2016 is a year of recession that affected every sector including insurance industry, but hopes are high that 2017 could be a new dawn for insurance sector as well as the country if government harmonise its fiscal and monetary policies. Moreover, the commencement of Risk Based Supervision (RBS) which will pave way for another round of recapitalisation in insurance industry and insurance rebranding project are what experts expect to bring a new dawn in 2017. ABDUL OLALEKAN writes.
What greeted Nigerians at the beginning of 2016 was a gory site of Naira devaluation and drop in revenue from oil, which crippled the nation’s economy, especially, for a country like our that is mostly import-dependent.
The consequence of this is a double-digit inflation, as goods and services started commanding high prices, while there was a drastic cut in disposable income of Nigerians.
The country was finally caught in the web of recession as companies started declaring losses. To cope with this reality, individuals and companies began to cut cost.
Most people yanked off insurance budget from their scale of preference, while those who wants renewals of their covers were yearning for monthly or quarterly insurance covers, at the expense of annual premium. It is a development that eats into the profits of the underwriting firms, as some of them were declaring losses.
Even the flexible regime policy of the Central Bank of Nigeria (CBN) could not do enough to rescue the industry that was seriously affected by its limited ability to underwrite businesses in the Aviation, Oil and Gas, Marine, among other sectors, as there were scarcity of dollars to underwrite these businesses, while compensation, mostly in dollar terms, was pinching insurers because they have to part with lots of money unlike before recession.
To further compound the woes of the industry, the insurance industry regulator, the National Insurance Commission (NAICOM), barred about 58 insurance companies in the country from using financial institutions, telecommunication companies and airlines, as channels to sell their products and services, unless these distribution agencies are licensed by the commission to do so.
The commission equally disclosed that all previous and current relationships of underwriting firms with the aforementioned agencies are no longer valid.
With this development, Business 247 News Online finding shows that most underwriting firms who are in partnership with the big telecommunication outfits, such as Glo, MTN, Airtel, on mobile insurance had to terminate such transactions that is generating the benefiting insurers several millions of naira on a monthly basis. However, the bancassurance arrangement between the banks and insurers has equally been put on hold. This, on its own, closed income-generating windows for some operators.
To commission, however, plans to establish new distribution channels, as it wants to license any agency and referral agents that are doing businesses and earning commission from the insurance industry.
Amidst the economic recession that is battling the country, Business 247 New Online learnt that, in the course of the year, some insuring public have devised means to make fraudulent claims from insurance companies, in a bid to make quick money, of which some underwriters lose millions of Naira, a development that is eroding their profits. Investigation shows that comprehensive and 3rd party motor insurance has the highest fraudulent claim requests, with other types of insurances suffering similar fate, although not as high as motor insurance. Confirming the development, Director-General, Nigerian Insurers Association (NIA), Mr. Sunday Thomas, said in recent times, underwriters are battling with fake claims, adding that operators now carry out adept investigations to ascertain genuine claims in a bid to outsmart the fraudsters.
Meanwhile, the Chairman, NIA, Mr. Eddie Efekoha, stated that the devaluation of Naira against the international currencies and its attendant effects have had a toll on insurance industry as the sector paid more claims in the current year than the previous years.
This, according to Efekoha, who is also the Managing Director of Consolidated Hallmark Insurance Plc, was because a dollar has risen to about 470 Naira in the black market, hence, leading to inflation on the price of goods and services, especially, with the country an import-dependent nation. He also attributed this increase to inflation and high interest rates that are having a multiplier effect on the prices of goods and services.
To this end, he said the price of replacing insured properties has risen tremendously, in some cases, more than 100 per cent, even when policies were underwritten in the old prices. This, he said, leads to a huge loss for insurers in compensating the claimants, noting that, this has equally eaten deep into the little profit some underwriters made in the current year.
The most affected classes of insurance, he pointed out, are; motor insurance, building insurance, medical insurance, among others.
To him, “We witnessed higher claims in 2016 than in 2015 and the reasons are obvious. As at December 2015, the price of dollar against Naira is 199, but today, it is 470. Most properties are insured in their old prices, but now, the building materials have increased, meaning, we are going to pay more, to reinstate a damaged building. “The same goes for medical insurance as the price of most of the drugs have equally gone up as a result of volatility in exchange rates. Replacing a damaged vehicle will cost more than it cost a year ago, when the policy was undertaken.”
