Growing insurance in the years of turbulence
By Ifeanyi Ugwuadu
The world turns another decade next year! That is the first decade in the new millennium. As usual, a review of the past year and preview of the coming year provides ample insight into what ought to have happened, what ought not to have happened and what happened.
The most outstanding event of 2009 is the percolation of the late 2008 crash of the capital market into the financial system. Huge capital had been destroyed as a result of the crash in capital market and this will provide the basis for action in the coming years.
Code of Corporate Governance
Perhaps, compelled by global changes in the way business is done and in reaction to apparent absence of processes in the insurance sub-sector, the regulatory agency for insurance, National Insurance Commission released the document on Code of Good Corporate Governance. More than the fanfare of the launching, it seemed government was serious on stemming the contagion of asset damage due to the financial meltdown. So, it warned players to either play according to rules or quit.
But there was really need to put pressure on players to up their game in insurance transaction. For good reasons, the market suffers perennial image problem which often is accentuated by a peculiar kind of cut throat competition that gives away insurance premium as a dash to companies and thus something which can be shared between parties to the contract and those who facilitate the transaction. So, it was the thinking of government that a code can guide the conduct of insurance business to achieve some set of objectives aimed at improving the image of the industry. In that document, much moderating and self scrutiny functions are expected from the board of directors and the top management of the company.
Problems
The document is no doubt a good one and aims to strengthen primarily, the oversight functions of the board. Indeed, its compliance by each company may be used to gauge the performance levels of the board in a way that can help organisations actually compute allowances for directors. However, the major problem is the structural imbalance of most boards in the insurance industry. In most cases, the boards are composed of persons that do the bidding of the owner or owners of the business. The directors are just comfortable taking allowances and contributing little or nothing at all to company policy initiation. The same holds true for the independent directors proposed in that document.
It can also be said that CEOs of most companies are mere employees possessing little or no executive powers to drive the companies they preside over as chief executives. It is easily observable that after recapitalisation, the powers of executive functions were indirectly transferred to the owners of the businesses who calls the shots from their bedrooms.
Altogether, it is imperative to address the efficiency of the board. A functional and efficient board are essential for insurance growth and checks executive lawlessness. It is, therefore, important that NAICOM examines the code to see how it can be enforced instead of the moral suasion that underlies its content. In short, there must be executable sanctions that will serve as deterrent.
Affirmative market action
Following losses of investment in the wake of the capital market crash, insurance companies lost the basis of the subsidy which were generously granted on wide range of industrial risks. The Nigerian Bottling Company plant fire in Benin exposed the flip side of the discounts and may as well contribute in the executed market agreement among members of Nigerian Insurers Association, the main trade and largest trade group of insurers in Nigeria. In it, insurers tended to give notice to brokers that the market benefits if players consider the survival of the entire industry rather than the gains of individual entities.
Schedule One of the agreement covers code of practice for rating of fire, motor and workmen’s compensation. Schedule Two deals with codes of practice for premium collection and service standard and ethical conduct. The document in itself sets the tone for a disciplined market. Majority of players agree that they cannot grow genuinely if there is no discipline. Prosper Okpue, CEO of Insurance Brokers of Nigeria and ex-president of Nigerian Council of Registered Insurance Brokers observed that majority of bids won by either brokers or underwriters in government businesses are purely political as there are no known formats for competitive bidding. He notes that a bid won by company A today because someone in that company has contacts in government establishments may expire as soon as the contact leaves government. Then, another political appointee takes over and with him comes other insurers who win bids because they ‘know’ the new man.
And then the other person whose contact had left power complains that he had lost out. And on and on it goes.  Market discipline ensures that players move in a rhythm that shows they have standard for everything players do and this fires confidence in others, Okpue noted.
Essentially, the players are drawing from NAICOM’s regulations and guidelines to firm up decision that ought to have been taken and implemented long ago. The document provides a general framework for insurance transaction in a manner that engenders confidence and enhances good image.
Like the code of corporate governance, the action must be taken by insurers themselves. The year 2010 will determine if insurers will be serious with the decisions taken.
Life insurance and future of insurance industry
Nigeria, probably is the only country where non- life business growth outstrips life insurance with such wide margins that it would be proper for a research to recommend a remedial.
All types of theories and treatises suggest solutions while claiming to understand why it is so. But the situation remains. The life market in Nigeria is underdeveloped despite the large population. From all indications, this is the direction permanent growth lies. A surge by insurers towards corporate assets each time there is renewal have convinced all that the market has been impoverished while a few companies had benefitted from a system that shuns collective and harmonious growth. But life is short and it lies on insurance companies to build products that allow buyers to see that insurance is the only protection that they can have in turbulent times like this.
Prosper Okpue, Godwin Odah, Alphonsus Okpo and indeed many insurers agree that the way forward is to develop personal lines insurance. For Okpue, beginning from compulsory motor insurance, not much progress had been achieved in driving compliance to insurance. In as much as he admits that compulsory insurance could galvanise demand but he sees it as achieving little. The insurance of the individual, his assets and life remains the best growth driver for insurance, they say.
But how can this happen when people are hardly aware of the benefits of insurance. Must it be taken to their doorsteps to persuade them to buy? The answers to these questions lie in what insurers do next year and beyond. Simply put, insurers have no other choice than to develop insurance as it is done elsewhere. The collapse of the high yielding stocks and poor premium collection will assist them arrive at this decision.
Driving Insurance Growth through compulsory insurance
As at the end of 2008, the capital base of insurance companies had reached N550 billion. It had doubled in 2007 to N400 billion from the 2006 industry capital base of N200 billion. However, industry premium had kept pace with the capital accumulated.
In a way, some experts are correct when they observe that there is too much idle capital in the insurance sector. Compared to capital base cited, total industry premium stood at N179.3 billion in 2008; in 2007 it was N105.3 billion, and in 2006 it was N93 billion. Therefore, in terms of income, the industry has not been able to match premium with capital or improve capital use in such a way as to make the industry attractive to investors.
Therefore, to assist develop the sector, insurance industry regulator, NAICOM designed a Market Development and Restructuring Initiative (MDRI) to put life into the market.
Targeted solely on corporate and public sector compliance to some of the key compulsory insurances, the regulator estimates over one trillion naira income in the next three years. The projection is achievable but only if the players themselves are committed to it.
