Interviews

Recapitalisation: Insurers embrace consolidation

Thomas

The Commissioner for Insurance, National Insurance Commission (NAICOM), Sunday Thomas, bares all in this interview with OMOBOLA TOLU-KUSIMO. He spoke on why the insurance industry must attain minimum of N1 trillion premium income mark in the next two years, the ongoing recapitalisation as well as plans by the commission to acquire greater capacity as a regulator amongst other issues. Excerpts

For few months that you functioned as the Acting Commissioner for Insurance, you moved so fast with activities to the extent that one can lose count on some of the things that you accomplished within the short period. Kindly give us a brief as to some of the things that you have been running with and why are you running so fast?

We are far behind schedule so we are doing a catch up. Some of the things we ought to do have been on the drawing board while very few are actually new initiatives. However, we are trying to bring them down from the drawing board to full implementation. I wouldn’t consider it as being fast. We are just trying as much as possible to keep up with our strategic document in the sense that we have set for ourselves what we want to accomplish this year and if we don’t start early it will be a challenge. The environment is changing and very frequently. What you can do to- day you don’t have to differ to tomorrow. So why can’t we do things that we have all it takes to do now. Of course, you remember that I took over in Acting Capacity in August last year and since then we just continued from where my predecessors stopped. We try to conclude those things that have been in the works and we are also looking at ways to see how we can put them into reality. The potential of the insurance sector is huge. We have found ourselves where we are today not by reason of in action by my predecessors but probably the environment was not too conducive to get certain things done. The environment changes from time to time. So, we are presently leveraging on a fairly good environment to see how fast we can run. This is why it seems as if we are running so fast. Micro insurance is one key area the Commission has identified for development. But progress in this area seem slow because it has been in the works since

2010 and till date, we have only three registered micro insurance companies. Why is this so?

It is one of the areas we want to fast track the process. We have a couple of applications that we should be able to conclude soon. One thing is for you to initiate something, another is for others to see the viability of the vision. We have this but people seem to be catching up with us in terms of our vision and their understand- ing of these vision. For us, micro insurance in financial inclusion generally is the way to go. Financial inclusion is going to help us and it is going to drive penetration. I believe that with the way we are going about it, things will get better. We are trying to rejig the entire guideline to be more realistic. What we had before in the guideline issued about six years ago was the National, State and the Unit licensing of micro insurance companies. The amount of capital required for this with respect to some of the sectors is looking unrealistic and we may have to thinker with it.

Will it be reduced?

No, it can’t get lower because if you look at unit which requires N40 million thereabout, what can it do when you want to establish a sustainable company. But it looked adequate as at the time it was conceptualised but obviously it is no longer adequate. The exchange rate was about N160 to a dollar and now it is N380 to a dollar. This does not seem good to drive the business from a sustainable basis. So we are looking at it. So far, we have two that are States and one that has a National outlook which is Consolidated Hallmark. Already, the company has insurance culture. The National company is required to operate with N600 million and of course, it will not be adequate. So we still believe that we need to do much more in micro insurance and financial inclusion in general, for us to get the desired penetration.

We know that only 1.5 million Nigerians have one form of insurance cover or the other. Has the figure changed?

Certainly the figure has changed but not as substantial as it should be. With little enforcement that is being done on motor insurance for example, many are coming into the net. Of course we need to do much more than we have ever done before because the number has changed significantly. You will recollect that in the last three years or so, we have been hovering around N350 billion to N400 billion premium. I believe that in the next 2 years, we must make a remarkable change. If we cannot hit a trillion in the next two years, we should reach half a trillion. We must hit 50 per cent increase over what it is now. In which case, we should be talking of N700 Billion instead of still dancing around N400 billion which is not progress. That is not my vision. Actually, we should be in the realm of a trillion Naira in the 2 years. Insurance regulators and stakeholders across the world have identified mobile telephony transaction as growth booster but this has been stalled in Nigeria due to prolonged discussions between concerned regulators.

How far has NAICOM gone with this?

