• Fola Daniel, Commissional for Insurance Photo: Sun News Publishing

More Stories on This Section

The recapitalisation and consolidation of the insurance industry which started in September 2005 and ended in February 2007 was primarily embarked upon to throw up bigger, stronger, more viable and high-capacity insurance companies which would live up to their names, playing their adequate risk management role in the Nigerian economy.

The Federal Government which initiated the reforms had also envisaged that it would generate more premium income which would afford insurance firms better and reasonable reserves to provide short and long term funds as debt instruments to government and businesses, thus contributing more to rapid economic growth and development, while tremendously increasing the Gross Domestic Products (GDP) through contributions of the insurance sector to the overall national development of the country.

Government had also envisaged that the reforms would assist stem capital flight associated with offshore insurance which had led to the loss of more than N70billion insurance premium yearly, especially in the oil, gas, aviation and marine industries where foreign insurance companies dominated and underwrite the bulk of the business risks in those industries for Nigerian firms.
Indeed, the exercise supervised by regulatory agency, National Insurance Commission (NAICOM), ended on a good note as 49 of the firms (out of the about 104 insurance firms that earlier existed) were able to meet the minimum capitalisation of N2billion for life business, N3billion for non-life operators, and N10billion for reinsurance firms.

Chief Emmanuel Chukwulozie, former Commissioner for Insurance and the man who midwifed the reform exercise, in an exclusive interview granted Daily Sun stated that the success of the programme would best be measured by performance of the firms that would scale the exercise.
Would taking stocks 18 months after the conclusion of an exercise that generated so much interest from investors, analysts and other stakeholders project the firms that emerged as having realized the government’s vision in embarking on the reforms?

Globally, insurance drives the economy of the developed economies, providing the backbone that allows entrepreneurs and businesses to take risks that would grow the economy. Has the insurance industry been of such positive impact on the Nigerian economy after the reforms? What of awareness on the benefits of insurance and the percentage of Nigerians taking up insurance policies. Are more Nigerians now knowledgeable on insurance with the numbers of individuals having, at least, one form of insurance policy increased? In which areas have operators recorded pluses or minuses?
Without any doubt, on the floor of the Nigerian Stock Exchange (NSE), equity investors have continued to express their appetite for insurance stocks by grabbing millions of shares daily to account for the bulk of the total volume of business in the Nigerian capital market.

And while most operators are quick to point at the successes recorded at the capital market as an indicator of a prosperous insurance industry, a random sampling of the views of citizens, including even the elite, reveal a majority of people still are not embracing the insurance culture.
Even the Chartered Insurance Institute of Nigeria (CIIN), an umbrella body that trains insurers, in its recent magazine admitted that patronage was low among the populace, more than a year after the reforms were concluded.

The body, listed high rate of illiteracy, ignorance, socio-cultural beliefs, and the prevailing high rate of poverty as some of the factors marring the patronage of insurance by the majority of Nigerians. Take a pool of 100 Nigerians and ask them how many subscribed to an insurance policy and you will be stunned at the result? Sometimes the number could be as low as less than 5 percent. In the rural community, it could be zero. That, however, excludes such statutorily compulsory policies like car insurance and group life policies in workplaces.

Very obvious is the challenge of poverty facing millions of Nigerians, as disposable income is very low.
There is also the problem of food shortage. Indeed, before any body buys any insurance policy, he has to first attend to the challenge of food, clothing and security. And if he has a family, caters for the needs of his family.

According to the CIIN, life assurance penetration in Nigeria stood at two per cent, while that of non-life insurance was even less at 1.4 per cent. The low figures were a sharp contrast to Europe’s where 85 per cent of adult population carries one form of insurance policy or the other.
Mr. Aig Emilefo in an article: “Issues in the Development of Grassroots Patronage of Insurance Products” published in the journal stated that “a very high proportion of Nigeria’s population, especially at the grassroots level, is ignorant about insurance and what it can do for them.”
He said 85 per cent of Nigeria’s population lives in the rural areas where majority of them might never have heard of insurance.

“Only a tiny percentage of the population, even among the educated ones, knows what insurance is all about. While insurance is not taught at all in primary schools, the insurance content in the curriculum at both the junior and senior secondary schools is very shallow,” Emilefo said.
He also lamented the high rate of poverty in the country, holding it also as a responsible factor for the low patronage of insurance.

He also said that religion had played a key part in the apathy to insurance. “Among some of our religious folks, there are very strong objections to the idea of life assurance on the ground that it is immoral, wrong and contrary to their religious doctrines for a person to benefit from the proceeds of insurance,” he said.

