The Chairman of the Nigerian Insurers Association (NIA), Mr. Eddie Efekoha in this Interview with Favour Nnabugwu in Abuja, talks about the problem of one price fits it all, the position of NIA on risk based capital and the plan to move the industry forward. Excerpts
What do you think the insurance industry and the NIA in particular can do to moderate the excesses of insurance brokers?
I would not say excesses of brokers, No. It takes two to tango. Whatever wrongs, whatever malpractices that may be perceived; believe me, all parts and segments of the market are involved. I’d rather think that we will take on them one after another. At the moment, we know that we are not disciplined when it comes to pricing our products or services.
The use of the brokering slips or proposal forms have been largely jettisoned. But, you see, those were approaches that were adopted to giving us information. And based on the information, underwriters will be better equipped to give the right rates or put the right clauses and all of that. But all that has evaporated. So what we need to do right now is to strategize how to bring back that practice. So, that is why the joint committee, made up of NCRIB members and the NIA, came up with a business procurement guideline. And because we want some enforcement behind it, we want NIACOM to approve of it before the implementation can commence. That is, basically, why we are waiting. Otherwise, there is a template to correct the issue of rating so that people don’t get involved in products of risks only at the time of placement. To do that, first of all, you have to start obtaining quotes from insurance companies. If, as a broker, your quotes are good enough, they are sent to a prospective client. Again, if the client says ‘I am okay with it,’ he or she will then empower the broker to place the business. Of course, once the broker gets that mandate; he goes back to those insurance companies that provided the quotes in the first instance to do the necessary placements. And we are saying that if you have not participated in that process, you cannot wake up to participate in the placement. With that in place everybody will quote and quote rightly. That way, we will know the exact loss experience of a given policy and not quote blindly, because what we do most time is blind quoting.
What is NIA doing to ensure that government institutions collaborate with it or NIACOM when executing government businesses?
The point is that the Head of Service, in my opinion, can meet with the insurance companies because they are already providing services to government institutions. If your client calls you, I don’t think the regulator would need to be involved, but it depends on the subject of discussion. If the matter to be discussed bothers on a contract that is ongoing, I don’t think it requires a regulating body. But if it is something that is completely different from the usual practice, then the regulator, NAICOM, which is an adviser to government on insurance, would then be needed to get involved. The insurance sector had a template which the insured followed for a while and then forgot about it.
How do you think this one would work?
Government has not imposed a rate. It only advised that underwriters should come up with rates, and that is still being collated. When that is done, underwriters will come up with a position. The market-conduct guideline actually specifies that shortly before the end of the year, against the forth coming year, underwriters should submit their rates but that has not been fully practiced or implemented. Once that is implemented; it does mean that; once you have given your rate, you cannot go outside it when you are quoting for any new business.
There won’t be rate-cutting this time around?
No, there shouldn’t be. You see another way of trying to address the problem of rate-cutting which I don’t really see is rate-cutting, and that is why I run away from the issue of rating-cutting. I prefer to call it appropriate pricing, because the issue is that; if you have been insuring with me for 10years, and you have not made a claim, there is no reason why I should not lower my premium and give you some generous discounts. But; if you have been making claims, there is no reason why I should charge you the same as somebody who has not made any claim at all. That is why rate must be appropriate. I think this is the issue, but we are using one price fit it all. It doesn’t have to work that way. We are just using, one price fits it all. It doesn’t matter whether a vehicle, for instance, is parked in a garage and locked up overnight or, it is parked by the road side and anybody passing by just scratches it or damages the windscreen. These are the differentiation that needs to come into the pricing of our products.
What, exactly, is the problem with insurance companies’ data template?