We are close to it. The Central Bank of Nigeria (CBN), the Nigerian Communication Commissions (NCC) and NAICOM have been meeting. Essentially CBN and NCC and of course occasionally, NAICOM is brought into the discussion. They are close to resolving this matter. I must also sound a note of warning that technology will not automatically translate to efficient service delivery in the sense that financial inclusion requires attending to the needs of the lower end of the pyramid. But how many people are actually transacting business using technology? Majority of them still try to go to banks. In which case, brick and mortar is still very relevant. Even as popular as banking is, you still find banks opening branches around despite being technologically driven they are. This is not to talk of a sector that is doing catch up in terms of trust. Will somebody in my village buy insurance using technology when he doesn’t know who he’s talking to, or where his money is going to and what value will they deliver in his hand. So, it’s going to be difficult. but as a distribution methodology I go for technology. You can use it to distribute to those who already have knowledge of products. Those who are conversant with the deliverables of insurance. Again, one other factor you will need to look as is the issue of financial literacy which is very low. Even an average Nigerian, probably well read, educated have the finance don’t even understand what insurance is all about. And that is why this year as a Commission and part of our development effort, is to carry out a lot of awareness creation. We will be quite heavy in creating awareness, selling the benefit of insurance on a wholesale basis. This month we will be visiting all the states. Plans are already on. If we can get an appointment with the governor, we can fix the date but we’re looking at this period more. We’ll follow through with the mechanisms of the state so we will be able to sustain it. Because with what we’ve done in the past, the mechanism for sustenance was not put in place.

What are the mechanisms for sustenance?

First and foremost, we must have our offices in the places we want to visit. secondly, relevant committees will be set up in the states. Three, there is a role unit that will monitor the performance in the state. With this of course, the mechanism of the state will be fully deployed for enforcement and we believe that is going to make a difference. But some observers think enforcement has been one that the Commission has not been able to do well, when I hear this statement, I respond by saying that we must do this in a way that will still identify the fact that there is a difference between regulation and the job of the law enforcement agencies. We are the regulator and we have a responsibility for sensitising the relevant enforcement agencies. But we must do this in a way that will still identify that there’s a difference between regulation and the job of the law enforcement agencies. For example, NAICOM cannot go and say they are checking license or any other vehicle particulars. But it can sensitize the relevant agencies by collaborating with them to do just that. All these things we tend to do as part of our awareness creation. It is going to be on a sustainable basis.

So it appears the Commission is going back to Market Development and Restructuring Initiative (MDRI)?

Yes. We are re-jigging MDRI for sustainability. We believe that MDRI is a good concept, well thought of and put together but we are enhancing it. Part of the enhancement is to get agencies of states involved and get the supply end of the team to be available because we don’t just want to cultivate the demand side but part of the supply side. This is why at one of the fora when I spoke to the industry, I told them they can create like a consortium if they think it might not be too profitable for them to have individual branch. They can come together as a group participation in the premium and risk that may come from that particular area.

The Commission is trying to establish an insurance academy. What is it about and what is the objective?

The academy essentially is to train regulators. Just as the market is beret of a human capital, we also have capacity issues. And so we found out it is cheaper for us to bring somebody from the United States and more developed insurance regulatory jurisdiction, to bring them here to train 20 or 30 people than to send 10 abroad. I think for us it is more economical. Then, above all, knowledge sharing on continuous basis. So, it is one of those things we want to do as frequently as possible.

Talking about capacity, some people believe the Commission itself does not have full capacity to checkmate the industry as much as should be done. What Is your reaction to this?

There are two areas you will be looking at when you are talking about capacity. You will talk about the number and skill. We are conscious of the number, hence the recent engagement of some people for recruitment. We believe this should be able to bridge some gaps. The second one which is skill, is the reason why we are establishing the academy. This will pump knowledge into the head of the staff. They will know of current developments and will be conversant with our responsibilities. We believe the academy should be the game changer. The most dreadful issue for operators now is recapitalization. Observers have queried the extension of the deadline for full compliance. They believe the extension somehow seems to slow some companies down and that you just indulge the operators. It was part of the original plan. We don’t want to make insurance exclusive law neither are we trying to make it an all commerce. We cannot claim not to be conscious of our environment. Of course, there are people that will not be happy that it is extended but we also know that there are people who will not be happy if we didn’t extend it. So, it’s not a case of somebody being happy or not. The fact is conviction. We are convinced that extending it to September 2021 is the appropriate thing that will enable us achieve our objectives.

