The Role Of Stakeholders In Developing Insurance And Pension Industries By Ivor Takor
Ivor Takor, Director, Centre for Pension Advocacy
I wish to thank the leaders and members of the National Association of Insurance and Pension Correspondents for giving me the opportunity to speak at this Conference, on the theme “The Role of Stakeholders in Developing Insurance and Pension Industries”.
The questing is who are stakeholders in Insurance and Pension Industry? In search for an answer to this question, I will look at the stakeholders in the two industries separately. I will begin with the Insurance industry and then the pension industry.
The critical stakeholders in the insurance industry are Policyholder: policyholders are interested in proper protection and liability coverage. They look forward to the ability of the company to pay claims and that the product is of good value (premium vs risk transfer) and that premium is affordable. The next group of stakeholders are Management and Staff: this group looks forward to Profitability of the company, good career prospects and adequate compensation. The others are shareholders or the owners of the company: This group are interested in adequate returns on their equity and solvency of the company. Another critical stakeholder is the Regulator (The National Insurance Commission): The Regulator balances forces within the industry and ensures the solvency of the companies. The Regulator ensures that the interest of policyholders are protected and that they are treated fairly and ensures that defaulting companies pay fines..
The most important question then is what is the role of stakeholders in the development of the industry? My first reaction is that the insurance industry is a business industry, where business best practices and good governance will help in developing the industry. However, my second reaction is that the insurance industry plays a social role by providing financial protection to different segments of the economy. This social role therefore makes the industry very sensitive, requiring regulatory scrutiny.
Permit me to put this caveat, and that is, that the views I am going to express here on developing the insurance industry, may neither reflect those of practitioners nor those of specialists in the industry. They may be reflecting more of those of policyholders, who as we all know are critical stakeholders in the industry. The regulator in the industry, needs to be practical. Not long ago, we read that the Federal Government has pegged the capital base of mega insurance firms at N15 billion. The regulator knows the industry better and has reasons for whatever decisions it take, which I believe are for the growth and development of the industry. The regulator to me should be more interested in what companies are doing rather than how much capital they hold. To develop the industry, the regulator must enforce full disclosure. Shareholders, policyholders and the regulator must understand what companies are doing. If the regulator doesn’t understand what a company is doing, it will be difficult to protect the interest of stakeholders and the integrity of the industry. Therefore, what is not understood should not be allowed.
The regulator needs to make sure that investors get the right type of information (true and fair) without that the industry will become less attractive to investors. Some policyholders are still not sure that insurance companies will pay claims when the need to do so arises. They still have a mind set on what some refer to as hidden clauses in insurance, which are brought to the attention of policyholders only when claims are made. Policyholders and maybe shareholders need to have sensible risk returns profiles otherwise the industry will not be viable in the long run.
On the part of Management and employees, we are beginning to see some level of aggressive marketing as against what obtained in the past. This no doubt will go a long way in developing the industry. When claims are paid promptly, people will insure all their insurable risks. On the other hand, if insurance companies have two faces, that is the face of a dove when marketing and the face of a lion when claims are due for payment, people will keep away from insurance companies and resort to insuring all their insurable risks with God through prayers. Premium should be affordable.
Shareholders should not be very greedy. They should be ready at all times to voluntarily plough back some of the profits the company makes back into the development of the company. They don’t have to always wait for it to come through regulatory enforcement. Regulatory enforcement comes with sanctions for non compliance.
There are also other stakeholders in the industry, who are contributing to the development of the industry. They include Reinsurers, Insurance brokers and Rating Agencies. One other group of stakeholders who other insurance stakeholders may not want to be mentioned are Tax Agencies.
Permit me to state that there was no pension industry pre 2004 pension reform in Nigeria. Pension schemes operated in both the public and private sector before the 2004 reforms, were burdened with a lot of problems. Principal among them was that the schemes were unregulated. Others were that they suffered from poor administrative structures; the public sector scheme was unfunded, causing it to become unsustainable, with an estimated N2 trillion deficit. In the private sector, with the exception of the National Social Insurance Trust Fund (NSITF) the schemes were as many as there were companies. They were voluntary, being products of collective agreements with no law backing them. Section 1 of Pension Reform Act 2004, the forerunner of the current Pension Reform Act 2014 as well as section 3 of the 2014 Act, established the Contribution Pension Scheme and made it to apply to employees of both the public and private sectors. Herein lies the beginning of the pension industry.
The next question therefore is are there stakeholders in the pension industry, and if the answer is in the affirmative, who are they? The answer to this question is found in the Pension Reform Act 2014. The Act has laid down stakeholders in the pension industry and went ahead to set out the roles they are expected to play for the sustenance and development of the industry. The Act didn’t stop at laying down roles for stakeholders. It went further, to stipulate sanctions for non compliance. The stakeholders in the pension industry are the the regulator, employers, employees and the operators (Pension Fund Administrators (PFAs and PFCs).
