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Companies are not supposed to have debt burden, CFI



Liquidity is very important insurance entity. Under the current regime, insurance companies must provide for 100 percent for any debt that is more than  twelve months. In this interview,  Fola Daniel, the Commissioner for Insurance, (CFI) spoke on debt burden in Insurance industry and the other challenges facing  the industry.





What are your expectations in Insurance Act 2003 amendment?


I am not going to accept that there was laxity in our regulation in 2008. I remember  reading in one of the dailies that insurance companies were gasping under high control and supervision from NAICOM over 2008 accounts.



In 2008 accounts, we had no choice really because if we pass rubbish accounts, as you know that many of the companies are listed, so, if the accounts were passed as used to be done in the past, it will not pass the test of other regulators, such as the Security and Exchange Commission (SEC), Nigerian Stock Exchange (NSE), National Accounting Standard Board (NASB). So, we had no choice but to be guided by the prudential guideline as regard investment.On how they were treated, we looked at their value as at 31 December and their purchasing price when it was bought and we took the lower of the two. Most of the companies had their stock values seriously eroded and we did not take anything rather than their true value as at December 31.



This is because doing otherwise would be subjecting NAICOM to ridicule since other regulators will not accept it. If it is accepted at the NSE, NASB will not accept it and you know that NASB is a very strict regulator as far as accounting standard is concerned.You will be amazed when you see the kind of penalty they slam on organisations. They could slam N200m fine for improper accounting information or procedure, so, we were guided very scrupulously.  Three companies advertised their Annual General Meetings but we forced them to cancel it because we did not approve the accounts they wanted to present at their AGMs.So, if you find any company that its stock value was admitted later than 31st December, please I will like to see it.



As a regulator, we had no choice and this is not the best time to help friends. It is time to allow the prudential guideline take its course so that what happened in the banking industry does not happen in the insurance industry.But companies are complaining about the 100 per cent provision for bad debt?



If you look at the Insurance Act 2003 under which we have the ‘No Premium No Cover’ we are not supposed to have debt burden but if we collectively decide to breach the law that is presumed to assist, then, there is a problem.Under the current regime, insurance companies must provide for 100 per cent for any debt that is more than twelve months.



This is to avoid having bubble capital or figures that are not realizable.Liquidity is very important in insurance entity and unless a company is liquid, it will not be able to meet its claims obligations.And if over 75 per cent of a company’s asset is entrenched in debts that may never be recovered, then we will be moving into credit note as a form of settling claims. So, it is in the interest of the insurance industry to look at the law and make good use of it.In Kenya , it is No Premium No Cover. It is not just about No Premium No Cover, but if an insurance company decides to disobey the law, the regulatory body imposes heavy sanctions on such a company.



The same applies in Egypt and India. They do not have the saga of heavy debt burden that we have in this country.  The outstanding premium which insurance companies are writing off is self-inflicted by practitioners and if the commission continues to help them patch it, it will get to a stage where some insurance companies may not be able to pay a claim of N1m.In 2007, on analyzing the premium income account of insurance companies that were passed to NAICOM, we found out that, for instance, for a N2bn premium supposedly written, N1.3bn is outstanding.



In fact, there is a company the Commission is seriously looking into which has 85 per cent of its premium was outstanding. We force companies to give us details of their outstanding premium so as to know if they are owed by the brokers or they are from direct business but the aftermath of this is always a near straight fight between the brokers and underwriters.So for 2010, insurance companies will not have the luxury of 12 months but 6 months. What are the challenges in the implementation of the compulsory policies?



For compulsory insurances, there is an upsurge in the quest by government parastatals and agencies to do building insurance as a result of the circular of the former Secretary to the Federal Government and the public launch in 2008.



The biggest challenge to full implementation of compulsory insurances is awareness.If you ask even educated Nigerians if they are aware of Insurance Act 2003, you will be shocked that they don’t know. If sessions were embedded in the Insurance Act 2003 and people are not aware of, then, we really have a challenge and that we are facing headlong.We are going to create massive awareness, we have set out strategies to really go out and very soon, we will go out.



That of Lagos is unfortunate. The governor gave us appointments on two or three occasions, but he was not available due to the exigencies of his duties.But we were passionate about Lagos because more of the collapsing buildings happen in Lagos . We are looking at Nigeria holistically, and we also had a lot of collapsed buildings in Ibadan, but why are we not going to Ibadan and Port Harcourt to do the launching, why are we waiting for Lagos?



We will go on with the awareness outside Lagos and that probably will put pressure on Lagos to bring us in because, whatever we do and which  does not touched Lagos , it is like we are scratching the surface because more than 65 per cent of buildings that collapse happen in Lagos.


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