Daniel: Insurance Industry Had its Finest Moment under Jonathan

Commissioner for Insurance, Mr. Fola Daniel, in this interview with Festus Akanbi, says the resolve of President Goodluck Jonathan’s administration to make insurance a pivot of economic development has not only underscored the potential of the sector but has also challenged operators to double their efforts

How will you describe the developments brought to bear in insurance industry under President Goodluck Jonathan’s administration?
I think President Goodluck Jonathan’s administration is making insurance the centre point of development and that was highlighted by recent pronouncements.  It will be recalled that in the 2015 Budget Speech, the Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala set the ball rolling by saying that the government is poised to focus attention on the insurance sector.

In his Acceptance Speech when he was returned unopposed by the Peoples Democratic Party to contest for the 2015 Presidential Election, the President devoted prime time to highlight the potentials of the insurance industry.  He is a president that is focusing on the totality of the financial services sector which is a tripod.  Once you remove insurance, the tripod becomes incomplete. So with insurance being properly brought in, you have a complete tripod to drive with vigour, the economy of this country.

The current administration has recognised the potential of the insurance industry. They see an insurance industry that can drive the Transformation Agenda which is one of government’s main thrust. They see an insurance industry that is capable of generating employment and a springboard for curbing social discontents.   Insurance industry, inclusive of agents and brokers, currently employs about 50,000 persons but insurance industry has the capacity to employ a lot more.

The President modestly calculated that he sees an insurance industry that can generate 300,000 jobs in the next two years. I think that is being modest because there is huge employment potential in the insurance industry.  For example, take a look at the Insurance Intermediary, we are selling insurance largely through brokers. The brokers are wholesalers. They are interested in big tickets and I’m sure that is where they derive big commissions or brokerage, whilst the grassroots is largely unexplored and unexploited. We can take some graduates off the street by employing and training them as agents to go to every nooks and crannies of the country to sell insurance thus earning a living. So the President should be given the credit for recognising the potential of the insurance industry and setting a goal for the industry.

What are the measures being put in place to achieve this potential you just talked about?
If you compare our insurance laws with similar laws all over Africa, I think we have the largest number of compulsory insurance such as Motor (Third Party), Group Life, Builders’ Liability, Occupiers’ Liability, Marine Insurance etc. We have 12 compulsory insurances, but these compulsory insurances are just there in the books. They are just there as laws, many people are not even aware of it. So what did we do in the last five years? We tried to create awareness. We sensitised Nigerians first about the existence of these compulsory insurances, how it is best as a means of managing our risks than the Ad-hoc assistance we get from government in times of trouble or turbulence or losses, so we have done that over the last five years and I’m glad to say that there is enhanced awareness amongst the populace. The income of the insurance industry in the last seven years has more than doubled. In fact, in the year 2007, we had an income of slightly N100billion but as at last year, we posted over N300 billion

Even if you look at the insurance sector in the whole of Africa, we ranked number five while South Africa ranked number one up to year 2012.  Yet we have the largest population on the continent and a large economic base, so there is no reason for us to be in number five.  Happily, last year, we came to number three.   So, we are making some progress but I know we can do better.

Are you saying in essence that the pledge by the Coordinating Minister of the Economy and Minister of Finance that insurance will become one of the channels to develop the economy is achievable?
The Coordinating Minister of the Economy and Minister of Finance is a technocrat in government. She is an economist of repute and a woman of honour who is not given to making empty promises. When she makes a pronouncement on issues, she follows it through.

We had an insurance summit in December last year. The conception of that summit commenced on November 26. It was her brain child. She called me on November 26 saying the government needed to support insurance sector having recognised what we had done so far. We subsequently agreed on an agenda that we should brainstorm through a summit.

At the end of the day, we had a very successful summit that even drew participants from outside Nigeria. It was well attended.  One of the resolutions that emerged from the summit is that government would focus on insurance to strengthen it to perform its pivotal role in the nation’s economy. Again, within two weeks of that summit, a budget presentation was effected by the Coordinating Minister of the Economy/Minister of Finance and she reiterated Government’s resolve to support insurance growth.  Closely followed was Mr. President’s statement on insurance in the course of his acceptance speech as candidate of the ruling party for the coming elections.

