Searching For Visionary Leader For NAICOM, Insurance Industry (2)
(Continued From Last Thursday’s “Wanted For NAICOM, Visionary Leader To Redeem Industry’s Losses”)
Another programme worthy of note is the bancassurance on which so much noise was made and which the industry would have benefitted hugely from, had it collaborated with the Central Bank of Nigeria (CBN). The idea evaporated with the past regime because the commission insisted that it must check the books of the banks which it is not regulating.
Under Bancassurance, banks are only to act as marketing outlets and not underwriters. The commission was expecting the banks to be rendering report to it and this got the CBN thinking otherwise, and slowly, the policy that would have helped to deepen insurance lost steam.
“Imagine the depth that would have been recorded in the insurance market if the branch network of UBA, Zenith, Access, First Bank and Union Bank were deployed to use for insurance marketing’, lamented a chief executive of an underwriting firm.
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By now the industry would have been selling its products in about 700 hundred banks’ branches across the federation, a feat that is unlikely for the entire branches of insurance companies in Nigeria which is around 200.
Lack of statistical information also has its roots in the refusal of the commission to make the IT portal which is to generate information and assist in wiping out fake insurers, boost government revenue and increase foreign direct investments into the sub-sector.
The Portal, on approval by both the Tenders Board and the commission’s management was awarded in 2014 with timeline of six months completion. The Portal & BPM was 95 percent completed with payment of over N135 million before it was stopped. This also killed the bancassurance programme as the commission’s IT Portal to provide information was not in place.
No hole was picked in the contract for the portal but sources at the commission say the last administration was just not ready to implement and run it. With the refusal to make the IT Portal work, the Risk-Based Supervision (RBS) that would have run on it to progressively rate the companies, ran into hiccups with all the efforts that went into it.
The commission began to lay the structure for the RBS on 4 January 2011 in collaboration with the CBN. The policy is expected to get companies to fund their operations in line with their risk portfolios. For instance, if the initiative is implemented, Leadway Assurance for instance, may need about N40 billion to do its business while Guinea Insurance may need only N4 billion.
If Leadway that is into oil and gas, marine aviation and other high risks businesses discovers that it needs N50 billion to run its business properly, it would have sought funds for comfort. Under the policy, the capital that a company brings is individualistic and depends on its risk portfolio.
For the initiative, InsideBusiness findings show that the CBN hired a consultant to help the commission and also to conduct training for its personnel in Abuja, Kaduna, and others. If the RBS had been implemented, the current call for fresh statutory capital injection would have been needless as operators would have been having seamless incremental capital on the basis of the risks they assume.
Lack of the will to implement the IT portal and the RBS has shown the Commission as one with no clear direction especially with its recent directive to insurance underwriters to recapitalise within a year, and at a time that the country’s economy is in the red.
The apparent non-cooperative stance of the operators on some of the policies of the commission, has now made it imperative for whoever comes in as the new Commissioner For Insurance (CFI) to collaborate, cooperate and consult widely as these are the hallmark of regulation.
Wide and proper consultation enable a regulator to take ownership of any guidelines and policies that are rolled out while progressive collaboration with the operators at the conception of a policy or guideline enable the whole industry to align with such policies because of their inputs.
Unlike in Ghana market where the operators seamlessly connects with the directive of its regulator on capital increase owing to adequate consultation which will span two years, same cannot be said of the Nigerian market where operators are on opposing sides on the directive because of alleged lack of consultation.
Rasaq Salami, NAICOM’s spokesperson defended NAICOM on the policy which he said was discussed at a meeting specifically held on recapitalization with the Insurance Industry Consultative Committee (IICC). However, an influential operator requested the commission to publish the inputs and the resolution of the committee if any progressive agreement was reached.
“When it was mentioned in that committee, the unanimous position was that there is no need for new capital injection. We are relatively over capitalized” says a CEO of an insurance underwriter.
Analogy from South Africa, Tunisia, Morocco, Egypt and Kenya who are the top five insurance markets in Africa seems to support the position of insurance underwriters that there is currently no need for upward adjustment in capital base.
Findings show that Nigeria’s present N5 billion capitalization for composite operators, is far higher than the capital base being proposed for South Africa and other countries on the continent. The current capital base for the South African market is very insignificant, making Nigeria’the most capitalized insurance industry in Africa.
