Daniel: Insurance Industry Had its Finest Moment under Jonathan
Olusola Daniel
Commissioner for Insurance, Mr. Fola Daniel,
in this interview with Festus Akanbi, says the resolve of President Goodluck
Jonathan’s administration to make insurance a pivot of economic development has
not only underscored the potential of the sector but has also challenged
operators to double their efforts
How will you describe the developments brought to bear in insurance industry
under President Goodluck Jonathan’s administration?
I think President Goodluck Jonathan’s administration is making insurance the
centre point of development and that was highlighted by recent
pronouncements. It will be recalled that in the 2015 Budget Speech, the
Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi
Okonjo-Iweala set the ball rolling by saying that the government is poised to
focus attention on the insurance sector.
In his Acceptance Speech when he was returned unopposed by the Peoples Democratic Party to contest for the 2015 Presidential Election, the President devoted prime time to highlight the potentials of the insurance industry. He is a president that is focusing on the totality of the financial services sector which is a tripod. Once you remove insurance, the tripod becomes incomplete. So with insurance being properly brought in, you have a complete tripod to drive with vigour, the economy of this country.
The current administration has recognised the potential of the insurance industry. They see an insurance industry that can drive the Transformation Agenda which is one of government’s main thrust. They see an insurance industry that is capable of generating employment and a springboard for curbing social discontents. Insurance industry, inclusive of agents and brokers, currently employs about 50,000 persons but insurance industry has the capacity to employ a lot more.
The President modestly calculated that he sees an
insurance industry that can generate 300,000 jobs in the next two years. I
think that is being modest because there is huge employment potential in the
insurance industry. For example, take a look at the Insurance
Intermediary, we are selling insurance largely through brokers. The brokers are
wholesalers. They are interested in big tickets and I’m sure that is where they
derive big commissions or brokerage, whilst the grassroots is largely
unexplored and unexploited. We can take some graduates off the street by
employing and training them as agents to go to every nooks and crannies of the
country to sell insurance thus earning a living. So the President should be
given the credit for recognising the potential of the insurance industry and
setting a goal for the industry.
What are the measures being put in place to achieve this potential you just
talked about?
If you compare our insurance laws with similar laws all over Africa, I think we
have the largest number of compulsory insurance such as Motor (Third Party),
Group Life, Builders’ Liability, Occupiers’ Liability, Marine Insurance etc. We
have 12 compulsory insurances, but these compulsory insurances are just there
in the books. They are just there as laws, many people are not even aware of
it. So what did we do in the last five years? We tried to create awareness. We
sensitised Nigerians first about the existence of these compulsory insurances,
how it is best as a means of managing our risks than the Ad-hoc assistance we
get from government in times of trouble or turbulence or losses, so we have
done that over the last five years and I’m glad to say that there is enhanced
awareness amongst the populace. The income of the insurance industry in the
last seven years has more than doubled. In fact, in the year 2007, we had an
income of slightly N100billion but as at last year, we posted over N300 billion
Even if you look at the insurance sector in the
whole of Africa, we ranked number five while South Africa ranked number one up
to year 2012. Yet we have the largest population on the continent and a
large economic base, so there is no reason for us to be in number five.
Happily, last year, we came to number three. So, we are making some
progress but I know we can do better.
Are you saying in essence that the pledge by the Coordinating Minister of the
Economy and Minister of Finance that insurance will become one of the channels
to develop the economy is achievable?
The Coordinating Minister of the Economy and Minister of Finance is a
technocrat in government. She is an economist of repute and a woman of honour
who is not given to making empty promises. When she makes a pronouncement on
issues, she follows it through.
We had an insurance summit in December last year. The conception of that summit commenced on November 26. It was her brain child. She called me on November 26 saying the government needed to support insurance sector having recognised what we had done so far. We subsequently agreed on an agenda that we should brainstorm through a summit.
At the end of the day, we had a very successful
summit that even drew participants from outside Nigeria. It was well
attended. One of the resolutions that emerged from the summit is that
government would focus on insurance to strengthen it to perform its pivotal
role in the nation’s economy. Again, within two weeks of that summit, a budget
presentation was effected by the Coordinating Minister of the Economy/Minister
of Finance and she reiterated Government’s resolve to support insurance
growth. Closely followed was Mr. President’s statement on insurance in
the course of his acceptance speech as candidate of the ruling party for the
coming elections.
