The Commissioner for Insurance, Mr. Fola Daniel, is not a man that tints or minced words to impress or suppress anyone but like a prophet with a vision to take insurance industry to the promise land, he subtly passes a message that is enough for the wise to act on. Fola Daniel in this interview with Patience Saghana speaks on several sectors in the insurance industry. Excerpts
Reform agenda is a continuous process. Â Â Â There is no end to reform, we only know of the beginning. It is usually very dynamic and it has become imperative in the financial sector.
The Central Bank Governor, Mr. Sanusi Lamido Sanusi, in his speech alluded to the fact that the current number of banks could still be reduced through merger and acquisition. Insurance is part of the financial sector and we cannot be immune from what is happening around us.
But whatever will happen in the insurance sector will not be statutorily-driven. It will not be driven by regulation. What we are planning to do really, is induce voluntary merger and acquisition. As a matter of fact, the 51 companies we have in the insurance industry at present are too many.
Too many in the sense that the premium being generated in the industry is not proportionate to the capital injected in the industry. Ideally, insurance industry should generate five times the premium they are generating at present. With a market capitalisation of over N500 billion, the industry should generate five times the premium of the capital but we are not doing that.
The 2007 figure available to us indicated that insurance industry generated N120 billion premiumsÂ and N120 billion from N500 billion is a huge deficit. It is an indication that we are under utilizing the capital made available to us.Â One would have expected that there should be huge enhancement in the industryâ€™s premium income from the 51 companies.
Off shore expansion
Again, insurance companies rather than opening more outlets in the country, they have taken delights in opening offices outside the country. The entire premium income of some of the countries they have gone to do business is less than what they can get in Ogun State. The population of some of the countries they have gone to open shops is less than Ijebu-Ode local government. The blue print insurance companies gave to us during the recapitalisation as to how they intended to utilise their capital, included branch expansion.
And to my mind, branch expansion did not indicate going to expand in Ghana or Gambia There is nothing wrong with that. We are not condemning it in its entity either but if we must appreciate dynamism and the dream of becoming the hub of Africa, giving the population of this country, then we must first display charity at home. We have huge untapped potentials in this country and we need to take adequate advantage of that before going outside the country to scavenge for business. That to my mind makes a lot of sense. I call it scavenging for businessÂ because it is not that there are gaps that were needed to be filled in those countries that warranted our insurance companies to open shops in those countries but it is was just mere adventure. And I hope and pray that it turns out to be a good adventure for them.
If you look at the Nigerian population, how many of them have life insurance? We have about 99 per cent gap of people who still do not understand insurance beyond the motor or third party.Â And there are a lot of people in the middle class that have the motor third party insurance but do not have any life insurance yet they need those products. They need life products to be able to provide for their tomorrow.
Those are people that we should market insurance to yet we are not doing that. In the past, there used to the extreme poor and the extreme rich classes but now we have the middle class. And the middle class is in the majority now. To the man that is â€˜stupendously richâ€™ insurance may not mean much to him and to the man that is still fighting poverty, he does not have the means to buy insurance even if he had interest.
We are having the resurgence of the middle class now. The middle class have the means to buy insurance and insurance companies have a big market in the middle class. The middle class people are broad- minded and appreciate the importance of insurance more than any other class. But regrettably, insurance companies are not endearing themselves to them.
Oil and gas
Look at oil and gas insurance, we fashioned out a regulation and we are saying that for any company to do oil and gas, it must have N7 billion but the statutory minimum is N3 billion which means that for any company to be a minimal player in the oil and gas business, it needsÂ more than 100 per cent of the minimum capital. When you look at oil and gas, having an asset base of N7 billion is still a drop in the ocean.
It only enables a company to have a bite of the business. There is a need for us to have companies come together and become stronger and significant players in the market. NAICOM would love to see insurance industry having half the number of companies we have in the country today. And we would also love that 60 per cent of the half are life companies because that is the best way we can create insurance penetration and awareness.
Resistance to voluntary merger, acquisition
No serious regulator waits for anything. That explains why we have not issued new licences. My office is being flooded with application for new licences. We have refused to issue one. Even for brokers that are intermediaries, we have been very hesitant about issuing new licences to brokers because we believe that the existing companies should properly consolidate and do good business hence increasing the number may not get us to where we are going. The new entrants are only seeking to share in the existing business and not that they have new business module that would open new windows or expand the horizon of the market.