There are inherent problems in the industry which a chief executive officer of an insurance underwriting firm noted that increase in capitalisation is not the solution. Many companies are currently under trading with their existing capital owing to the situation in the economy that has led many businesses to close shops. Companies with N3 billion capitalization are not even writing business of N2billion which simply means that they are under-trading and under-utilising the capital.
Equally, the shareholders of those companies are not getting significant dividends and it will be difficult to ask those shareholders to bring more funds to a business from which they are not reaping dividends. This in effect means that the fact that there is higher capital base does not mean that the companies will have more business to do.
“We will only insure what is available. So it doesn’t really make sense” he said.
Consequently, by January 2020, managements of companies whose shares have not appreciated will have hectic time convincing the shareholders to bring in more capital.
For instance, the shares of Niger Insurance which was 50 kobo, as at this time last year on the Nigerian Stock Exchange (NSE) has now dropped to 20kobo. Under the new capitalization regime expected in June 2020, Niger Insurance will require 50,000 shareholders to meet up with the new capitalization requirements of N18 billion via rights issues. With the poor attraction in insurance stocks, operators lament the capitalization exercise is here to put a lid on some companies.
Even operators in the banking industry which stocks are attractive are not in a hurry to recapitalize. CBN said it will do its recapitalization over a period of five years and this has quelled panic in the industry.
In Rwanda, where the regulator planned increase in capital, it initially gave a grace of two years which has now been moved to a period of five years.
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TABLE OF MINIMUM PAID UP CAPITAL FOR INSURANCE INSTITUTIONS IN AFRICAN COUNTRIES. | ||||
Countries | Classes | Amount in Countires Currencies | Remarks | Naira Equivalence Of Current Capitalisation |
N | ||||
South Africa | Long Term | ZAR10m | 248,681,451.20 | |
Short Term | ZAR5m | 124,340,725.60 | ||
Kenya | Long Term | Sh150m | To be increased to Sh400m(N1,430,958,256) by 2021 | 536,609,346.00 |
General | Sh300m | To be increased to Sh600m(N2,146,437,384) by 2021 | 1,073,218,692.00 | |
Tunisia | Multiple Line | TND10m | Just increased to TND50m(N | 1,222,494,000.00 |
Mono Line | TND3m | Just increased to TND30m | 366,748,200.00 | |
Egypy | Multiple Line | EGP60m | To be increased to EGP150m(N3,052,752,066) | 1,221,100,826.40 |
Mono Line | To be increased to EGP15m(N305,275,206) | |||
Malawi | Life | K1b | This is for All Classes of Life | 509,090,764.00 |
General | K750m | This is for All Classes of General | 381,818,073.00 | |
Bahrain | Insurers | BHD5m | Amount is for year 2012 | 4,828,460,000.00 |
Morocco | Insurers | MAD50m | Amount is for year 2012 | 1,904,761,040.00 |
Ghana | Insurers | GHc15m | Announced increase to GHc 50m by June 30 2021 .Naira equivalent is N3,241,115,000.00 | 1,112,016,360.00 |
Nigeria | Life | N2b | ||
General | N3b | |||
If the Nigerian market is more capitalised than South Africa that is widely believed to be more advanced than Nigeria, then there is problem with the local insurance market which has continued to be a laggard in the financial services sector.
The problems, operators confirmed are other than capital. Nigeria is also better than the European and the American market that are always ravaged by disasters and volatile waters.
It is also confusing that while the commission was ordering new capitalization, it is also coming up with measures that are eroding the current capital base of insurance underwriters. Observers wondered how else to describe punitive measures like fines, that could eat into operational funds of insurance firms in a Nigerian economy that is currently struggling. For instance, Leadway Assurance was fined $8 million (N2.88 billion in local currency), Allianz Insurance (Formerly Union Assurance) was fined N1.3 billion, Hogg Robinson was fined N93 billion while Sovereign Trust that was fined N6 billion has N3 billion as its capital base. Although the fine on Sovereign Trust seems to have been nullified, such amount as fine would proved disastrous for the company if it was allowed to stay. Sanctions, like fines are supposed to be corrective, and not destructive as seen in Nigerian insurance industry.