Currently, the Risk Based Supervision(RBS) draft is witnessing input from the insurance after which the final copy of the new supervision template would be made public, hopefully, next year.
On the other hand, the National Pension Commission (PenCom) released a circular on November, 03, 2016, mandating all life insurance firms to return the N145.05 billion Annuity Fund in their custody to the Pension Funds Custodians (PFCs).
The PenCom circular sent to Pension Fund Administrators(PFAs) and Custodians and signed by its Head, Surveillance Department, Muhammad Umar, said in line with the Pension Reforms Act (PRA) 2014, it resolved that the custody of retiree life annuity shall henceforth, be domiciled with PFCs as provided for in Section 56 of the pension act. The commission also noted that the approval of new request for annuity should be put on hold with immediate effect, until life insurance companies meet the custody and transfer conditions.
It was a circular that unsettled insurance industry, as life insurers were reluctant to release the fund to pension fund custodians, especially, at a time the industry is grappling with several challenges. To this end, NAICOM is currently engaging PenCom to ensure that insurance firms have a level of independence in the investment of this annuity fund.
Meanwhile, at the close of the year, about 16 insurance companies, some of who were publicly quoted on the floor of Nigerian Stock Exchange(NSE), were unable to conduct their 2015 Annual General Meeting (AGM).
While the likes of Linkage Assurance, African Alliance Insurance, UNIC Insurance, NICON Insurance and Guinea Insurance are still battling regulatory issues, as they were unable to do the needful to have their accounts approved by the insurance industry regulator, the National Insurance Commission(NAICOM) as at 7th of November, 2016, Great Nigeria Insurance (GNI Plc), Industrial and General Insurance (IGI) Plc, Goldlink Insurance, Alliance & General Insurance, Alliance & General Life, Investment & Allied Insurance Plc, Spring Life Assurance Plc, Nigeria Agricultural Insurance Corporation(NAIC) and Unitrust Insurance Company Ltd have not even submit their 2015 accounts to the regulatory authority, even as Equity Assurance and International Energy Insurance (IEI) Plc had gotten their accounts approved, but were unable to brief their respective shareholders on the financial positions of the companies in 2015 financial year end.
Most of the affected underwriters, Business 247 New Online learnt, are loss-making institutions and are having challenges balancing their books. Therefore, the shareholders of the 16 insurers were left in the dark as to the state of their investments in those companies, although, most of the companies have financial challenges that is clipping their financial muscles to do certain things, such as AGM.
High hope for 2017
It is expected that some of the 16 insurance companies, who were unable to conduct their 2015 AGMs, will do so between January and March 2017.
Speaking on behalf of shareholders in an exclusive interview with Business 247 News Online, the President, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, who was unhappy with inability of the affected insurers said, as it stands, they might have to conduct two AGMs (2015 and 2016) in 2017.
“Since NAICOM has given some of them approval, they should have done the AGM and put the ugly incident behind them. By 2017, that means they are going to have two AGMs at hand. How they are going to do it, is best known to them. That means some of them might come early January or February,” he observed.
Barring any last minute change, the implementation of Risk Based Supervision (RBS) may commence in insurance industry next year. Already, NAICOM has come up with a draft to which the insurance operators are expected to make inputs in the next four weeks, after which the final copy of the new supervision template would be made public. The Head, Corporate Affairs, NAICOM, Mr. Rasaaq Salaami, said, the commission has intensified efforts to ensure that the new supervision template commences as soon as possible, noting that RBS will reposition insurance industry for the better.
According to him, “The commission has just circulated the draft roadmap for RBS and we expect that the industry will make their own input to the roadmap before the final copy is released and that would be after four weeks.” When RBS finally takes off, it will signal an end to the compliant-based supervision, currently in use. Apart from the fact that consolidation is imminent under RBS, there will also be an embargo placed on some illiquid firms to underwrite certain businesses.
Commissioner for Insurance, Mr. Mohammed Kari, said operators and regulator have their respective roles to play.
“Consolidation is inevitable. We have many players in the industry that do not add value to the services they provide, both in the intermediary and insurance sectors. Consolidation does not means just an additional capital; it could be redefining and identifying the type of insurance business you want to operate,” he pointed out.
This will, however, translates to another form of recapitalisation in insurance industry as operators would be asked to maintain a certain level of capital base to underwrite certain businesses.
The multi-million Naira insurance rebranding project is expected to commence early in the year, as operators are already contributing towards the project. The project is expected to enhance insurance awareness, acceptance and penetration.
