Local content constraints for insurance industry are fundamental- Lawal

Fatai Lawal

Mr. Fatai Lawal, Managing Director of Sterling Assurance Company in this interview with Favour Nnabugwu bares his mind on the consequences the threat by the National Insurance Commission, (NAICOM) to publish names of erring companies would have on the entire sector.

Lawal who is also a member of the governing council of Nigerian Insurers Association, and a president in waiting of the Chartered Insurance Institute of Nigeria, CIIN says insurance industry is not yet ripe for another round of recapitalisation and many more. Excerpts

HOW have you perceived the reforms in the insurance industry vis-à-vis the supervision and all that?

I will say that the current Commissioner for Insurance, Mr Fola Daniel has done creditably well for the insurance industry. Yes. He associates with the market, and because of that, he is able to understand the market and also has a good knowledge of it. He also carries operators in the market along.

He has on quite a number of occasions taken bold steps to bite when people thought he was just joking and he had always stood his ground to ensure that people stand up to their responsibilities as far as regulation is concerned. Quite a number of companies that did not submit their accounts to deadline were penalised and some on the spot inspections were also carried out and people that were found wanting, were also penalised.

And I think that is showing signals that the National Insurance Commission will not run the industry on the pages of newspapers but will ensure that erring members are called to order, not to be disgraced but called to order so that the commission can continue to reform. You know when you punish people on the pages of newspapers, you are only disgracing them and not calling them to order and I think that is the different

The commissioner said you will henceforth publish names of erring firms, what is the implication?

That was why I said it will be a disgrace on the pages of the newspapers because insurance is a very delicate and sensitive business. I think erring members should be dealt with according to the rules not just before the deadline you go and announce names.

Those are not sticking to the rules and I think the way the commissioner is going about it is good. The recent situation where he said he is going to punish everybody, publish names, I am sure it is to let people know that he actually has the power to bite if he chooses to.

There is a rumour of another round of recapitalisation, is the industry prepared for it?

I don’t like talking about rumour. Things that are in the grapevine, should be left to remain in the grapevine. But if you ask that will it be appropriate to look at recapitalisation now, l would say l don’t think so. I don’t think the industry is ripe for another round of recapitalisation.

Agreed interest

The industry has still not been able to adequately service the capitalisation that has been raised. Equity they say is the cheapest form of capital but it is the most expensive  because when you take a loan, you have already had an agreed interest that you pay but when you take a capital,  what that means is that look, leave your money with me and l will forever by giving you returns.

And if you fail to pay the returns, equity owners can decide to take away their equity and leave the company unprotected. Equity is not cheap and the one that has been raised has not been adequately serviced.

We have not been able to generate enough income to even justify the capital. When you have a N3 billion capital, what is expected is that you should be doing five times of that in terms of premium income but there is hardly any company in the market that has done that and so we have not been able to fully utilised the capital we got and we have also not been able to service it by way of returns.

So, it will not be advisable to conceive an ideal of recapitalisation but if there are companies whose capital have been eroded for one reason or the others, Yes, those companies should shore up their capital to the minimum. For those who have not lost their capital l don’t think a general round of recapitalisation is good for the market at this time.

Why are insurance companies waiting on government when there are micro insurances and other untapped businesses here and there?

I think it is just the natural tendencies for business people to tap new market is always very difficult to go for micro-insurance and all those things, is easier said than done.

The amounts of resources and time one invest in micro-insurance before you get returns from it are enormous. Commercial investors are most times not patient enough to go after that. The government business sure of exist.

And in this part of the world, government is the largest spender; government has the biggest resources so that is why companies will continue to hover around the government to see what they can do first before going to what we call the blue ocean, that is the untapped market and I think that is just the simple truth

Why is Nigerian insurance industry not maximising benefit of the local content Act?

It is a known fact that the industry has not been able to maximize the benefit of the local content guidelines and the constraints are fundamental. One: The nature of oil and gas business is such that there is need for adequate knowledge about it; there is need for human capital development, high level of investment and more importantly. Secondly: There is a lot of international politics that goes into oil.

Most of the major oil companies, they also have their capital insurance and they will want those captives to be patronized. And thirdly: The size of the oil rigs is very large, even the capital that insurance companies parade are quite small compared to the size of risk and I think these are the risks.

Lastly, the reinsurance for oil is also concentrated and few reinsurance outside this country and for you to do it, you need to have reinsurance. This sometimes has been difficult for Nigerian under writings but nonetheless, quite a number of companies have had a bite of the oil and gas business in recent times.

Unfortunately, the result has not been encouraging, there have been one or two losses and I am sure this is making people jittery as far as that class of business is concerned.

Going forward, I think the market should be organized in such a way that it will be able to pull its resources together and to take maximum benefits of this oil and gas industry

As a member of NIA governing council, what is the state of motor insurance sticker, how far has the industry gone with it?

We are keying into the road safety new plate number. In fact the road safety commission court marshal NIA sometime ago to discuss the project of the new plate number licensing and equally harmonizing their data with that of the police and one of the things they are putting there is insurance. So at the time you want to licence a car, the road safety wants to ask you has it been insured.

And if you say it has been insured, you give your policy number and they will check from their records whether that insurance is valid. If it is not valid, your license will not be continued. The same will go if you want to renew your driver’s licence, they will check if you have a car, your name and whether that car has been insured.

And I think the NIA is going on a collaborative project with the road safety and I believe if this goes on, it will be better than even the sticker that we are talking about because this is creating a central computer platform for NIA members, any policy you issue in your office will just notify NIA it is registered.

So if anybody goes to road safety that he wants to licence a car, they will check from the NIA data bank whether that particular vehicle has been insured. If it is not insured, they will not licence it. And I think that kind of co-operation will help to boost the insurance in the future.

One would have thought Sterling Assurance could not fall into the league of companies that are into oil and gas?

We built the human capital for this line of business unlike most other people who go their first get the money before they build the capital. What we did was to hire people who have specialist knowledge on that field and bring them into our fold who has been an active player in the oil and gas and has helped to propel the volume of business. I cannot claim to know everything and I think it is only a fool that will think he is the best in everything.