One of the expectations from the regulator is asset verification, a function which the commission seems to have abandoned. After the 2007 capitalisation exercise, the commission ought to have embarked on capital verification to know whether those capital confirmed for the operators are still there or have evaporated.
For instance, the forensic by the Commission in 2014 on an insurance company with many assets in terms of properties in Abuja and all over the country show that most of these assets are in the name of its promoter. Since the promoter is not synonymous with the company but an individual while the company is a corporate entity, the promoter’s properties cannot be said to belong to the company except there is a transfer of legal ownership. Aftermath of the exercise, over N20 billion was knocked off the company’s balance sheet.
The commission is expected to be doing this exercise which is very objective to know if there is a financing gap in the books of the company.
Alleged arbitrary treatment of workers is also an undoing of the last regime which promoted 10 staff, paid their allowances and transferred them to non-existent offices where they continually draw monthly salaries without work.
The staff that were transferred since December 2018 in wait for a policy that had been put on hold are Segun who was transferred to Osun State, Njabdo to Bauchi State, Isyaku to Adamawa State, Onabanjo to Ogun State, Tanko to Niger State, Yusuf to Edo State, Emmanuel to Imo State, Cosmos to Cross River State, Saidu-Kaduna State, and Bashir to Kebbi State
The insurance brokers are still piqued about their yearly license renewal and the inadequate manpower at the Commission to deal with applications from over 500 brokers. They claimed the commission always delay and which ultimately, lead to loss of businesses to the brokers.
The brokers had also been at loggerhead with NAICOM over the alleged draconic interpretation of Section 36(7) of the insurance Act which they said, cause several licenses to lapse at most times, and the refusal of the Commission to recognise the provisions of the Nigerian Council of Registered Insurance Brokers (NCRIB) Act, which provides that an applicant for insurance broking license shall first be registered with NCRIB Council before it can be issued a practicing license by the Commission.
Duplication of returns being submitted to the Commission has further pitted the brokers against the regulator which they said, has refused to reason with them that the returns should be consolidated for ease of compliance by members.
With this prevalent situation at NAICOM under the immediate past regime, is now more compelling for the government to bring in agile, visionary andd forward looking CFI that can come up with strategies to deepen the market, develop appealing products, consult for peaceful co-existence, and in the main, better the image of the industry.
The Nigerian banking industry was in the same situation prior to Charles Soludo era at the Central Bank of Nigeria (CBN) and it took an appointment of the rugged development economist by the president Olusegun Obasanjo administration to steer the banking sector into a radical mode.
Some names like the former managing director of LASACO Insurance, Sola Ladipo-Ajayi, the current acting commissioner of insurance, Sunday Thomas, Mohammed Hussain of Nicon Insurance, and the GM Insurance, NNPC Modupe Ayo Banmeke, and F.K Lawal are being touted for possible leadership position in the commission.
The last experience in NAICOM has shown that the government should also look outside the insurance industry for a visionary and correctional leader that the commission and the industry urgently needed at this period.
Although wine is said to be sweeter with age, such does not always hold for human beings. Many of those being touted are well over 60 years, and their agility may be on the decline. While priority should be given to those in the private sector having faced competition and steering their companies to survive, the profile of the companies they had led or still leading should also be a condition.
Private sector operators who had struggled to lead a company from a start-up position to an enviable height is better for the position at the insurance sector regulator if the federal government is better ready to position the industry.
For instance, it is not on record when the industry has taken a leadership position in efforts at restructuring the decaying nation’s infrastructure. It is time to have an insurance industry that could spur economic growth by pooling funds to collaborate with the government and take over some dilapidated roads across the country.
Examples set by Lagos state government with the Ikoyi/Lekki and the Lekki/Ajah tolled roads have shown that initiatives like this, are always money spinner and a cue is expected from the insurance industry. This definitely will improve its contribution to the nation’s economy and also earn for the sector, good revenue rather than the current struggle and queue for NNPC insurance, group life assurance of the federal civil service and others that have not improved their credentials, even locally
Zainab Ahmed, the Finance Minister has a lot to do to get the commission going again. She needs a visionary leader that can open up the industry again and correct the many wrongs that have been meted to it.
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