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By Omobola Tolu-Kusimo
There have been policy somersaults by the Federal Government through the National Insurance Commission (NAICOM) within the year. While some experts say the commission is a toothless bulldog, others think it is confused. But why has the commission not been able to implement policies that can change the dynamics of the industry to play its pivotal role in developing the economy? Omobola Tolu-Kusimo asks.
The National Insurance Commission (NAICOM) has been superintending over an industry with barely N400 billion premium income since its establishment.
The industry, comprising of 58 insurance companies, about 500 brokers and over 2000 agents, has failed to fully play its role in developing the economy.
Unlike other countries, including South Africa, which contribute majorly to their economy, Nigeria’s insurance industry contributes an infinitesimal 0.4 per cent to the nation’s Gross Domestic Product (GDP) and efforts by the regulator to improve it has yielded no result.
The pension industry, which was separated from insurance in 2004, has since grown to N8.3 trillion. The industry also contributed five per cent to the nation’s GDP.
The role of insurance in an economy, according to experts, is to guarantee peace of mind to the insured, place the insured back into the position he or she was before a loss and enhance the nation’s GDP.
Recently, the commission came up with policies that can change the dynamics of the sector and boost its income in its effort to make the industry play its role.
Precisely on July 25 and November 20 this year, the commission introduced two major policies, the “Tier-Based Minimum Solvency Capital” (TBMSC) meant to be implemented by insurers and the State Insurance Producer (SIP) meant to be implemented by brokers. Both policies were met with resentment and rejection by insurers and brokers. The insurers later dragged the commission to court, leading to the commission’s withdrawal and cancellation of the policy. Presently, it appears the operators are ready for more confrontations should the commission come up with policies they believe threatens their existence.
Some experts called it policy somersaults by the commission, adding that the commission was a toothless bulldog while others thought it was confused. Many also believed the commission lacked the powers to prosecute erring firms as it should while others thought there was need for the commission to have autonomy.
Federal Government actions
Part of NAICOM’s actions during the year were the introduction of TBMSC and SIP. But the commission failed to implement both policies as it cancelled them before their take-off dates.
The withdrawn TBMSC
The last capitalisation programme of insurance firms was carried out in February 2007.
The recapitalisation exercise raised capital base from N150 million to N2 billion for life insurers; N200 million to N3 billion for general insurers; and N350 million to N10 billion for re-insurers. Eleven years after, insurance companies are still operating with the same capital base.
In July this year, NAICOM introduced the TBMSC to classify insurance companies into three-tier category while it raised the minimum capital base for composite insurance firms (life and non-life underwriters) that want to get licences to underwrite all risks in the country from N5 billion to N15 billion.
The commission also raised the minimum capital requirement of life insurance firms that want to underwrite all forms of life insurance from N2 billion to N6 billion; while the minimum capital base for non-life insurance firms was raised from N3 billion to N9 billion.
Sequel to this, Commissioner for Insurance, Mohammed Kari, said the industry is characterised by inadequate capital, inability by some firms to pay claims promptly; dearth of appropriate human capital and professional skills; poor returns on capital; too many fringe players; incidences of rate cutting; corporate governance issues.
He listed other problems of the industry as insurance premium flight; lack of innovation in product development; lack of awareness on the part of consumers on the suitability of insurance products and low GDP per capita figures, among others.
According to NAICOM, the TBMSC structure is a complimentary measure to the ongoing implementation of the Risk-Based Supervision (RBS) programme.
But some insurers resented the policy because they believed it would put them out of business and make others to thrive. This led their shareholders to drag the commission to court. Consequently, NAICOM withdrew and cancelled the policy.
The withdrawn SIP
One major source of concern to the Commission, which equally hindered insurance penetration was the lack of spread of insurance firms across the country.
To this end, the commission released a new distribution channel guideline, the SIP, as an alternative channel for insurance distribution. The SIP, according to the guideline, was to be an Agency of a state government, licensed by NAICOM to provide intermediary services as defined by the guideline issued by the commission and also remunerated by the provisions of the operational guideline. The operational guideline has already been concluded and shall come into effect on January 1, 2019.
Kari had said the spatial distribution of insurers and intermediary activities are alarmingly skewed. He lamented that virtually all insurance firms are headquartered in Lagos with a few in Abuja and this concentration was complimented by very poor branch network.
“In most states, the presence of insurance entities is near absent, making access to operators difficult due to proximity issues.
It is, therefore, a paramount need for companies to spread beyond the urban cities to the hinterland, open new branches for purposes of proximity to prospective consumers. There should be a concerted effort to develop the retail sector of our business. The key responsibilities of the SIP include facilitating the sale of the compulsory classes of insurance within the State jurisdiction and all classes for its principal’s insurances (state government); additional insurance services and product would be considered in the future, depending on the success of the initial approach; exercising on defaulters the power to penalise them according to the laws of the states; maintaining proper records of individuals and organisations bound by the requirements of the compulsory classes of insurance and monitoring the compliance.