Section 17 of the Pension Reform Act 2014, which henceforth will be referred to as the Act, established the National Pension Commission (PenCom), while section 18 states the objectives of PenCom to be, to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria. Since the establishment of PenCom, the Commission has strived to achieve the objectives of the Act, effectively performed the functions given it in section 23 and judiciously utilized the powers bestowed upon her in section 24. There is no other way to justify the establishment of the Commission and adequately highlighting the role she has played in the establishment and development of the pension industry than to point to a non existing industry in 2004, with a public sector pension deficit of N2 trillion in 2004 to a pension industry with a pension assets of N18.14 trillion as at July 2018.
We may at this point, wish to pause and consider how the Commission was able to achieve this fit. The Commission has succeeded in building and maintaining a culture of healthy compliance in the industry: This has not only helped the industry to stay out of trouble, but has built a reputation for the industry as being trustworthy, which has led to the continuous development of the industry. Being a friendly regulator, PenCom exposes draft guidelines to operators for inputs before finalizing them. There is a monthly consultative fora with licensed operators and holds regular consultations with the operators “union” the Pension Operators Association (PenOp).
The next set of stakeholders in the industry are the employers. This is the group that provides the greatest challenge to the industry. Principal among the challenges being that of non compliance with the provisions of sections 4,5 and 6 of the Act, which deals with paying the contributions of the employer; deductions and timely remittances of both the pension contributions of the employer and employees pension deductions, as well as maintaining Group Life Insurance policy in favour of employees as provided for in section 4(5) of the Act. Governments, federal and states are the biggest employers of labour and also happen to be the greatest culprits in this regard. This will continue to be the greatest challenge the industry will be facing. The reason being that owners of businesses in the private sector will continue to be greedy in their desire to maximize profit, while governments will continue to avoids the responsibility of adequately addressing the welfare of workers. The regulator and employees must do everything within their powers to get employers to comply with the provisions of the Act.
The primary stakeholders in the pension industry are employees. Section 1 paragraph ( c ) states one of the objectives of the Act to be “ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory, States and Local Governments or the Private Sector receives his retirement benefits as and when due. The Nigeria Labour Congress (NLC), the Trade Union Congress (TUC) and Industrial Unions, whose responsibility it is to campion the cause of improvement of the welfare of workers and pensioners, must be at the forefront of efforts to grow the industry. They can achieve this by adopting both collaborative and preventive approaches. The labour movement should ensure that employees open Retirement Savings Accounts (RSAs) and understand salient sections of the Act that need their attention; they should put pension issues as principal items for discussion/negotiations, in every meeting and negotiation with employers especially governments; they should engage PenCom through interactive sessions and training of union leaders including having pension desks in union offices for better interface; ensure periodic issuance of Retirement Savings Accounts statements by Pension Fund Administrators to account holders; have Annual National Pension Conferences, where workers views are articulated and expressed and act as whistleblowers on pension matters.
The last but not the least stakeholders are the operator, Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFC). The Act segregates the management and custody of pension fund. While PFAs are responsible for the management of the funds, the PFCs warehouse the funds and invest them in line with the directives of the PFAs, based on guidelines issued by PenCom. In an attempt aimed at insulating pension fund from fraud and forgeries, it is imbedded in the Act, a lot of compliance obligations for the operators, which the Act also empowers PenCom to enforce and apply sanctions for noncompliance. Operators will help in the continuous development of the industry if they comply with the provisions of the Act and all regulations and guidelines issued by PenCom; render good customers services and additional services.
So far, the pension industry remains the most rapidly growing industry in the country and will remain so for a long time. This position will be strengthened when the micro pension targeted at getting the self employed in the informal sector to key into the Contributory Pension Scheme commences. Issues militating and may continue to militate against the growth of the industry are: absence of reliable data on employers in the private sector; weak economy; dearth of investment outlets; lack of confidence in government promoted schemes. While the following are some issues that must be addressed by stakeholders for the continuous growth of the pension industry. Commencement of the micro pension for the large informal sector; tackling of the resistance/unwillingness to remit pension contributions by employers; adequate coverage of the scheme, especially keying in by State governments and improved customer service delivery by PFAs.
Permit me to conclude by saying that some of us who were members of the Fola Adeola Pension Reform Committee are happy that the issue of the warehousing of Annuity fund has been amicably resolved by the two industries. Pension Reform that led to an Executive Bill to the National Assembly, which gave birth to the Pension Reform Act 2004 and Pension Reform Act 2014 has very greatly also developed the insurance industry. The monthly pension payment under the Life Annuity Scheme established under section 7(1)( c ) of the Act has averaged N1.7 billion as at March 2017. That figure is much higher now. Moreover, the total premium paid to Insurance Companies for the Group Life under section 4(5) of the Act was N170.57 billion as at March 2017. This has significantly assisted the growth of the insurance industry. The current Net Assets Value of Pension Assets under the Contributory Pension Scheme has been put at N8.14trillion. This is happening against a background of Federal government budgetary pension deficit estimated at N2 trillion as at June 2004, when the Contributory Pension Scheme took off and a non-existing industry before the Contributory Pension Scheme took off, is a huge achievement.
A paper presented by the Director, Centre for Pension Advocacy, at the 3rd Annual Conference of the National Association of Insurance and Pension Correspondents (NAIPCO) at Oriental Hotel, Lekki on August 9, 2018