He, however, urged insurance firms not to be deterred by the problems in the resolve to increase the number of Nigerians taking up insurance policies.
He called on them to do more research and develop products that are unique and would best meet the needs of Nigerians, especially those in the rural areas. Such products should also carry prices that are affordable to the people.
“Insurance firms should look at those things we hold very dearly in our socio-cultural and religious beliefs and develop products around them, taking into proper consideration the risks, which each prospect will bring into the pool. We need insurance products that do not conflict with the cultural and religious beliefs of the people,” he said.

Operators should be involved in aggressive marketing of the products, he demanded.
“With innovative and appropriately priced products coupled with aggressive marketing, we can break through in the efforts to reach the grassroots,” he said.
Besides low patronage, another challenge faced by operators seem to be in the area of human capital – Nigerians with the requisite expertise to perform jobs in the sector, sometimes in such technical areas like in the insurance of assets in the oil, gas, marine and aviation sectors.

Undoubtedly, the recapitalisation and consolidation of the sector has created a lot of opportunities for operators. However, according to the Executive Vice President of Industrial and General Insurance (IGI) Plc, Mr. Remi Olowude, such opportunities could be meaningless if the requisite manpower is absent to harness them. His views, expressed at the recent annual general meeting (AGM) of the company in Lagos brings to the fore the challenge of operators in hiring the best hands to cope with the new demands of a higher capitalized industry.

According to Olowude, in just eight years away, that is before 2016, the Nigerian insurance market would have grown from $650 million in 2006 to $9.6billion.
“We must not fail to grasp the importance of this observation which means insurance is the next big thing in Nigeria. But the truth is that this great opportunities will be meaningless if we could not translate them into specific gains,” he said.

Olowude noted that there was an imminent challenge of human capital, which must be tackled.
“Post-consolidation will exert more pressure on companies, their people and their business processes and more than ever before, organisations will require a higher degree of commitment from staff. The challenge for us is that business priorities must be re-focused and there must be massive investment in human capital,” he stressed.
Corroborating the IGI’s boss position is Mr. Adeyemo Adejumo, Chief Executive Officer (CEO) of Continental Reinsurance Plc.

To him, the expansion of businesses (both within and outside the country), following the conclusion of the recapitalization and consolidation of the insurance sector has thrown up fresh challenge in human capital issues with a noticeable gap begging to be filled by young school leavers.

“The recapitalization and consolidation exercise and the attendant boost of insurance operation have thrown up human capital issues, including the apparent need for young brains from the universities who will form the strategic workforce of tomorrow, thus forestalling skills gap in the industry,” said Adejumo, who is also the President of the Chartered Insurance Institute of Nigeria (CIIN).
Getting the requisite manpower to do the jobs in the sector, Adejumo said, is a challenge operators must be ready to confront and surmount if the sector is to be effectively developed to compete in the international market.

“There is need for more and consistent investment in human capital development as the hallmark of regeneration of skills and competencies in our chosen profession,” Adejumo said.
“This is the time to call a spade a spade and stop the habit of tinkering with our workforce as mere labour. As an industry, this is the time to invest in young brains, the young men and women who are full of zeal,” he added.

According to him, huge funds have to be invested in the training and retraining of fresh and existing staff. He, however, said that for a start, insurers are committed to creating additional 5,000 jobs in the shortest possible time in the country to fill the existing gap in the industry.
“The CIIN had already launched a scheme tagged: “Operation Recruit 5,000 graduates into the insurance industry” to actualize the new target.

“The scheme followed a painstaking research work at the CIIN’s secretariat and arrangements have been concluded for the inauguration of a strategic team to actualize the project.
“The team would comprise representatives of the Nigeria Insurance Association (NIA), National Council of Registered Insurance Brokers (NCRIB), and the regulatory agency, NAICOM, among others.

“The team’s mandate include articulating an action plan which would, among others, include: The organization of road shows at various tertiary institutions of learning with a view to redefining insurance as a career of first choice; examine key issues such as the industry remuneration and its impact on the industry; and carry out brainstorming sessions and articulate views which will work in favour of the projects,” he stated.

While low insurance patronage and human capital appear the two major setbacks of the sector, the reforms have, no doubt, recorded impressive successes in other fields as attested to by the CEOs who granted interviews to Daily Sun.
First to speak was the Managing Director, Regency Alliance Insurance Plc, Mr. Biyi Otegbeye, who said the reforms of the sector via recapitalisation and consolidation has left operators with such a huge capital base that many are looking beyond the Nigerian market in a bid to invest and make good returns to shareholders.

