning and analytics have led to quantum leap in robotics, analytics, genomics and nanotechnology, spurring innovation in industries like energy, manufacturing, medicine and financial services. The world is witnessing the Fourth Industrial Revolution driven by advancement in computing, machine learning and analytics. In the financial services sector for instance, banks leverage digital banking to compete on the nature of innovation that can provide real-time solutions, handle and predict customer behaviour in an incredible fast manner, and deliver best customer experience. This is just the beginning as technology continues to redefine possibilities in banking. The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

Innovation and its Disruptive Characteristic

Disruptive innovation has been established as a powerful way of thinking about innovation-driven growth for entrepreneurs, business executives and value-driven organisations. An innovation becomes disruptive when it displaces established market leaders. According to Clayton Christensen, a Harvard professor and the originator of the term in the 1990s, “Disruptive Innovation describes a process by which a product or service initially takes root in simple applications at the bottom of a market—typically by being less expensive and more accessible—and then relentlessly moves upmarket, eventually displacing established competitors.”

Disruptive Innovations are NOT breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable, thereby making them available to a larger population. Thus, disruption occurs when disruptors deliver the performance that incumbents’ customers require, while enjoying the advantages they got from their initial success. An innovation is not disruptive until the product or service is purchased in volume by the upmarket thus changing the taste and system of the existing market. It should be noted that disruptive innovation is not only for new entrants; an established firm can also be a disruptor through reaffirming its position as a market leader in its market – through innovation.

Examples of disruptions witnessed in the last three (3) decades are Netflix, Airbnb and arguably Uber; which have fundamentally disrupted the market dynamics of video streaming, hospitality and transportation sectors respectively. Netflix was launched on April 14, 1998, as the world’s first online DVD rental store, but today it currently serves over 145 million streaming subscribers around the globe, with a gross revenue of US$15.794 billion (2018). Airbnb, in 2008, started as a website that offered short-term living quarters, breakfast, and a unique business networking opportunity for city dwellers/visitors, but today serves a worldwide market, with revenues at $2.6 billion (2017). Uber’s disruptive technology has placed the 10-year old company in nearly 600 cities worldwide, and with a valuation of nearly $70 billion. These are few examples of how much disruptive innovation can lead to growth and economic value.

How will innovation and disruption impact business and economic growth in Nigeria?

Disruptive innovation creates new goods and services; and increases accessibility and affordability of value for a much larger population. As business leaders, we must know that as we position for the inevitability of the Fourth Industrial Revolution, the riskiest and most dangerous thing to do as a leader is to resist the need to innovate. Indeed, the various challenges confronting us as a people today – from infrastructure, to healthcare, education, logistics amongst others are clear invitation to innovation and disruption, which is clearly inevitable, and could happen in unprecedented manner.

For businesses, the acceleration of innovation and the velocity of disruption is taking wide swipe on virtually all value chains, yielding long-term gains in efficiency and productivity. Clearly, the technologies that underpin the Fourth Industrial Revolution are having a major impact on ways of serving existing needs on the supply side. Companies now have access to global digital platforms for research, development, marketing, sales, and distribution. On the demand side, the abundance of information, transparency, consumer engagement, and new patterns of consumer behaviour (driven by access to mobile networks and data) compel companies to adapt the way they design, market, and deliver products and services. A key takeaway for business executives is that the emergence of global platforms and other new business models means that talent, culture, and organizational forms will have to be rethought. We must deliberately, relentlessly and continuously innovate.

For the government, tech-led disruptive innovation will increasingly enable citizens to engage with governments, voice their opinions and coordinate their efforts. It also would change their current approach to public engagement and policymaking, necessitating that the government gain new technological powers and accumulate capabilities in terms of pervasive surveillance systems and the ability to control digital infrastructure. The government would have to embrace a world of disruptive change, subjecting its structures to higher levels of transparency and efficiency in policy formulation, implementation and oversight. By implication, the government and regulatory agencies must collaborate closely with businesses, technology companies and the civil society.

For the people, disruptive innovation is already affecting our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people, and nurture relationships. Innovation gives ‘more’ to the people. This is why in Access Bank, we are guided by a new business philosophy – more than banking, in which we go beyond boundaries to offer bespoke financial and lifestyle services to over 29 million customers across 12 countries through innovations in digital banking, artificial intelligence and analytics.

What should we be worried about?

