Saturday, November 21, 2020 / 11:07AM / By
Ekerete Ola Gam-Ikon / Header Image Credit: Nairametrics
Expectations are high now about the shift that will happen within, and for, the insurance sector in Nigeria, notwithstanding the negative and distressing calls that have filled the space especially after the full impact of the violent October protests have been revealed. These expectations border on the changes the industry should make to respond positively to the increasing questions from the public and the emerging linkages that can be achieved between the insurance industry and other sectors.
From an insurance perspective, over the years, the insurance market has been essentially divided into Government (Public Sector), Corporates (Private Organizations) and Individuals (Personal Line, Retail or Microenterprises) and Non-Governmental Organizations (Affinity Groups, Professional Associations, Social Clubs). However, there have emerged different distinct groups of individuals and enterprises resulting from online engagements that need to be recognized and catered for separately. They are young, enlightened, financially savvy and influential but insured, often by insurers outside Nigeria. If we call them "Digital Natives", we will be right.
Amongst these insurance market makers, the Corporates have continuously contributed over 80 percent of the overall Turnover (Gross Written Premium) of the sector over the years. While this could be attributed to the slow changes in product offerings and distribution patterns, the battle to execute strategies for development of Personal Lines or Retail Insurance continues despite the increasing opportunities that have emerged since we identified the Informal Sector in our economy.
The requirement for increase in Capital Base by the Regulator, National Insurance Commission (NAICOM) has indeed boosted the chances of the contribution of Corporates further increasing, when we read that one of the key reasons for the recapitalization exercise is to enable the local insurers retain more businesses (premiums) taken abroad due to low capacity to underwrite the risks and ensure they are in a better position to settle claims promptly.
Effectively, only a minimal percentage of the uninsured population will become insured after recapitalization because of the understandable pressure on the use of capital to achieve reasonable level of Returns on Investment (ROI) for the investors and shareholders.
Only the Corporates Can
A critical survey of the way insurance is presented, offered, advertised, sold, administered and settled when claims occur seem to make it easier for the Corporates to take insurance policies and contracts. Insurers, quite commonly present insurance as an item for the fulfilment of the requirement of one law or another. You may be familiar with the reason many motor insurance (individual) policyholders give for having the Third Party cover; so that they will "not be bothered by law enforcement officers while on the road"! Accordingly, they do not bother about the genuineness of the cover, so long as it enables them pass, and insurers cannot be bothered too, when they can sell to Corporates that can afford to take Comprehensive cover on their fleet of vehicles.
This explains why the advertisements by insurers, in print and electronic media, show top-of-the-range vehicles and properties, high-flying executives and vessels loaded with pricey containers, sometimes with oil rigs in the background. Only the Corporates can discuss these kinds of assets seen in the adverts.
Where sales are made involving individuals, the Corporates are the ones that pay for their employees either in fulfilment of the requirement of the law, for example, Group Life as required by the Pensions Reforms Act 2014 or to satisfy the negotiation for such non-monetary benefits with executives that already understand the value of insurance. In this regards, there are many Corporates that do even more than what the law requires, just to ensure their employees are comfortable.
Interestingly, the executives in this same Corporates are the targets of insurers for their products, which can mostly be afforded by them and not persons in the Informal Sector where incomes are unstable and irregular.
Over the years too, the increasing volume of claims payouts by insurers have expectedly gone to the Corporates. Indeed, over 80 percent of the claims of N207b (2018) and N300b (2019 approx.) paid by insurers in Nigeria have gone to the Corporates, and this has not only helped them to remain in business and keep employment rate at ease but have also enabled the Corporates to be in a position to honour their obligations including tax remittances to the governments at Federal and State levels.
The days of the Corporates getting all the attention may just be starting after the recapitalization process is concluded as it will become clearer that the conventional insurance companies need a new performance model to engage and satisfy their funders.
What to Expect
Changing the basis of performance will be imperative, indeed necessary, to ensure Profit Before Tax (PBT) becomes the focus, much more than Gross Written Premium (GWP) and even the size of the Balance Sheet, which will continue to show landed properties that count for little, considering what is acceptable in the context of this current recapitalization.
Most likely, as we have had in the banks for decades, the expectations of shareholders will now become the basis for yearly performance budgets and targets. If the ROI is agreed, ab initio, the sums of dividends payable will be determined, the profitability derived and the GWP and other controllable elements defined, then Insurance CEOs will put further pressure on those that are the only ones capable of enabling them perform - the Corporates!
In my view, new challenges arising from this considered change of basis will be more evident in the capacity of the human resources of respective insurers. The real question would be: Will shareholders of a General Business Insurer, for example, be able to extract a commitment from their Board and Management to deliver GWP of 2-3 times the new Capital Base of N8b? Or would the basis of commitment be Underwriting Income or Investment Income, which have become hard to get?
On the other hand, the opportunities emerging from adopting a new approach to measuring performance would require insurance companies to AGREE to charge appropriate rates and instill discipline in themselves to respond to the needs for innovative product offerings regarding Climate Insurance, Cyber Insurance and Credit Insurance just to mention a few of the expectations shared by medium and large enterprises.
Optimism will set the tone for the outcomes we would likely get out of what the most unpredictable year has handed us, still insurers need to be very bold and audacious to emerge winners at the end.
Related to Recapitalization