Will you say you have achieved much in the area of consumer protection?
I’m very delighted to say that our quest to protect policy holders is succeeding.
When I came on board in 2007, on average on weekly basis, we received 15 to 20
complaints from members of the public against insurance companies. We then
reinvigorated the Complaints Bureau. We engaged more professionals and
strengthened the Bureau. We thought these complaints would have
quadrupled but because of the measure we took. Two months after I took over, we
sanctioned two insurance companies, which hitherto were considered untouchable
and that sent the correct message to insurance practitioners that it is no
longer going to be business as usual and they were compelled to improve
significantly on claims settlements processes.
We are not done yet because we believe that insurance companies must engender the kind of confidence that you find in insurance industry in United Kingdom, US and South Africa. Therefore we said, even though we saw some improvements, we still decided that we still need to keep on with the pressure.
What we did next was to set up a Call Centre which receives complaints from members of the public real-time. We also believe in self- regulation therefore we are working with the Nigerian Insurers Association to self -regulate as much as possible in the area of consumer confidence. The collaboration with NIA culminated in the setting up of an Ombudsman under the Chairmanship of a retired appeal court judge who is a very reputable gentleman. You will recall that since last January, we have been repeating a publication in newspapers asking insurance consumers that are aggrieved due to denial of genuine claims or delay in settlement to come forward and lodge complaints.
Insurers generally find this pressure
discomforting and it has yielded accelerated attention. We will continue
with this drive until we are able to achieve zero case of complaints for
delayed settlement or denial of genuine claims.
How is NAICOM responding to changes in global insurance market?
The key changes you will find in the global insurance market are mainly
centered on improved confidence, trust, depth, capacity and sound business
practice. So all the measures we have taken in the last few years are to
ensure we are on the same page with international community.
Insurance is an international business and
therefore, people should not be in Lagos and want to buy policy in South Africa
or UK just because they can afford it. They should have an insurance industry
they can trust. They should have an insurance industry that when an accident
happens, people can simply exchange their cards and go their different ways with
the assurance that the insurance company will not only come and remove those
vehicles from the road but will even give you something to use while they
effect repairs on the cars.
What is the latest on the collaboration between NAICOM and Securities and Exchange
Commission to investigate some alleged diversion of investors’ funds?
The collaboration is not just between NAICOM and
SEC. It is amongst financial services regulators namely, CBN, NAICOM, SEC,
NDIC, PenCom and CAC, etc. We have regular meetings where we exchange ideas and
compare notes about our regulated entities. As for SEC, we have had a very good
and robust collaboration and it is working.
Can you give us the progress report on your zero tolerance policy on claims
settlement?
I believe I dealt with this sufficiently earlier. Nevertheless, I
think you are referring to our Consumer Protection initiatives on claims
settlement. If you are a doctor and a patient runs to you to
complain, you don’t just give him a painkiller to cure that headache. That may
do it but you really need to investigate why this guy is having recurring
headache. Why do we have incidence of unpaid claims in insurance industry in
the past? The truth of the matter from our investigation and analyses showed
that a lot of these premiums are not even paid. Insurance is one of the few
products that are bought on credit in this country.
People are taking insurance and owing insurance firms infinitely. We have a situation where an entity is insured for four years and it hasn’t paid premiums at all. So if an insurance company is not receiving premiums, it will not have money to pay claims. Insurance provides mechanism to pool premiums from different persons in order to meet liabilities and claims. Money therefore becomes available to grow the portfolio, run administrative duties and management expenses but when this money is not paid, the insurance industry is rendered incapacitated and that was where we found ourselves, which compelled us to invoke the “No Premium No Cover” provision of Section 50 of the Insurance Act 2003. We don’t enact law because NAICOM is not a parliament but we implement policies as regulators.
The “No Premium No Cover Policy” predated the 2003 Insurance Act. The law was there but it was not being implemented resulting in almost the death of the insurance industry. So when we invoked it from January last year, we saw an upsurge in cash flow of insurance firms. So, if we have removed the major reasons why they were not paying claims, then they no longer have reasons not to pay genuine claims. Therefore, if you look at the financial reports of insurance firms in 2013 and 2014, you will find minimal outstanding premiums.
