Friday, August 09, 2019 / 09:00AM /Ekerete Gam Ikon / Header Image Credit: The Economic Times
As the recapitalization demand on insurance companies in Nigeria fills the discussion space, few operators are more concerned about how and where premiums (revenues) will be sourced. It is one thing to get investors to fund the recapitalization which assigns a 300% increase notwithstanding the category of licence you have, and a completely different call to sweat the capital and make reasonable return to the investors.
Granted, there will be mergers and acquisitions and insurers with stronger financial muscles will emerge, hopefully with more investment in technology and human resources to enhance underwriting technical capacity but Gross Written Premium (GWP) has to be twice or thrice the size of the capital to justify the investors' preference for insurance.
So, the trillion Naira question is, "Where is the business to support such capital investment?"
Existing Businesses Targeted
Quite often, proponents of increase in the capital of insurers argue that it is necessary as it will enable local insurers retain more of the risks currently placed abroad and accordingly, the premium paid to foreign insurers and brokers.
Not surprisingly, the National Insurance Commission (NAICOM) recently released some information about the Eleven (11) largest risks that have had good chunk approved for placement in Europe and America due to the inability of local insurers to retain more thus justifying its demand for recapitalization at this time.
However, discerning industry analysts argue that it takes so much more than capital base to have insurers participate in those businesses or retain more. Better treasury management, investment acumen and excellent track record in settlement of claims and indeed strong corporate governance over time are the indicators that earn insurers their spots on those businesses.
It is therefore obvious that only insurers that have attained such status currently and interested foreign insurance brands that can bring in such fresh funds would be in the position to access those businesses with the view to retaining more locally.
Or would we be quick to forget that part of what has weakened local insurers since the last recapitalization has been payments of huge claims on these dollar-denominated special risks which attracted most insurers that had then scaled the hurdle?
A natural question that follows this would be: Will the emerging stronger insurers serve the needs of Nigerians exposed to local risks like kidnapping, armed bandits, credit failures and flooding?
Put succinctly, if the demand for recapitalization is focused largely on retaining more of what goes out, through foreigners operating locally, the insurance industry in Nigeria will still lag in terms of its contribution to the country's Gross Domestic Product (GDP); as the insurance base would not have expanded while acquiring much-desired underwriting technical capacity would be slow.
Meeting Local Insurance Needs
On the flip side of the discussion on what increase in capital of insurers would achieve is the unmet needs of the local market.
As in many circumstances, even in Europe and America, businesses are encouraged to identify opportunities in the problems and challenges that exist in their domains. So I would suggest that NAICOM rather encourages the application of the expected capital in importing technical expertise to address some of these problems and enable the insurance industry achieve positive impact in our national economy.
For example, as we confront the national challenge of kidnapping and persons of every class live in fear of those that have turned it to a business, could the insurance industry not be part of the security strategy to overcome it by selling kidnapping insurance?
I have been informed that kidnapping insurance exists in Nigeria as a few insurers are beginning to offer the product to their corporate clients on demand. However, my view is that more people across Nigeria need this type of cover, so the insurers under the aegis of Nigerian Insurers Association (NIA) should encourage public discourse on this and invite experts from South America, in particular, to come in and share their knowledge towards building a virile market in that regard.
This might be the opportunity the insurance industry in Nigeria needs to exploit and redeem its image as a public-interest protector. For too long, many Nigerians have seen the insurance industry as takers not givers because it fails to adequately broadcast its offerings and achievements when it matters.
May be I should mention that, arguably, the Mexican Insurance Industry enjoyed significant growth in premium from kidnapping insurance during the dark years of El Chapo and remains a major stakeholder in the country's security management system.
Interestingly, insurance has always been discussed, sold and bought with the underlying factor of fear, considering the existing products - accident, fire, death, damage, theft and so, kidnapping insurance should neither scare the seller nor the buyer!
If NAICOM, NIA and other insurance bodies would cringe at openly discussing kidnapping insurance which has potential for growth and national attention, I believe we can discuss the other critical need: insurance against credit failures.
Having experienced increased activities in the disbursement of credit to individuals, thanks to machine learning and other solutions used by start-ups dominating that space, the insurance industry is losing massively by not actively participating in that space, where the need for credit insurance exist. Identity management has become easier yet insurers will continue to tell you how challenging it is to know people and rather dwelling more on the bad stories.
This is the time for the insurance industry with more capital, in my view, to regain certain privileges it enjoyed in the past when Life policies were widely accepted as collateral by banks and insurance bonds were preferred by customers and financial institutions.
Overcoming the Task Before Us
The task of developing our insurance market may be onerous yet we are the ones that will do it and this is a good time to seek collaboration with other markets in Africa that enjoy higher percentage of insurance penetration, like Kenya, Angola, Egypt, Morocco and South Africa.
The capital base of insurers in Nigeria has always been higher than those of these countries performing better than us and we are not doing enough to seek to know and acquire knowledge from them.
From the regulatory point, NAICOM needs to engage insurtech firms (start-ups) to provide clear direction that will enable them assist the traditional insurers reach underserved and uninsured markets.
Especially with the permission granted telcos by the Central Bank of Nigeria (CBN) to operate in the financial services sector, the insurance sub-sector needs to respond in a manner that enables it retain its space locally.
In the same vein, NAICOM should deepen its drive for insurance inclusion by allowing insurers to send their financial advisors for training at entrepreneurship development centres where they will engage with other service providers rather than restrict accreditation to a single learning organisation. Of course, insurance also need to be taught in those environments without impinging on the integrity of the Chartered Insurance Institute of Nigeria (CIIN).
When I recall that 99% of our impressive population does not have one form of insurance policy, I get very concerned that the recapitalization demand seeks to address more of the foreign problems than our local challenges that would ultimately ensure a safer Nigeria.
It is indeed my hope that there will be a positive change in the relationship between the insurance industry and the people of Nigeria after the current recapitalization exercise.
We deserve a better insurance industry!
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