To deepen insurance penetration and acceptance, NAICOM is set to introduce new channels of insurance distribution in the country by 2017. The commission stressed that the commission has created Referral Partners or Agents who are going to be instrumental in this new line of insurance products and services distribution.
These channels, according to the commission, will entails integrating and involving many organisations to be partners/agents of insurance companies in the distribution of insurance products across the country.
The regulatory body disclosed that the initiative is expected to create opportunities for individuals and regulated corporate entities to play a vital role in the insurance distribution chain to access and reach the largely underserved majority of the Nigerian population. Although the guideline is currently in its draft form, the commission said it will soon be meeting with relevant regulatory agencies and professional bodies to discuss the modus operandi and benefits inherent in this new initiative.
The battle for the soul of annuity business is expected to continue between the pension and insurance industries, while 2017 is going to give a clearer picture as to who controls the annuity business.
The Director General, Chartered Insurance Institute of Nigeria (CIIN), Mr. Olutayo Borokini, on his part, said if the foreign exchange is well managed in the current year, and people have access to foreign exchange, it will spring up economy activities, especially in some sectors that are driven by forex.
A lot of local industries, according to him, have closed up, because they could not purchase raw materials for their operations, noting that if the forex regime is okay and people have access to dollars at a flexible rate, most of those industries would be revamped and then, of course, demand for insurance will also increase ultimately, since the rate of insurance adoption is based on the state of the economy.
“Some investors had recently came onto the Stock Exchange, they brought in money to buy shares. Of course, capital is going to be available, and if capital is available, the economy will jump-start and a lot of activities will pick up and demand for insurance will increase automatically.”
With opening of more insurance distribution channels by NAICOM, the President, Nigerian Council of Registered Insurance Brokers (NCRIB), Mr. Kayode Okunoren, expects the operating environment to be tougher in 2017, urging the brokers to be creative and adhere to high ethical practice to stay afloat amid harsh operating environment in economic recession.
He added that brokers must continually seek for ways to add value to their clients and covenant their services, noting that insurance generally tend to suffer in this clime during economic down turn as many individuals and even corporate institutions still ignorantly hold the views that insurance should be consigned to the rung of necessities list, which is ill informed.
About two Islamic (Takaful) Insurance Companies are expected to commence operation next year. One of the two licensed Takaful insurers, Noor Takaful Insurance Company Plc ought to have officially starts operation next month(November) in Lagos but could not do so, while the second one is putting finishing touches to its setup and will commence operation by next year.
Meanwhile, the multi-million insurance rebranding project is set to commence in 2017, after all financial commitments to the project ended in 2016. The rebranding initiative is a jointly funded by NAICOM as well as the 58 insurance companies in the country.
The insurance rebranding project is an innovation of the Insurers’ Committee aimed at deepening insurance acceptance and penetration through massive insurance education and awareness across all states of the federation, even though, Lagos and Abuja are expected to be the pilot states.
The Managing Director, Leadway Assurance Limited, Mr. Oye Hassan Odukale, said the first phase of this multi-million Naira project will use the online medium such as Facebook, Twitter, among others, online platforms to create awareness on the need to subscribe to insurance products and services, following the rapid increase in the number of Internet and online users in the country.
As Internet, social networks and online shopping portals continue to simply businesses , gradually, taking over the work of the agents, specifically, insurance agents, the President, Association of Registered Insurance Agents of Nigeria(ARIAN), Mr. Gbadebo Olameru, has advised insurance agents in the country to adopt new business strategies to survive in a more challenging business environment,
Olameru, noted that the era of travelling from one place to the to close insurance business deals is fast fading away, as most multi-billion Naira deals are now being sealed on Internet and social networks.
This, he said, means some agents might be out of jobs sooner than later, if insurance agents refused to accept this change.
According to him, “The dynamics of our business climate is gradually changing where everything that matters is in the cloud, the internet and social media campaign and is gradually building multi-billion naira organisations with their skyscraper head office solely built in the cloud without any physical office.” He cited an example of an Insurance Agent, Omolola Omogoye, who brought a whooping N70 million insurance premium in one transaction, a transaction that was closed through Facebook platform from someone she has never met. “I can imagine how many bus stops she has to pass through to meet this man if Facebook was a street in Lagos,” he added.
Stating that the business is changing, he stressed that if agents want to maintain their relevance in the insurance industry, they must research more; increase their appetite for knowledge by becoming a professional in the industry and a taste of great ambition.