“This, we believe, would also go a long way in meeting government expectations with regards the Economic Recovery and Growth Plan (ERGP) in the areas of job creation, poverty prevention and confidence in the face of risk; answer to the saturation in the corporate segment; opportunity to improve the image of the industry; brand building for individual insurance institutions. Insurance plays a pivotal role in financial inclusion because it reduces the poverty line, help people to manage their risk and protect them from any negative adverse effect of any unforeseeable circumstances and increases access to other financial services.
“The industry needs to pay attention to and invest in inclusive insurance markets by introducing value added products to the market because of its promise for the future and government expectations that the insurance gap in the country is huge suggesting a large room for growth. The industry must as a matter of priority reach out to the uninsured, reduce its dependence on corporate clients and develop a retail base of clients.
“I would encourage insurance entities to consider it a priority to expand their operations and thus, strive to open new branches and outlets across the 36 states.
This would allow for more access to insurance and in turn benefit both the industry and the consumers of insurance. Achieving a higher level of insurance penetration is the collective responsibility of all stakeholders. Therefore, I enjoin you all to support this drive as we forge ahead in creating an enabling and sustainable environment for insurance penetration through value creation. If half of the set targets listed out in the printed program are achieved, the industry and the Nigerian economy will be the better for it.
Federal Government’s inactions
Some operators say the TBMSC would have been needless if the Commission had performed its responsibility by wielding the big stick against erring firms. Amidst the many offences of erring firms in the industry is the issue of nonpayment of claims.
Presently, some insurance companies are not able to pay claims. They are known to NAICOM. Some operators are unhappy with this development as the negative impact of these companies that are not paying claims rob off on them. Hence, they want NAICOM to simply stop such firms from continuing to do business as the reason for any firm in insurance business is to pay claims to the insured when the need arises.
But the commission in defending itself said sometimes it was not aware of some unpaid claims except it was reported to it by the insured. The commission also claimed that it has not been able to cancel the licenses of erring firms due to the complexity and negativity it would bring on the industry.
The commission said it relied on the TBMSC to do a natural and technical cleansing of the system.
It also believed that insurance is a business of trust and fear that the distrust of the industry in the mind of public may increase.
Reactions over cancelations
The Nigerian Council of Registered Insurance Brokers (NCRIB) President, Mr. Shola Tinubu before SIP’s cancellation, said the SIP was a threat to broking business, especially, as 70 per cent of “our businesses come from government, an aspect that SIP is intended to serve”.
If the policy is allowed to take effect, he said, it would create crisis in insurance broking profession as well as the industry, noting that, the brokers will resist any action that will allow non-professionals hijack 70 per cent of brokers’ business.
Also a group, Transparent Protection Ltd./Gte (TPL) indicated its intention to challenge NAICOM in court over the SIP by which it sought to create corporate insurance agents in the various states of the federation.
Its Programme Director, Godson Ibekwe-Umelo, said the body is a pro-active, rights-based non-governmental organisation, working for the promotion of insurance culture in Nigeria.
TPL, he said, believed that in making the guidelines which were billed to come into effect on January 1, 2019 before the cancellation, the regulatory body acted in excess of its powers as enshrined in the NAICOM Act 1997 and Insurance Act, 2003.
It’s shameful, says observers
An observer, who spoke on condition of anonymity, described the cancellation of the policies by NAICOM as shameful and sad.
He said the development was strange and only meant that the Commission had lost the battle to get the industry on the right track.
He wondered why a policy that was expected to encourage growth through partnership and merger and acquisition would be cancelled for no reason by the Commission.
He noted that the banking sector have been able to recapitalise many times without any problem, but it has become difficult for insurance sector to do the same successfully.
A chief executive officer of one of the firms said his organisation has spent money trying to comply with the policy since its introduction. He lamented that the money spent has now become a waste based on NAICOM’s decision.
One of the CEOs, who thought the policy was consummated in bad taste, said the Commission has shown signs that it is confused.
He believed that the cancelling the policy was good for them as it would have led to forceful takeover of their firms.
NAICOM may bite next year
Will NAICOM bite next year? A top official in NAICOM, who does not want his name mentioned, said the cancellation of the policies did not translate to cowardice.
He disclosed that the commission simply cancelled the policies because it believed ‘there were many ways to kill a rat and many ways to a market, adding that the commission would come out tough on the operators next year, but has decided to keep its plans under wraps until it is ready to execute them.
He suggested that the commission may mention some insurance firms that are not paying claims and erring ones.