Innovation and disruption in recent time has raised critical concerns that people, businesses and governments must deal with, particularly considering the inevitability of more ‘disruptions’ in the near future. To do this, we must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. Scholars have raised fears that the Fourth Industrial Revolution may indeed have the potential to “robotize” humanity and thus to deprive us of our heart and soul; hence, a call for creativity, empathy and stewardship as pillars to lift humanity into a new collective and moral consciousness. In Nigeria and elsewhere, businesses must deal with the following to make the most from innovation and disruption:

• Competition: Businesses and organisations must accept the reality of changing competitiveness frontiers and compete healthy and ethically in the best interest of all. New technologies and business models will arise that will profoundly affect the functioning of existing industries. Whilst we must protect and grow our individual market share, we must ensure that we compete on the frontiers of technology, efficiency, customer experience and value. The authorities must also position to redefine and guide all players using best competition advocacy.
• Intellectual property rights: Nigeria must very urgently deal with the challenges of intellectual property protection to maximise the growth potential of innovation. All stakeholders must collaborate and push for reforms of the legal frameworks for protecting intellectual property rights in Nigeria. Without this, it will be tough harnessing talents and inventions for economic growth.
• Costs of doing business: The country must deal with the high cost of doing business – from poor infrastructure, business registration hurdles, multiple taxation, bureaucratic bottlenecks, amongst others. Nigeria currently ranks 146 amongst 190 economies in the 2019 World Bank’s ease of doing business ranking. We must do more to encourage start-ups and established businesses run profitable establishments.
• IT Security: Information security and the challenges of protecting customer’s information online against cyber-attack remain a major threat that could erode customer’s confidence. We must invest in preventing unauthorized access, use, disclosure, disruption, modification, inspection, recording or destruction of information or data, in all forms.

Conclusion – Positioning Nigerian Insurance Sector for the Future

In 2016, the Nigerian insurance industry generated approximately US$58.4 billion in Gross Premium Income (GPI) despite a low penetration rate of 0.45% (Kenya -2.7%, South Africa -16.99%). With only 1% of Nigerians holding an insurance policy, there is clearly an untapped opportunity in the country.

It appears the Nigerian insurance sector has started experiencing disruptions as Insurtech start-ups leverage technology to take advantage of the opportunities in the sector to gain market share and pursue growth. In 2014, AutoGenius which was launched by Venia Technologies allows users to buy auto insurance online, working with traditional insurance companies to shape user experience. Similarly, CompareIN which was launched in 2015 allows users compare and buy an insurance policy online. Also, Cassava allows individuals make small weekly and monthly insurance subscription payments via debit card or USSD.

How do we position our insurance sector to sufficiently and efficiently provide coverage to innovative and growth-elastic sectors in Nigeria? Below are my thoughts on the top three (3) to-dos:

1. Recapitalisation: Relative to the size of the Nigerian economy and the opportunities it offers, the insurance sector needs serious capitalisation to increase its capacity to underwrite transactions in sectors such as the oil and gas, marine, aviation, technology, etc. Early this year (May 21, 2019), NAICOM raised the minimum capital for the insurance industry by over 200%. Whilst this will go a long way towards repositioning the Nigerian insurance sector in terms of product offerings and customer experience, the sector must grow big enough to provide cover for huge exposures.
2. Strategic Alliances and Partnerships: With the advent of innovation, traditional insurance companies must partner with upcoming insurtechs so as to explore the technological and growth opportunities therefrom and give customers better and more innovative product offerings. Claim verification processes must also be reviewed to foster trust. Partnership with the Banks for viable Bancassurance opportunities is also a formidable route to growth.
3. Insurance Penetration: Insurance companies should make more use of the new media and ‘digital’ to deepen insurance at the retail segment of the market. Furthermore, the need for the implementation of a robust compulsory insurance policy cannot be overemphasised.

End Note

Today, businesses and economies compete in a networked world in which the key to competitive advantage is no longer the sum of all efficiencies, but the sum of all connections. Strategy, therefore, must be focused on widening and deepening linkages to access ecosystems of technology, talent and information. Today’s decision-makers must let go of the traditional linear thinking of change and think strategically about the forces of disruption and innovation shaping our future. Innovation is our new reality.

Theme paper presented at the 2019 National Insurance Conference held in Abuja from Sunday, July 1 to July 3, 2019.

Theme paper presented at the 2019 National Insurance Conference held in Abuja from Sunday, July 1 to July 3, 2019.