Will you say you have achieved much in the area of consumer protection?
I’m very delighted to say that our quest to protect policy holders is succeeding. When I came on board in 2007, on average on weekly basis, we received 15 to 20 complaints from members of the public against insurance companies. We then reinvigorated the Complaints Bureau. We engaged more professionals and strengthened the Bureau.  We thought these complaints would have quadrupled but because of the measure we took. Two months after I took over, we sanctioned two insurance companies, which hitherto were considered untouchable and that sent the correct message to insurance practitioners that it is no longer going to be business as usual and they were compelled to improve significantly on claims settlements processes.

We are not done yet because we believe that insurance companies must engender the kind of confidence that you find in insurance industry in United Kingdom, US and South Africa. Therefore we said, even though we saw some improvements, we still decided that we still need to keep on with the pressure.

What we did next was to set up a Call Centre which receives complaints from members of the public real-time. We also believe in self- regulation therefore we are working with the Nigerian Insurers Association to self -regulate as much as possible in the area of consumer confidence. The collaboration with NIA culminated in the setting up of an Ombudsman under the Chairmanship of a retired appeal court judge who is a very reputable gentleman. You will recall that since last January, we have been repeating a publication in newspapers asking insurance consumers that are aggrieved due to denial of genuine claims or delay in settlement to come forward and lodge complaints.

Insurers generally find this pressure discomforting and it has yielded accelerated attention.  We will continue with this drive until we are able to achieve zero case of complaints for delayed settlement or denial of genuine claims.

How is NAICOM responding to changes in global insurance market?
The key changes you will find in the global insurance market are mainly centered on improved confidence, trust, depth, capacity and sound business practice.  So all the measures we have taken in the last few years are to ensure we are on the same page with international community.

Insurance is an international business and therefore, people should not be in Lagos and want to buy policy in South Africa or UK just because they can afford it. They should have an insurance industry they can trust. They should have an insurance industry that when an accident happens, people can simply exchange their cards and go their different ways with the assurance that the insurance company will not only come and remove those vehicles from the road but will even give you something to use while they effect repairs on the cars.

What is the latest on the collaboration between NAICOM and Securities and Exchange Commission to investigate some alleged diversion of investors’ funds?

The collaboration is not just between NAICOM and SEC. It is amongst financial services regulators namely, CBN, NAICOM, SEC, NDIC, PenCom and CAC, etc. We have regular meetings where we exchange ideas and compare notes about our regulated entities. As for SEC, we have had a very good and robust collaboration and it is working.

Can you give us the progress report on your zero tolerance policy on claims settlement?
I believe I dealt with this sufficiently earlier.   Nevertheless, I think you are referring to our Consumer Protection initiatives on claims settlement.   If you are a doctor and a patient runs to you to complain, you don’t just give him a painkiller to cure that headache. That may do it but you really need to investigate why this guy is having recurring headache. Why do we have incidence of unpaid claims in insurance industry in the past? The truth of the matter from our investigation and analyses showed that a lot of these premiums are not even paid. Insurance is one of the few products that are bought on credit in this country.

People are taking insurance and owing insurance firms infinitely. We have a situation where an entity is insured for four years and it hasn’t paid premiums at all. So if an insurance company is not receiving premiums, it will not have money to pay claims. Insurance provides mechanism to pool premiums from different persons in order to meet liabilities and claims.  Money therefore becomes available to grow the portfolio, run administrative duties and management expenses but when this money is not paid, the insurance industry is rendered incapacitated and that was where we found ourselves, which compelled us to invoke the “No Premium No Cover” provision of Section 50 of the Insurance Act 2003. We don’t enact law because NAICOM is not a parliament but we implement policies as regulators.

The “No Premium No Cover Policy” predated the 2003 Insurance Act. The law was there but it was not being implemented resulting in almost the death of the insurance industry. So when we invoked it from January last year, we saw an upsurge in cash flow of insurance firms.  So, if we have removed the major reasons why they were not paying claims, then they no longer have reasons not to pay genuine claims. Therefore, if you look at the financial reports of insurance firms in 2013 and 2014, you will find minimal outstanding premiums.

For the first time, our fellow African brothers came to Nigeria to copy from us. Even though some of them do not have the legal backing, they administratively introduced the policy of No Premium No Cover and it is working for them. All the French speaking African countries have copied the no premium no cover policy. So, I’m glad that the culture is not limited to us but it is spreading all over Africa.

