November 13, 2012 / E. Ola Gam-Ikon
By the definition of their core responsibilities, Regulators, especially in the financial sector of any economy, are required to create a favourable environment for operators and build TRUST to protect consumers of the services against any misgivings or misrepresentations by operators, amongst others.
In Nigeria where the rule of law on a general basis seems to be growing steadily, financial regulation has gained greater strength from the positive impact of the restructuring initiatives in the aftermath of the global economic recession. With these, however have come envisaged challenges largely due to the competency gaps of the executioners of these new regulatory regimes, thus prompting this review specific to the insurance sub-sector easily regarded as the weakest link in financial regulation in Nigeria.
A review of the role of regulators in insurance over the last 15 years reveals that while so much effort has been undertaken to boost insurance and the trust level of insurance buyers and policyholders, the results have, quite sadly, ended up merely promoting the potentials and leaving the industry ‘struggling’.
Significant Areas of Evident Underdevelopment
•Eradication of Fake Insurance
Consider first, the longest and, probably toughest battle of the Insurance Regulator, National Insurance Commission (NAICOM), which is the eradication of fake insurance!
Operators of fake insurance, who live amongst us and are based mostly in Vehicle Licensing Offices across Nigeria where Motor Insurance Certificates are sourced and obtained precedent to the issuance of Vehicle Licences, currently enjoy some latitude because genuine insurance operators are far from the point of need of the vehicle owners.
This is because NAICOM has BANNED genuine insurance operators from either having a desk at the Vehicle Licensing Offices or any Representative there. Where they are present especially in remote cities, it is not to the knowledge of NAICOM and if confirmed, such genuine operators would be penalized.
Question then is: Are we not giving away a SURE source of insurance revenue, and by implication, development by such a ban? The fight to eradicate fake insurance may have become an annual budgetary item for NAICOM but what manner of progress can be made without meeting the fake operators at the point of exchange?
Millions of cars on our roads are insured by fake insurance documents either with the name of a non-existent insurance company or the fake version of an existing insurer’s certificate.
In 2011, there was a reported case of a woman who was killed in an accident by another vehicle which insurance was discovered to be fake. NAICOM’s response was a N50, 000 compensation derived from its Scheme designed to cushion the effect of such accidents resulting from uninsured vehicles; but should the offender not be prosecuted?
The massive campaign done by NAICOM using other statutory instruments like the Police has not yielded much therefore denying the insurance industry huge revenue. It is only reasonable that vehicle owners who need insurance certificates for the processing of their vehicle licences have them at that point if we genuinely want to develop insurance through Motor Insurance which remains its highest source of premium revenue in Nigeria.
Recent initiatives to get new and existing Motor Insurance Policyholders using online resources to obtain their insurance certificates have not addressed this challenge as greater numbers of vehicle owners/users are unable to use them. The fight to eradicate fake insurance must be seen to address the ultimate impediment of insurance development in Nigeria, being lack of TRUST.
•No Penalties for Poor Claims Handling
An even more critical aspect of the underdevelopment of the insurance sub-sector in Nigeria by NAICOM, hinged on the question of trust, is in the undue delay and/or non-payment of claims by insurance companies.
As a guide, NAICOM is empowered to penalize operators that do not settle/pay the claims of their policyholders after a specified period usually 90 days. However, no insurer has been known to have its operating licence threatened on account of failing to honour a claim.
At best, the Complaints Bureau at NAICOM has rather served as the melting pot for knotty unresolved claims always needing policyholders to spend their precious time contesting the “we are not liable” position of the insurance operators. This situation continues to challenge the call by the regulator for policyholders to have confidence in the entire insurance value chain.
Considering moreso that the Regulator can do little about the cancerous attitude of rate cutting by insurers, the terribly poor response to claims especially by pronounced industry leaders ought to be addressed by NAICOM. However, policyholders and insurance brokers are left to the options of lobbying and negotiating with such insurers, in some cases, for over 6 months to get either the Claims Discharged Voucher or the settlement Cheque, where DV had since been issued.
Policyholders and Brokers who go through these experiences, generally, just wish the Regulator, being aware of the image-damaging activities of such insurers, would act rightly.
Unfortunately, it has come to the knowledge of many insurance industry watchers that NAICOM has tolerated those UNTOUCHABLES in years past until recently, thanks to new regulatory responsibilities bestowed upon it, thus prompting the semblance of punitive measures noticed lately.
