January 2, 2012

Insurance in 2011: sluggish activities amidst policy initiatives


Activities in the insurance sector were sluggish in 2011, but experts believe that some policy initiatives introduced in the course of the year will help shape 2012.

This year, expectations of the Commissioner for Insurance, Mr. Fola Daniel, is that Gross Premium Income (GPI) in the insurance industry will hit N1.10 trillion and additional 250,000 jobs are expected to be created within the targeted period.

To what extent the industry can achieve this is still undergoing debate since industry GPI currently stands at a little over N200 billion even as public perception of insurance in Nigeria remains very poor. Also there continues to be unhealthy and unethical competitive practices among underwriters, business acquisition costs are very high coupled with the fact that insurance business still remains a very tough industry to play in.

All these notwithstanding, some experts are of the view that the insurance industry will record some positive gains at the end of the 2012 operational year.

Managing Director, Standard Alliance Life Assurance, Mr. Austin Enajemo said that 2011 was a sluggish year for the insurance sector due to series of elections in the country but if the 2012 budget is passed on time and implementation starts early enough, the economic indices will begin to respond to actions on a daily basis and that will enable the sector to blossom this year.

According to him, “2011 was an election year. The system was distorted for the third half of the year and it was pretty difficult for all insurers. From January election re-run, April election and by June-July all the various election officers were being put in their various positions and after that it took them time to begin implementation of the budget itself. So that stagnated and slowed the entire economy and by extension it dovetailed into all the factions of the national economy. But we expect a different scenario in 2012”

Mr. Kenneth Odogwu, Chairman of Royal Exchange Group said the slow recovery in the quoted equity prices on the Nigerian Stock Exchange, NSE, impacted adversely on the earnings in the industry in 2011. However, the faithful implementation of various policy initiatives of NAICOM such as the local content policy and the Market Development and Restructuring Initiative, MDRI, would help deepen the insurance market in the current year.

A glimpse into 2011

Highlights of initiatives that took place in 2011 which experts believe will help to shape 2012 going forward, include the enforcement of compulsory insurance products under the Market Development and Restructuring Initiative (MDRI) of the National Insurance Commission (NAICOM); NAICOM’s guidelines to operators on the transition to International Financial Reporting Standard (IFRS); jettisoning of the market agreement entered into by members of the Nigeria Insurers Association (NIA); claims settlement to victims of the bomb blast that hit the Independent National Electoral Commission (INEC) building in Suleja; divestment by some banks from their insurance subsidiaries; as well as pronouncement by NAICOM that it will no longer issue operational licence to prospective underwriters in the insurance industry.

Enforcement of compulsory insurance products

NAICOM commenced the enforcement of compulsory insurance products in Ibadan in the course of the year. The Commission two years ago picked on five out of the 15 compulsory insurance products in the country as flagship products.

These products include occupiers’ liability insurance and builder liability insurance both mandated by Sections 64 and 65 of the Insurance Act, 2003; medical professionals liability insurance mandated by Act 35 of 1999 establishing the National Health Insurance Scheme (NHIS).

The others are employers’ liability insurance which covers the group life insurance for employees as mandated by the Pension Reform Act, 2004; and the third party motor insurance mandated by the Third Party Insurance Act, 1950.

Enforcement officers were dispatched to Ibadan, Oyo state as the first port of call for the enforcement drive while Ekiti in Ekiti states was visited next. Some measure of success was recorded in both states as a huge number of people were educated on the existence of these compulsory insurance products.

Transition to IFRS

NAICOM in the course of the year issued new guidelines and modalities for the insurance sector on transition to IFRS. According to NAICOM, the guidelines were to ensure that there is uniformity in the financial statements of insurance companies after their adoption of IFRS. However, NAICOM was quick to commend operators in the sector on the grounds that they are far ahead of their counterparts in other sectors in the transition process to IFRS.

NAICOM’s Acting Director, Supervision, Mr. Nicholas Opara stated that as far as IFRS is concerned insurance operators’ are making concrete efforts to ensure that their transition is hitch-free and with the guideline, operators should be able to prepare their balances for 2012 according to the new standards.

Meanwhile in a bid to beat the deadline on IFRS, many insurance companies engaged the services of consultants even as they have to pay over N10 million as consultancy fee to these consultants. NAICOM however charged these operators to get involved in their IFRS transition process and not abandon it in entirety to consultants as it will not be in their best interest because they need to have an understanding of how IFRS works.

Jettisoning of NIA market agreement

The Nigerian Insurers Association (NIA) in the course of the year said that it was reviewing the market agreement entered into by its members in reaction to comments and observation by its members. However, some experts were of the opinion that the agreement was being jettisoned since members refused to abide by it.

It will be recalled that as a way of checking ethical breaches, promote discipline and improve service standards in the market, the NIA commenced implementation of a market agreement in 2010. The agreement which stipulates infractions and penalties was signed by all the chief executive officers of NIA member companies.

However, due to series of opposition that greeted the enforcement of the agreement on the basis that underwriters could not come to agreement on what constitutes appropriate pricing of risks, the NIA was forced to announce that it was reviewing the agreement.

Claims settlement to bomb blast victims

The insurance industry to the surprise of the public shed off the toga of sluggishness and delay that it has been known for when the issue of claims settlement arises. Operators that insured the risks of INEC for the 2010 elections were quick to organise themselves and settle the claims that arose as a result of the bomb blast that hit INEC building in Suleja killing and injuring about 27 people which included some corps members.

The sum insured was N262billion, sum insured being the maximum amount of money that an insurer will have to pay in the case of total loss. Each corps member was being treated by INEC as entry level of the Federal Civil Service, on grade level 8, step 1 and the value of the insurance coverage is the total emoluments of a graduate. Therefore families of dead victims were each paid over N655,000 as compensation.

Banks divestment

In the course 2011, some banks divested from their insurance subsidiaries in accordance with the directive from the Central Bank of Nigeria, CBN. Guaranty Trust Bank Plc (GTBank) sold its 67.68 per cent equity stake in GT Assurance valued at N11.910 billion to Assur Africa Holding (AAH), while Diamond Bank Plc said it sold its 96.15 per cent stake in Adic Insurance to NSIA Participation SA, an Ivorian firm.

NAICOM cancels issuance of new operational license

NAICOM also in the course of the year said that it will no longer issue operational license to prospective entrants into the insurance industry because the sector has enough players and that any new operator won’t be bringing anything new. However, Daniel said that interested entrants into the sector should buy over or invest in an existing insurance company.