Are you sure that they will meet up despite the extension?

The slowdown that I meant is not that of slowing down and not doing anything but probably not as fast as they had been. I believe that those who will not be able to meet it will not even if we extend it by two years. That shouldn’t be a big challenge to us. We believe that our date is sacrosanct. It can’t change. It will not change. By the 30th of September 2021, those who don’t meet it will be out of business. There no two ways to it.

But you recently came up with something new when you said you will not allow insurance companies to die. It is not clear what you mean when the statement is juxtaposed with your last comment. Kindly clarify it sir?

I haven’t said anything contrary. I said, after the recapitalisation what used to be one may require about 10 companies coming together as one. You must understand that the recapitalisation exercise is not intended for those who have the potential but don’t have sufficient capital to do it. If they can come together with others to form a company that will be adjudge as good enough to operate. Why wouldn’t we consider them? Because running them down have its own challenges. There are challenges associated with running down a company because we need to engage a liquidator, get policyholders and all stakeholders involved. So for me, it is a lot easier if we can manage them. However, we are also not unaware of the fact that some will still not be able to make it. At that point they will have to go. So, what I am saying is that putting a company out is not a first pot of call. The table will be open for some to come together but after 30th of September those who can’t make it will cease from transaction business and they can’t come back in their name anymore. They can call back an emerging name as a result of the merger. And it is not that after recapitalization, a company will say it has the funds and want to register. This will not be allowed. After the recapitalisation, they just have to fuse with others. Some of the companies have gotten so bad that the issue of nonpayment of claims now is worrisome. We are attending to them. Distress management in the financial services sector is not all that easy. For every step that we take in managing distress in the financial services sector if not well calculated, it might be a good intention but may claim the life of the company earlier than you think. A company that has the potential of survival if you don’t manage it well, it can get worse. Imagine a bank is having a challenge and Central Bank announces that it is not well. What do you think will happen? There will be a run on the bank. Or you advertise that a company cannot pay claim, that’s the end of the company. No new business will come in and even the existing one will be yank off by the people. But who should care that a company that has been badly managed is going down? It is not the company going down that is the challenge. The challenge really is what is the company going down with. If a company has the potential for survival and you allow it to go down, the policyholders will be the loser not as much as the shareholders and this is our primary concern. Of course there are claim issues. I am not going to deny that fact but we are dealing with them. But as many of them that have the potential of survival, we want to build the opportunity for them to do all that they can. But I believe that the recapitalisation will be the leveler because we are going to factor in all those outstanding claims before we adjudge any company as having met requirement. There is what we call age analysis and this ensures that if you have claims that have been more than some number of months in your book, you have to clear them.

What is the Commission doing to ensure that good money comes into the industry?

They must pass through our anti-money laundering test we put them through. If it is a fresh fund coming from outside, there is a certificate of capital importation. If it is coming from within the country, we want to know who is bringing in the fund. If it is corporate concern, we want to unveil to see who is behind the company. There are so many measures put in place to ensure that only clean money comes into the sector.

How many companies have been able to meet up?

The companies are at different levels. We ask them to let us know what they are doing in every two months. I wouldn’t want to force any panic in the market or get people to despondency, either by number or any other thing. I will just suffice to say that the response has not been too bad especially, as a lot of them have been working on consolidation. Some are looking for who to acquire them; some are looking for who to acquire.

What is the status of the industry going by total asset, premium income and others?

In terms of premium, the provisional figure for 2019 is in the neighbourhood of about N470 billion. The asset is about N1.2 trillion. Claims that have been paid is about N336 billion. For me these figure are not necessarily too bad but I think we need to step up our activities to make sure that we make a way. Of course, the increase or volume is about 12 to 15 per cent or thereabout.

Source NAIPCO Trumpet

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