With the poor attention of NAICOM in respect of the unprofessional conducts of these ‘untouchable’ insurance companies, the development of insurance has no doubt suffered such penetrating setback that keeps the industry perpetually struggling.
These untouchable insurers, interestingly, have perceived political might to cause a displacement of the person holding the office of the Commissioner at NAICOM and mostly ‘have their way’ in the face of possible queries from the Regulator.
It is therefore not a surprise that year after year, reported INFRACTIONS in Financial Statements of insurers, especially the untouchables, are not professionally addressed by NAICOM and the insuring public never gets to know the true position thereby giving them little reason to increase their confidence and trust level in the insurance industry in Nigeria.
If NAICOM which directly regulates insurance has underdeveloped the industry by such actions and inactions elucidated above, then other regulators in the financial sector like Securities and Exchange Commission (SEC), Federal Inland Revenue Services (FIRS), Financial Reporting Council (FRC) and Central Bank of Nigeria (CBN) have equally contributed in measured proportion to the situation.
• Ignoring the Investors in Insurance
The investors in insurance, usually ignored by NAICOM, would hope that SEC addresses their challenges with insurers. Unfortunately, they have not had the ears of SEC, lest their actions, especially as it again, have to do with the untouchables amongst insurers.
The trust of the public have continued to be eroded and the development of insurance impeded when the queries that are put forward by SEC to address investors’ issues ceases at the doorstep of NAICOM whose approval must not be questioned by another regulator.
• Unreliable Financial Statements
Financial statements that are approved by NAICOM and sent to SEC, for example, serve as the authentic source of information for investors and shareholders, who have always waited in vain for dividends to be paid by quoted insurance companies’ year on year. Can such actions ensure trust needed to keep the industry developing?
Imagine then international market analysts, investment advisors and keen global insurance brands that desire to take interest in the Nigerian insurance industry, you will understand why it has remained, at best, a market with the biggest potentials! The available data and information hardly meets any known best practice standards.
Until SEC decides to exercise its powers independent of NAICOM would investors and shareholders in insurance hope to earn meaningful value both in terms of Return on Investment and market acceptance.
At times, it is even difficult to ascertain whether SEC is not protecting the operators when you consider the way they respond to petitions of shareholders, whom they are meant to protect, against these operators.
• Non-application of the Whistle Blowing Policy
May be someday, SEC will consider applying the whistle blowing aspect of its corporate governance guidelines and respond more positively to the challenges and demands of the insurance operators who have acquiesced their investments.
•Poor Tax Revenue
Next, take the FIRS, which had reinvigorated its drive in the insurance sub-sector. Understandably, there were misapplications of the tax laws in the insurance aspect which have largely been addressed thus leaving the Agency to rightly appraise and determine what insurers pay.
However, it may have become an unheard scandal what FIRS and some insurance companies agreed as corporate tax payable for many years of operating without paying, in some cases, more than 5 years.
• No CSR Philosophy
The effect of this on the development of insurance is evident in more than the failure of insurers to play in the corporate social responsibility space. In CSR conversations, it is believed that if you are not a responsible corporate citizen, you cannot be responsive to the needs of the community in which you operate.
Guess what, though insurance companies declare multiples of billion of Naira in premium income annually, their contribution, or giving, to the society only justifies the above position. If taxes are used to provide needed infrastructure in Nigeria, only a few insurance companies can be said to contribute, and in the measure of their assessment.
•A New Hope?
FRC and CBN can safely be said to have played exemplary roles in ensuring that the public trust in insurance is on its way back up. While the CBN has given renewed strength to the insurance industry by its abolition of the universal banking system leaving only serious takers to participate across board, FRC is poised to redress misnomers of past years through its implementation of the IFRS regime which is already exposing floundering insurance companies.
One would hope that where these regulators especially NAICOM are unable to transform themselves to push positive developments in the insurance industry, the much touted creation of an independent uniform/central regulatory authority may just the better way to go.
The preferred environment would have been one where the respective Regulators take full responsibility of their areas and avoid covering up one another at the risk of being seen as having underdeveloped an industry such as it has been reviewed here.
We believe the trust and confidence of the insuring public and investors/shareholders in insurance should be placed above the manipulations of the insurance operators by NAICOM and other regulators to reset the insurance industry on the path of genuine and sustainable development.