We do not see the coming in of new entrants as encouraging or an enhancement. That is why we have said No to new entrants. Like I said earlier, we are not going to wait for companies to merge. We are going to create conditions that will make mergers and acquisitions attractive. We are also going to look at the books of insurance companies. One of the powers of the Commission is to evaluate the books of insurance companies and where need be, we advise them. We can also look at ten companies that are on the same pedestal, and advise them toÂ go and talk to themselves about exploring merger and acquisition.
To drive our point home,Â NAICOM intends to parley with directors of insurance companies and we are going to bring to fore common issues that are recurring in the companies and also use that forum to talk to the directors on mergers and acquisitions whilst we will bring in experts in mergers and acquisitions to also talk to them and prepare their minds in that direction. Why merger and acquisition is difficult in this part of the world is because of personality ego. Two companies want to come together but neither of them wishes to relegate power. One chairman refusing to step-down for the other. NAICOM wants to enlighten them that for a company that is doing well, one do not have to be a director to get benefits because the company is well run and is getting business.
There have been a lot ofÂ unethical practices in the industry. NAICOM hadÂ employed persuasion and other entreaties to make companies toll the right path but now the commission is going to start making scape-goats of companies that have proven to have abused the insurance system. Whenever we have a report of anomaly from any company, we are going to thoroughly investigate and if found culpable, we are not just going to bark but bite as well.
The provision for bad debt is a good thing and one or two companies have published accounts and posted losses. That is better than cooking the books. When a company begins to reflect doubtful debts as part of its assets, it is only postponing the evil days, so, it is better to make provision for doubtful debts so that it will put the company on a pedestal that it can boast of any time any day.Â I salute the courage of the companies that have done their annual general meeting and had presented their accounts openly on the losses they posted.
That is not necessarily a weakness of those companies. What they have done is to adopt the correct approach to business and move on.
Delay of approval of companiesâ€™ accounts
What is their definition of undue delay?Â If an account is rendered on time, the account cannot be with us for more than three days.Â But there are companies that would have already fixed their annual general meeting for like on the 7th of July and submit their accounts to NAICOM on the 4th of July and they want us to hurriedly approve the account for them. You cannot fix an AGM for an account that is yet to be approved. There is a statutory date which is June 30th of every year as provided in the Insurance Act 2003. Majority of the insurance companies are yet to submit their accounts.
Can NAICOM be accused of undue delay for accounts that have not been submitted to the commission? If you submit an account that is not presented in line with the law, we cannot pass it. We are not a rubber stamp regulator. If the commission approves any accounts that are inappropriate, Security and Exchange Commission will reject such accounts and the Nigerian Stock Exchange will not accept them. That will ridicule NAICOMÂ as a regulator. We
Insurance Law review
Have you seen any insurance Act that is fashioned in two months? It is not possible. I think the Honourable Minister gave us two months to underscore the importance and the time sensitivity of the review. The two months given was not sacrosanct.Â For a law that will be enduring, a very thorough job needs to be done.
If you look at the Australian Insurance Act, it was enacted in 1971 and has not been reviewed because a thorough job was done. If you look at the Nigerian environment, in 15 years, we have changed our laws three times. It is better to be meticulous in the review and deliver a document that would enable us to drive insurance industry to the next level than doing a shoddy job.
Anxiety over new law
The insurance law is not unfriendly but too flexible to a fault.Â The law we have now does not enable the enforcement of effective discipline. We do not think insurance companies and operators are anxious of the Insurance Act under review. We had a law review workshop in Lagos three weeks ago, how many chief executives of insurance companies were in attendance?Â I do not think they are anxious about law or anything. Law making is a process. It will go to Ministry of Justice; to Federal Executive Council and to the National Assembly and all that consume a lot of time.
A regulatory environment is not a market place. It is a knowledge base environment and what we did in the recent past was to take stock of the entire regulatory environment. We went through a process of deselection which affected some of our staff having to give up their seats in order for the Commissioner to reinvigorate the establishment through injection of fresh hands. And the process of injecting more hands in NAICOM is almost completed and very soon, we should be having more people. It is not the quantity of staff that ensures quality of service delivery. We used to have about 50 staff in the Lagos office, yet there were delays of all kind which meant we had quantity and not quality staff.
We want quality staff so that insurance industry can fill the present of an environmentally friendly regulator. It is part of the reform agenda.
Merger of financial regulators
It is one of the objectives of vision 2020 that financial regulators should come under one umbrella where we will have a section that regulate insurance, capital market and the banks. It is an idea and it is also a long time objective. And we have no objection to that because it is becoming fashionable. The FSA is an umbrella regulator where the capital market, insurance and banks are regulated under the same roof.Â Nigeria is part of the global village and we cannot behave differently.