How will you address the issue of rate cutting in insurance industry in Nigeria?
Rate or rating refers to consideration paid by Insureds for their risks carried by insurers.  Rates can be viewed from three perspectives.
The first category relates to compulsory insurances such as Motor Third Party Insurance.  The approved rates stipulate that the insurer cannot charge beyond a maximum of 10 per cent.  This provision became necessary to avoid exploitation of the insuring public.  The nemesis of this arrangement is that no minimum is stipulated, leaving Insurers to apply discretion.

The second category of rate falls within what I will call commercial underwriting for domesticated risks.  Now what are the factors determining the rates? You look at the risks factors and measure put in place by the insured to determine whether the rates applicable should be reduced or increased.  When underwriters reduce rates in defiance of this technical consideration, it is generally referred to as rate cutting.

The third category of rates is big ticket risks such as Oil and Gas, Energy, Aviation etc.  Many rates falling within this category are rates that emanate from Lead Reinsurers abroad.  Such risks are shared across international borders and Nigerian Insurers may not have the sole prerogative to determine the rates.

So generally speaking, rate cutting in the Nigerian Market affects Motor Underwriting and all other largely domesticated businesses.  Where our Insurers are jettisoning the well-tested underwriting considerations of appropriate rating to succumb to rate-based market-driven competition, it is a problem that is as serious as the incidence of nonpayment of premium earlier discussed.  It has the potential of eroding the profitability of Insurance companies thus making investment in that Sector unattractive.

I am glad to note that all the stakeholders have realized this issue as a monster that must be curtailed very quickly.  I am aware that concerted effort is presently ongoing to inject sanity into the rating regime
We expect that the ongoing effort will culminate in agreed rating standards which NAICOM would be obliged to approve and ensure its enforcement in the interest of all stakeholders.

Why is it difficult for regulators to bail out weak insurance firms like the rescue package we had in the banking industry?
Insurance is a risk transfer mechanism.  Therefore unlike bankers, insurers are not deposit takers.  Whereas a banking institution could be in possession of Trillions of depositors’ money, insurers who assume risks worth Trillions, keeps only a negligible portion of that risk usually within a proportion of their Shareholders’ Fund.  The excess is transferred to Reinsurers whilst a portion to Retrocessionaires.  Through this chain of risk spread, the collapse of one particular insurer cannot pose systemic risks.

In addition, recoveries will usually come from those who initially share in the risk. Because the risk which primary insurance firms share is well spread in such a way that even when there is a problem, those who are insured by this firm are not going to suffer irreparable loss because this company that is in crisis has recoverable from the reinsurers and if there is a significant crisis, what the regulator will do is to ring-fence the resources of those insurance companies to enable it to pay the policyholders.

A particularly large loss may, for instance, lead only to a momentary diminution of the Shareholders’ Fund (temporary insolvency) with a window for the Shareholders to fill the financing gap.  The AIG crisis did not emanate from its core insurance activities, but from their unregulated activities.  A collapse of an insurance entity, though may affect consumer confidence, will not affect the economic system the way the collapse of a major bank will.

Why can’t NAICOM enforce compliance with compulsory insurance using security agencies?
As a regulator, I have to collaborate with law enforcement agencies to enforce compulsory insurances. We however have limitations.  For instance, we have to work with the police who are already fully engaged thus making it difficult in addition to the huge resources required to conduct a nationwide enforcement.  As part of our strategy, we realized that it is not fair if we do not educate the people before we start to enforce the laws. When people see values, there will be large voluntary compliance and that is what we have done.

The police have been overstretched. We use police on ad-hoc basis.  So we are looking at what we can really do; we are looking at the totality of the stakeholders. The law stipulates that 25 per cent of the net premium in respect of compulsory insurance should be set aside for the purpose of providing grant or equipment to institutions engaged in fire fighting services. It means if the rate of compliance is high, then the fire services will get more from the insurance industry.

We are therefore reinvigorating our awareness campaign and stakeholders engagement to engender compliance.  We are also happy to note that some state governments have passed laws to support the National Laws on compulsory insurance.  Where we have apparent breaches, enforcement remains an option to adopt.

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