Insurance Broking: Is Diminishing Returns Setting In?

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Monday, September 16, 2019 / 07:45PM / By Ekerete Ola Gam-Ikon* MNIM, CPP  / Header Image Credit: Octagon Africa


As recapitalization continues to boost conversations about the insurance industry in Nigeria, different actors are appraising their positions both from the effects it will have on them and their continued relevance in the sustainable development of the industry. 


To refresh our minds, the traditional actors in the insurance industry are Agents, Brokers, Insurers, Loss Adjusters and Reinsurers. The biggest amongst them, in terms of activities and market size, is the Insurer who engages most of the functional professionals like Actuaries, Underwriters, Specialists and Claims Administrators to enable it do a great job.


However, the historical development of insurance in Nigeria had favoured the brokerage business not only because it was introduced to us as an agency-type vocation but also for the fact that the founding fathers of insurance in Nigeria were insurance brokers. The pattern of development remained the same as every leading insurance company in Nigeria today is known to have its foundation in insurance brokerage.


Pre-Recapitalization Times


At independence, Nigeria had more brokers than insurers and those brokers were well-trained  professionals whose character and knowledge could not be disputed and their brokerage firms have survived till date despite the unhealthy competition of latter day brokers.


By the time the Federal Government of Nigeria decided to own its insurance company, and later take over the foreign-owned ones that were acquired by prominent Nigerian entrepreneurs, the significance of the brokers became obvious as some took leadership positions in those entities. Thus, the foundation for dual interest in brokerage firms and insurance companies had been laid.


So it was that by the time governments and multinationals were deciding which companies will provide insurance services to them, these brokers had all the sides covered. It was indeed "a brokers' market" that the team, working on the promulgation of insurance laws, met in the mid-90s and they seemed to have been further favoured by the laws.


Premiums were remitted to insurers THROUGH brokers, most of who adopted the strategy of "holding the premium" for as long as there were no claims, and at the end of the insurance year, they would decide what to give insurers. Insurers, on the other hand, had bloated sums reported as Gross Premium with less than 20 percent received in most cases.


No Premium, No Cover


Interestingly, the season and times began to change for the brokers as the regulation got better and insurers had some breathing space. With the successful inclusion of the "No Premium, No Cover" Clause in the Insurance Act 2003, it was only a matter of time.


Not surprisingly, it took almost a decade for the National Insurance Commission (NAICOM) to take the bold step of implementing the clause and save the insurance industry in Nigeria from near collapse. 


The brokers, yet successfully negotiated that they could still keep premium paid by clients for days not exceeding 30days before the insurers get paid.


This regulatory action must have dealt the brokers a huge blow as business dipped in the last 5 years with more insurers fearlessly advising clients to deal with them directly thus creating dire consequences for the development of the market towards the era of the Fourth Industrial Revolution. Not only has the number of brokers willing to do business the old way reduced as evident in the current number of financial members of Nigerian Council of Registered Insurance Brokers (NCRIB), increasing colouration of intermediaries have emerged and operating as brokers.


To better appreciate this, one observes that the number of brokers licensed by NAICOM are more in number than those listed by NCRIB! The question then becomes how policyholders should decide in order to ensure that they are in good stead when something happens from payment of premium to claims settlement.


Insurers as Brokers


Notwithstanding the dominance of brokers through the years, insurers have continuously acted as brokers regarding local special risks businesses placed abroad; one of the issues the current recapitalization exercise is expected to address. So, is it indeed going to happen that this kind of brokerage business will also dip/decline?


Besides, recapitalization is also likely to enable insurers fund new tech-driven distribution channels and claims management solutions that will significantly affect their relationships with the brokers. This may not happen so fast considering the age-long interwoven interests of brokers and insurers.


It may however be the hidden reason why recapitalization and other growth initiatives of the insurance industry in Nigeria have not been as successful as many expected. The lack of decisiveness on the part of NAICOM when dealing with policyholders' issues especially unsettled claims can be traced to such factors too.


Surviving Forward


As insurers conclude on their recapitalization plans, the brokers are also sharpening their strategies to survive and remain relevant beyond June 2020 deadline.


A few strong brokers are daring to invest in insurance technology that will ensure they retain the confidence of their clients despite the direct foray of insurers. Unknown to them, intriguingly, these clients are also looking at collaborating with leading insurers on innovative risk management solutions that will give them more value than traditional insurance. This is despite concerns that regulatory inactions may delay the effective adoption of digital solutions for improved Customer Experience (CX).


More than the brokers, agents and loss adjusters have equally become hugely threatened by the impending actions of insurers to drive aggressively for premium that will ensure reasonable returns to investors/shareholders.


Above all, the customers (existing and potential policyholders) are in a pole position to determine the survival of these respective actors driven by their shared experiences via activated social media platforms. 


The entire insurance industry in Nigeria is on the verge of transformation if we finish the recapitalization process strong: the desire of well-meaning Nigerians who seek to enjoy the real benefits of insurance as there exist in other climes irrespective of the fate of brokers.


Will the brokers reinvent themselves?

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


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