For the first time, our fellow African brothers
came to Nigeria to copy from us. Even though some of them do not have the legal
backing, they administratively introduced the policy of No Premium No Cover and
it is working for them. All the French speaking African countries have copied
the no premium no cover policy. So, I’m glad that the culture is not limited to
us but it is spreading all over Africa.
How will you address the issue of rate cutting in insurance industry in
Nigeria?
Rate or rating refers to consideration paid by Insureds for their risks carried
by insurers. Rates can be viewed from three perspectives.
The first category relates to compulsory insurances such as Motor Third Party
Insurance. The approved rates stipulate that the insurer cannot charge
beyond a maximum of 10 per cent. This provision became necessary to avoid
exploitation of the insuring public. The nemesis of this arrangement is
that no minimum is stipulated, leaving Insurers to apply discretion.
The second category of rate falls within what I will call commercial underwriting for domesticated risks. Now what are the factors determining the rates? You look at the risks factors and measure put in place by the insured to determine whether the rates applicable should be reduced or increased. When underwriters reduce rates in defiance of this technical consideration, it is generally referred to as rate cutting.
The third category of rates is big ticket risks such as Oil and Gas, Energy, Aviation etc. Many rates falling within this category are rates that emanate from Lead Reinsurers abroad. Such risks are shared across international borders and Nigerian Insurers may not have the sole prerogative to determine the rates.
So generally speaking, rate cutting in the Nigerian Market affects Motor Underwriting and all other largely domesticated businesses. Where our Insurers are jettisoning the well-tested underwriting considerations of appropriate rating to succumb to rate-based market-driven competition, it is a problem that is as serious as the incidence of nonpayment of premium earlier discussed. It has the potential of eroding the profitability of Insurance companies thus making investment in that Sector unattractive.
I am glad to note that all the stakeholders have
realized this issue as a monster that must be curtailed very quickly. I
am aware that concerted effort is presently ongoing to inject sanity into the
rating regime
We expect that the ongoing effort will culminate in agreed rating standards
which NAICOM would be obliged to approve and ensure its enforcement in the
interest of all stakeholders.
Why is it difficult for regulators to bail out weak insurance firms like the
rescue package we had in the banking industry?
Insurance is a risk transfer mechanism. Therefore unlike bankers,
insurers are not deposit takers. Whereas a banking institution could be
in possession of Trillions of depositors’ money, insurers who assume risks
worth Trillions, keeps only a negligible portion of that risk usually within a
proportion of their Shareholders’ Fund. The excess is transferred to
Reinsurers whilst a portion to Retrocessionaires. Through this chain of
risk spread, the collapse of one particular insurer cannot pose systemic
risks.
In addition, recoveries will usually come from those who initially share in the risk. Because the risk which primary insurance firms share is well spread in such a way that even when there is a problem, those who are insured by this firm are not going to suffer irreparable loss because this company that is in crisis has recoverable from the reinsurers and if there is a significant crisis, what the regulator will do is to ring-fence the resources of those insurance companies to enable it to pay the policyholders.
A particularly large loss may, for instance, lead
only to a momentary diminution of the Shareholders’ Fund (temporary insolvency)
with a window for the Shareholders to fill the financing gap. The AIG
crisis did not emanate from its core insurance activities, but from their
unregulated activities. A collapse of an insurance entity, though may
affect consumer confidence, will not affect the economic system the way the
collapse of a major bank will.
Why can’t NAICOM enforce compliance with compulsory insurance using security
agencies?
As a regulator, I have to collaborate with law enforcement agencies to enforce
compulsory insurances. We however have limitations. For instance, we have
to work with the police who are already fully engaged thus making it difficult
in addition to the huge resources required to conduct a nationwide
enforcement. As part of our strategy, we realized that it is not fair if
we do not educate the people before we start to enforce the laws. When people
see values, there will be large voluntary compliance and that is what we have
done.
The police have been overstretched. We use police on ad-hoc basis. So we are looking at what we can really do; we are looking at the totality of the stakeholders. The law stipulates that 25 per cent of the net premium in respect of compulsory insurance should be set aside for the purpose of providing grant or equipment to institutions engaged in fire fighting services. It means if the rate of compliance is high, then the fire services will get more from the insurance industry.
We are therefore reinvigorating our awareness campaign and stakeholders engagement to engender compliance. We are also happy to note that some state governments have passed laws to support the National Laws on compulsory insurance. Where we have apparent breaches, enforcement remains an option to adopt.