The template, particularly, that of revenue account will have to change a bit because; for instance, if you take when you look at most revenue accounts of some underwriters, you will find general CS. But within the general CS, you have fidelity guarantee, theft etc. So, you cannot really process the data written there in order to arrive at what would be the right way to compensate for a debt format or a residential or a business promises. These have been very difficult. That was the challenge when we were looking at the motor class. It is difficult, which raises the whole thing. Is it on owner damage or on fire? Is it because of the colour? Or, is it because the car was driven by a female or by a male? So, it has been very difficult because our data records have not followed any strict pattern. I do know that the revenue account need to be formatted in a manner that the data we would find can be useful in determining the rates. Generally, I think the issue of professional underwriting of our risk is not a problem. We are only saying that when we have the business procurement guideline, it would help but that does not remove the burden from us as brokers. We need to look at risks. A broker is a professional. So, a broker can tell his client ‘sorry this rate cannot be lower than this; because of the policy of an underwriter I am going to get will not be good enough to support my brand.’ I don’t think we have capital issue from my position. We had a risk-based capital lecture in Lagos for all of us in which Alexander Forbes, from South Africa, said that Nigerian has the highest minimum share capital or capital requirement for the business in Africa, so it is not the issue of capital. The issue is that some of us who have solvency issues, who have not been able to meet the solvency margin requirement, are the ones who should be forced by the commission to shore-up to be in the same level with others so that when they have claims they are able to pay. In cases where underwriters have failed to make their claims, there is the minimum deposit in CBN. The commission should be empowered, if it is not empowered already, to dip hands into those funds to settle those claims. We are talking of capital because some people have been unable to pay for claims. When you are unable to meet your liabilities, it is a function of whether you have the right funds in place or you are just generally unwilling to pay. However, it is not unwillingness in some of the cases. What has happened is that people don’t have the money, and this is not because the whole market lacks capital. The capital is sufficient. Meanwhile, there is a risk-based capital that is ongoing. When that time comes; it depends on which risk you are trading in, that would determine what capital you carry. Like we were told yesterday, if you have N3billion, and you then decide that you want to trade with 100million in the motor class and when you trade in motor, you are expected to have 20 percent for instance, meaning that what is the risk there, you are expected to have 20 percent of it as a capital to support it. But; if you are trading in oil and gas or some of the other classes, you are expected to have 50 percent of the particular class which means that all of that would guide how much capital you have. You will then find out that for the one of 20 percent you can only generate N500million premium and you will keep 20 percent of it as capital. But for oil and gas, to do the same for 50 percent and you want to trade as much as that one, you would require capital that is close to N1billion to trade there for you to get the same premium.
So the question is that you want to say to yourself ‘which one do I want to put my money into?
That is why it is risk-based, because you are going to determine which class would give you the highest return and less of trouble.
What is NIA doing about the allegations against the insurance industry?
We have not and the issue is that our members feel that we have not done anything wrong. If when we agree that we have done some things wrong then we will see them and talk with them. We are watching the development very closely and at the appropriate we would seek to have a discussion. But for now, there is no need.
The members may not see anything wrong, but the image of the insurance industry is been dented?
Yes, to an extent, we have mandated the management of the association to interface so that they investigate the negative publicity until the facts are properly ascertained before they come out into the open. But for now I think it shouldn’t be.
This is three to four months gone since you assumed office, how far have you gone with implementing your agenda?
Yes, it is all stakeholder engagement for now. We have done quite a lot of that. And of course, between that period when we had our investiture and now, we have interacted with so many stakeholders. Because, we have to make ourselves relevant, and making ourselves relevant is not the kind that involves you seeing yourselves block on block, no. It is about how we have been able to engage people. At the moment, we have so many things ongoing. As we speak, you just made reference to the House of Representatives investigation on insurance. There is the issue of the risk-based capital which the commission is working on, there is a financial reporting council code, and there is general indiscipline in the sector. So there are a number of issues. But, those are not issues we really want to address in the public sphere. But we are having the necessary engagements and at the right time we will announce only solutions. So, that is what I actually want to do. I do not want to engage in things just on the pages of newspapers, no. We are working on our image through the insurance committee; that is, the umbrella publicity arrangement within our structure. We are working on that and it is something the insurance committee is doing. We will do a broader campaign for the whole industry and that is almost taking off.
What is the take home from the NCRIB conference from NIA angle?
The tax issue has been clarified. That is, the stamp duty tax or the stamp duty and the section 16; so I think that for me and the NIA people that is a major take home.
What are the banks up to with insurance policies and the captive companies?
Banks, they have some relationship with insurance companies. It has come to our notice concerning customers that often times the banks and their subsidiaries compel customers to insure with themselves specific insurance companies. That is, the banks compel their customers who took loans to insure the collateral with their own insurance subsidiaries or companies, and that is against the spirit of the CBN laws because a universal banking license is no more and no client must be forced or compel to insure with any insurance company. What is important for that bank customer is to bring a policy from any registered insurance company which notes the interest of the bank that should there be damage to this collateral, the proceeds from the insurance would be made to the bank; and, that is all that is required. Therefore, we are educating our insuring public that where banks so insist, they should compel the banks to put it in writing and such letter should be brought to the NIA because we will make such reports to the CBN that their members are not respecting the guidelines for their operation.
Have insurers reported this trend to the CBN?
It is been well documented so we thought that there are no issues here but of recent there has been a lot of complaints along this line.