Wednesday, November 11,
2020 / 03:37 PM / By Ekerete Ola Gam-Ikon / Header Image Credit: Vanguard
What started like the most appropriate action
to enable the insurance industry in Nigeria regain its respect and return to
its role, confidently, as the safety net of the economy is quite likely to send
it into a state of oblivion, or what may be called "Economic
Siberia", if care is not taken.
The requirements for recapitalization or new
capital base announced for the conventional insurance sector by the Regulator,
National Insurance Commission (NAICOM) in 2018, almost twelve years after the
last one, was widely received as the right step to save the industry. However,
it did not seem to receive the buy-in or understanding of the operators and has
continued to be challenged, either by shareholders who had chosen to use the
courts or operators using COVID-19 pandemic, the #EndSARS protests and any
other technical grounds.
Many will recall that the process began then with NAICOM
announcing the Three-Tier Solvency Margin Based (TSMB) recapitalization, a seemingly creative approach
meant to reclassify insurers to operate within what their capital base allowed;
no company was going to die. This was however novel and too
much for the operators and their shareholders to comprehend, so they
approached the court and got a decision that forced NAICOM to cancel the process.
Prior to the decision, I did say in one of my
the Regulator would have to finish the process that was probably only
understood by it.
Related Link: NAICOM
And The Recapitalisation Requirements - The Ball Is In NAICOM's Court
Undone and determined to have its way, NAICOM
dusted off whatever was thrown at it after the unfavorable court decision to
relaunch the recapitalization process, this time, adopting
a familiar but tortuous approach. The significant difference
being the non-admission of buildings and other illiquid assets as part of the
The first deadline of January 1, 2019 was therefore
shifted to June 30, 2020 and subsequently, the two dates of first deadline of
December 31, 2020 and final deadline of September 30, 2021.
COVID-19 pandemic, #EndSARS protests, violent
destruction of public and private property, poor investment climate, US
Elections and the second round of lockdown and much more than may come will not
allow NAICOM and the re/insurance companies successfully negotiate the suitable
deadline and take-off date for the regime of the new capital base. Should we
expect an #EndRECAPITALIZATION protest?.
Recent news indicate that Insurance Chief
Executives have appealed to the Regulator to consider moving the deadline to
December 31, 2021, and though there has not been an official response from
NAICOM, it will be most surprising if they budge.
Averting Crisis of Confidence
In my view, it is unfortunate that despite the
expression of COVID-19 pandemic, protests and other issues as both crisis and
opportunity, much attention seem to have been paid to the crisis, hence even as
the recapitalization is viewed now, many industry players see it as crisis
without all the advantages we saw in it.
Proceeding from here would require 2-3 weeks of
intense work by NAICOM to make the players see, or indeed create the
opportunities for them. First, it should meet the frontline shareholder groups
to explain and probably justify the recapitalization with assurances that even
if they lose now, much more gains await them in the next 3-5 years.
Importantly, let the operators know that missing
the deadline is not a death sentence. Worse case, you will become more suitable
for the real serious investors that could not get a share of those that made
it, and then, you have up till September 2021 to attain the target or even
surpass those who managed to meet the December deadline.
Furthermore, NAICOM would need to encourage more
Nigerians to take up insurance policies and this can be done only by telling
them what has been done about several long outstanding and unsettled claims. A
preliminary update on the claims status with respect to the October Violent
Protests will be a good starting point.
Going back on the December 2020 deadline will be
reasonable but untenable to some who have been waiting eagerly to take up
insurance with the companies that have succeeded; simply because success has many
fathers and mothers.
To give confidence, I recommend that NAICOM either
proceeds to announce the new fully capitalized insurance companies by midnight
of December 31, 2020 or the cancellation of the process and in its place, adopt
the Shareholders Funds as basis for determining the strength of the insurance
companies while utilizing other measures to ensure only FIT operators are
licensed to operate.
To do anything that will put the fledging
administration at NAICOM to any crisis of confidence will be to place the
insurance industry "on hold", something some shareholders got from a
court months ago as we learnt NAICOM through its lawyers committed not to
proceed with any action until the case is heard.
Or will the National Assembly come to its
rescue by passing the new Insurance Bill that will make the issue of capital
base part of the law?
Now, the insurance industry is unable to play
in the economic space with its full squad because of recapitalization, the
"Banana Peel" of the industry, while the economic hawks go on to take
up the space with the help of their regulators.
Insurance waits! Not for any death sentence
though but for these crises to go away.
About The Author
Ekerete Olawoye Gam-Ikon, MNIM,
CPP, is a management consultant with a specialization in Strategy and
Insurance. You can contact him via e:mail firstname.lastname@example.org and mobile +234-806-648-1111
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Position on Delayed Agric Investment Returns
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Insurance and Reinsurance Companies in Nigeria