Indeed, a number of Nigerian insurance companies already have branches in Ghana, The Gambia, Uganda, Rwanda, Sudan, Sierra Leone, and Sao Tome and Principle.
But Otegbeye said the West African market offered the best clime for Nigerian investors.
He said his company had opened branches in Ghana, and planned opening more in Sao Tome and Principe.

“I think, broadly speaking, the recapitalization and consolidation have been a success story to the insurance industry,” Otegbeye said.
First, he said: “The reforms have increased the capacity of most insurance firms and the retention ability is larger now in the sense that most of the risks that were previously being transferred out of the country have substantially been retained in Nigeria by local firms. It is no longer a case where people go abroad to take up insurance policies, especially the big companies.”

And second, he said, “Most of the insurance companies have woken up from their sleep in terms of products development. And so, we are now beginning to see so many new insurance products being created and launched into the market; products that would give value to the insurance public are now in the Nigerian market.”

The third he said was that, “there have been tremendous progress in the capital market, regarding the way investors receive and perceive insurance stocks. You can see what has suddenly happened in the capital market that insurance stocks have suddenly become the toast of investors and this is certainly just the beginning of the good things to happen in the industry. The awareness is on the increase.”

On the reasons insurance stocks have become so hot on the floor of the NSE, the CEO attributed it to two factors: The first is corrective; and the second is speculative.
“The first reason wh insurance stocks have become so hot is rather corrective. By that, I mean that the corrective aspect of it has to do with the fact that insurance stocks in the past had been grossly under-rated and undervalued,” he says.
Otegbeye pointed out that the undervaluation of insurance stocks was a deliberate act of a few selfish investors.

His words, “it was done deliberately because of the lack of experience on the part of insurance operators. What you saw in those days was a case where the balance sheet of most companies does not reflect what is exactly on ground – where what is on ground is far better or richer than what the balance sheet projects.

“That is why until the recapitalization, it was possible for people to bring peanuts and acquire insurance companies in Nigeria. It was ridiculous seeing people acquire insurance companies with say N100million when the asset base of such a company is tilting towards say billions of naira.
“And at the root of the problem was that there was no regular culture of updating asset base or valuing them and making sure that the inherent values of the companies are reflected on the balance sheets.
“But what you are witnessing now is that the recaptalisation and consolidation allowed many companies to make corrections on the imbalance.

A lot of professionals were employed to value assets. And I can tell you about one insurance company where as at the time of the recapitalisation, the company had in its balance sheet a 10-storey building at the heart of Lagos still reflected to be worth N60million. And this was a building that could go for about N500million. In this case, for instance, it was easy for any opportunistic investors to pay a token and acquire that company not taking into reckoning the appreciation in the value of that 10-storey building. And there were so many instances like that.”
The good news, he stated, was that “when the reforms started, all these type of errors were corrected.”
The second reason for the high demand for insurance stocks, Otegbeye said is speculation. Speculation from two angles.

“The first speculation is premised on the fact that the success of the banking industry after the recapitalization would be replicated in the insurance industry recapitalisation,” he said.
“So in that regard, patronage of insurance stocks is bound to increase under that context of speculation by investors,” he said.
The insurance guru said the second aspect of the speculation had to do with the increased capital base of insurance firms which allows them to make more investments that investors believe would translate into good dividends for them.

“That again is speculation on the part of investors,” he pointed out saying the combination of the factors had given rise in the purchase of insurance stocks in the capital market.
On the foray of insurance firms abroad, Otegbeye said one of the things that makes it possible was that “it becomes so important now after the recapitalization exercise to utilize the huge capital that we have to give value, particularly to shareholders.”

In his explanation, “when you begin to look at the opportunity cost of money, you will begin to extend your tentacles beyond the Nigerian market and boundaries to other African countries.”
According to him, Africa became a logical and natural place of resort because it is within the immediate reach of most Nigerian companies. He explained that the global standard that insurance companies have attained in the developed world makes it difficult for Nigerian firms to make a foray into Europe and America.

“In the developed countries, the insurance companies thrive based on ratings and these ratings are products of long standing performances over the years and we have such global rating agencies like Standards & Poor and Fitch Rating Agencies,” he said.
“I tell you, no Nigerian insurance company has the rating of these global agencies. And I can tell even with the bank’s recapitalization, none of the Nigerian banks has the rating of Standards & Poor.
“And these are agencies that rate global brands like even the New York Exchange itself. These are agencies that determine who is there and who is not there in the global scene. So, for insurance companies in Nigeria and, indeed, Africa to get to the level it will take some time.

