Wednesday, May 15, 2019 / 12:00PM / By Ekerete Ola Gam-Ikon MNIM, CPP/ Header Image Credit: Block Social
The fate of most sectors of any economy, studies have shown, depend on the general state of those economies; this is especially true for insurance. Many professionals are quick to say that the insurance industry thrives when the economy is doing well. The corollary of such position is that so long as the economy struggles against recession, the insurance industry has to wait before it can compete favourably against other financial services providers.
However, other stakeholders are surviving the difficult times better because they are also better with innovations anchored on minimum acceptable standards that guide their operations, which are grossly absent in the insurance industry in Nigeria today!
Standards are vital
There is no gainsaying, our lives are guided by basic standards even at "the bottom of the pyramid" where the population can be quite challenging to manage. On the professional and business sides, it is unavoidable to have set standards ab initio guiding entrance, operations and exits with a view to maintaining integrity and trust necessary for the advancement of the industry or sector.
This had been the situation too in the insurance industry in Nigeria where standards were considered vital at all levels - regulation, operation and custom.
As a young entrant into the industry decades ago, I was welcomed to a world of standards for the smallest action I needed to take while considering the insurance proposal of customers.
In training, we had several booklets and books that detailed the steps we needed to take in assessing the risks before referring to the rating guide (in case of General Business) and mortality table (in case of Life Business) for the final premium payable by the customer (or proposer).
These vital standards were understood by all stakeholders and no one spoke about rate cutting. Indeed, the disciplinary measures against those that abused the standards were too heavy and demeaning to bear for any professional in the business of insurance in Nigeria at that time.
Insurance, to put it mildly, was booming and other players in the financial sector knew that the "emergent tiger" could not be ignored.
Then rate cutting arrived
Guided by its rating guide and mortality table which was managed by its trade association, Nigerian Insurers Association (NIA), the insurance industry in Nigeria stayed on course to excel until:
1. Experienced Underwriters (Technical Officers) started giving the rates without referring to the rating guide and mortality table, largely due to pressure from increasing market drive; subsequently, new entrants learnt more from their experienced bosses than the books
2. NIA lowered its disciplinary measures and began to tolerate members who violated the rules in a bid to compete and win customers. In a certain year, it got so bad that members who were suspended for such acts determined their membership asserting that after all, it was not compulsory to be a member of NIA;
3. "Consult the Lead", an initiative of NIA to enforce market discipline was dumped. With it, policyholders whose policies were problematic, whether in terms of poor premium payment or claims history, could not find another insurer to accept their risks once they were referred there.
These three issues were critical in setting the insurance industry on the path of self-destruction and as it seems today, it has not recovered as the discourse on rate cutting reaches its tether.
Regulators to the rescue
The inability of the NIA, after several years, to address the issue of reintroducing rating guides and mortality table has caused the insurance industry in Nigeria, not only loss of revenue but also great loss of respect from other stakeholders in the financial sector and the economy at large.
The rates discussed with customers are sometimes so far apart that you can almost know without deep financial knowledge that the insurers giving such ridiculous rates are not profitably managed. Even the rates of commission are equally abused to the point where insurance brokers are made to lose their professional swag.
Today, if not for the actions of regulators, particularly NAICOM and PENCOM, it would be most challenging to see what the insurance industry would hold on to. Firstly, PENCOM is enforcing the compulsory Group Life Assurance policy for all contractors to the Federal Government, then NAICOM has saved the day with the recent announcement of the minimum rate of 6 per mille on Group Life businesses.
These are besides the forceful step Fola Daniel-led NAICOM took years ago to implement the "No Premium No Cover" law.
Good as these steps have been towards ensuring the insurance industry in Nigeria remains relevant, some analysts have questioned the poor attitude of operators towards standards especially in maintaining the regime of rating guides and mortality table.
Truth is, without a national mortality table, we cannot appropriately apprise and underwrite Group Life business with a view to growing that segment into the bright future it offers the insurance industry in Nigeria.
Let's break the "anything goes" cycle
To know the benefits you can get on long term basis from going in a certain direction and rather choose one that offers you bouts and fits of inflow, to my mind, is another definition of insanity.
Over time, decision makers in both the public and private sectors have come to perceive the insurance industry in Nigeria as one where "anything goes" based on these issue of rates rationalization, to borrow the nomenclature provided by a senior colleague. One can no longer boast to a customer that you cannot get a lower rate elsewhere!
Sadly, even the leading insurance companies are not exempted from this practice.
NAICOM only recently declared that meeting the industry 2020 premium target of N1trn was hampered by rate cutting (rate rationalization, if you like).
The Way Forward
I will try and keep this as simple as possible by recommending that:
1. Let the general discourse on insurance in Nigeria migrate to BENEFITS!
If insurance stakeholders would begin to strongly discuss benefits in its simplest definition, insurers and brokers/agents would appreciate that the prevailing situation where standards mean nothing so long as premiums and commission come in, cannot stand.
Policyholders are not getting BENEFITS from buying insurance for the same reason that rate rationalization denies operators their benefits.
2. With the mindset expressed above, there is need for fresh conversations at the leadership level of the insurance industry to conduct a brutal appraisal of the effect of rate rationalization; and it will be evident that the target of N1trn may have since been achieved if not for unnecessary and obscene discounts. I know some leaders already appreciate this but facing this truth is burdensome.
3. By the powers bestowed on NAICOM in Part II Section 7 a, b and c of the NAICOM Act 1997, it should proceed without further hesitation to reproduce rating guides and mortality table and save the insurance industry in Nigeria from itself.
The benefits of standardizing, indeed, go beyond generating more premium but puts insurers in a much better position to respond to claims and contribute more to the expansion of our national economy through creation of more jobs and protection of our collective wealth.
The insurance industry in Nigeria is gasping for breath, not just because the general economy is struggling but mostly for the cuts it has dealt itself.
Let's save it.
About The Author
Ekerete Olawoye Gam-Ikon, MNIM, CPP is a management consultant with specialization in Strategy and Insurance. He can be reached vide telephone on +234-806-648-1111 and +234-802-585-0344 or by e-mail vide firstname.lastname@example.org
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