For the Managing Director of Equity Assurance Plc and the immediate past Chairman of the Nigeria Insurers’ Association, (NIA), MR I.A.Balogun, the recapitalization and consolidation of the insurance industry has led to a major transformation of the sector to become the second most active player in the Nigerian capital market.

“The industry witnessed a major mile stone in respect of the successful recapitalization of 48 insurance companies, while the market capitalization increased from N25.9 billion in 2006 to N206 billion in 2007, ” he said adding, “The significance of this transformation is evidenced by the sector becoming the second most active sector in the capital market.”
According to Mr. Balogun, “ the volume of business written grew from N82 billion to N177 billion within the same period.” He said the feat would be surpassed in the coming years with more Nigerians taking up pension policies, which is mandatory under the law.

He said the industry recorded improvement in the prompt payment of claims, a development he said, had led to more public confidence in operators.
“We have kept faith with the people,” he said in reference to the performance of operators under the post-recapitalisation era.
He said operators were working in close collaboration with NAICOM to ensure that citizens complied with laws governing the compulsory insurance of buildings under construction, storey buildings, and other such assets.

He, however, listed the poor infrastructure like roads and electricity as some of the problems marring the growth of businesses in Nigeria, including the insurance sector.
Balogun said that the Insurers’ Association has made serious efforts to eliminate the incidents of multiple insurances and fraudulent claims by encouraging the development of a working good relationship with clients.

On the public image and perception of insurance, he said, “we are committed to having a better relationship with our regulator and the government. We have increased the level of awareness by the public about insurance. And in the Nigeria Stock Exchange, we have received unprecedented growth and the delay of claim settlement has reduced.”

For Prince Feyisayo Soyewo, Chief Executive Officer, Prestige Insurance Brokers Limited, the recapitalisation and consolidation of the insurance sector should not just be subjected to government legislation or pronouncements via fiats as was recently done.
Soyewo, in an interview with Daily Sun listed the merits of increased capital to insurance firms to include: the ability to underwrite more risks; hire and pay the best professionals; branch expansion programmes, within and outside Nigeria; be equipped with contemporary ICT facilities; as well as more funds for enlightenment and education projects.

According to him, the recapitalisation exercise has increased the confidence of investors and the insuring public. And the result is the increasing patronage of insurance stocks as well as the number of Nigerians who are taking up insurance policies.
“The reforms (recapitalisation and consolidation) have brought more confidence in the minds of the insuring public and investors,” Soyewo told Daily Sun.
“But it should be a continuous exercise, insurance industry should still be encouraged to go into mergers and acquisitions,” he said.

Soyewo, however, demands a further slash in the number to about 10 or at most 20. His reasons: with fewer number of insurance firms, it will be possible for Nigeria to throw up underwriters with such capital base to compete in the global market with established and internationally renowned insurance firms.
“I can say that there is no registered insurance company operating in Nigeria that is not financially strong enough to pay claims.

And the regulator, NAICOM, that we have now is very effective. If you have genuine claims and report it to NIACOM, they will always ensure that the insurance company pays you or their licences may be withdrawn. So, insurance has left that level of not paying claims,” he concluded.
Like every other CEO, who spoke on the performance of the sector, Mr. Eddie Efekoha, Managing Director, Consolidated Hallmark Insurance Plc, agreed that great strides had been recorded in the last 18 months, following the conclusion of the reform exercise.

He was, however, optimistic of better days in the nearest future, hinging his belief on the fact that with the economy growing steadily and with the gradual re-emergence of the middle class, there would be increased access to credit and improvement in disposable income for the acquisition of insurable assets.
So far, more branches of insurance firms have been opened in various states and local councils of the country. And more would be opened, creating employment opportunities for jobless Nigerians. The remuneration of staff has also increased among insurance firms, in some firms staff salaries have been upped by more than 100 per cent in a bid to hire the best of hands and retain existing ones. There is even the competition to see who pays better within the financial service industry, especially between the banks and the insurance firms.

These developments, he said, would boost the performance of insurance firms and, in the long run, brings about greater patronage of insurance by Nigerians.
However, given the successes recorded so far, the biggest danger in the industry would be the tendency for operators to think that they can do it alone. There is need, therefore, for closer collaboration by all stakeholders in the industry to move the sector forward and faster too.

There is need for them to come together and see how they can deploy the latest information and communication technology to drive their businesses, just as all operators must strive to adhere to global codes of corporate governance and best practices in order to forestall business mis-governance; and ensure excellent service delivery to customers.
Undoubtedly, the future remains very bright for operators, investors, customers and all other stakeholders in the Nigerian insurance industry.