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Recession: Sluggish activities to persist in insurance sector in 2017

By Rosemary Onuoha

Year 2016, for the insurance industry was a very challenging and difficult business period given a number of negative factors that adversely affected operators.

Some of the obstacles that operators grappled with during the period included lack of foreign exchange to re-insure businesses abroad; scarcity of funds by individuals and corporate organisations to buy insurance covers for their assets; preference of short term cover to long term during renewal periods, among others.

Confirming the challenges encountered by insurers in the course of the year, Managing Director, Risk Analyst Insurance Brokers, Mrs. Funmi Babington-Ashaye, said that lack of money in circulation during the period discouraged people from taking insurance covers while the Central Bank of Nigeria, CBN’s foreign exchange, forex, policy made reinsurance business abroad difficult for insurance firms that wanted to re-insure their businesses abroad.

Also affirming the stance of Babington-Ashaye was the former President, Chartered Insurance Institute of Nigeria, CIIN, Mr. Sunny Adeda, who stated that lack of money in circulation compelled business managers who would have taken full insurance covers for their businesses to opt for short term covers.

Developments in the sector within the year

Kick off of Insurers Committee
The Insurers Committee, similar to the Bankers Committee which was inaugurated in November 2015, officially kicked off its activities in the first quarter of 2016. The Insurers Committee is the umbrella body of all chief executive officers of all insurance companies as well as the regulators.

In the course of one of its meetings, the Insurers Committee, expressed determination to change the negative perception of the insuring public about insurance business in Nigeria, and instituted a sub-committee to embark on a massive re-branding campaign for the sector. Unfortunately, the campaign could not kick off as the sub-committee complained of inadequate funding for the project. The project was however shifted to the first quarter of 2017 when the sub-committee must have accumulated enough funding from operators.

Suspension of bancassurance partnership
The National Insurance Commission, NAICOM, in the course of the year suspended bancassurance partnership deals between insurance companies and banks indefinitely following a dispute with the CBN. NAICOM took the decision after the CBN refused to allow NAICOM issue licences to banks for the provision of bancassurance services to bank customers. (Bancassurance is an arrangement in which insurance companies distribute their products through banking channels).
Commissioner for Insurance, Mr. Mohammed Kari, said, “All relationships the Commission had hitherto accommodated, where insurance companies pay commission/fees to banks for insurance transactions, referral or introduction, in any guise is no more valid.”

Kari stated that the ban on bancassurance partnerships will remain in place until the two regulators agree on a workable model for such deals in Nigeria, adding that it also suspended the distribution of insurance products through channels such as airlines, online or web-based aggregators, telecoms companies, and other platforms not approved by NAICOM.

Order to transfer annuity asset to a custodian
In the course of the year, the National Pension Commission, PenCom, issued a circular to all life insurance companies offering annuity to transfer all annuity assets to a custodian. The development has continued to generate controversy between the insurance and pension sectors because annuity is statutorily operated by insurance companies.

The circular reads, “All life insurance companies currently providing retiree life annuity for retirees are to open operational accounts jointly with a Pension Fund Custodian, PFC, and transfer the corresponding pension assets in their custody to the PFC of their choice within three months; and also that the approval of new annuity requests is hereby put on hold with immediate effect until life insurance companies meet custody and transfer conditions.”

The circular set many life insurers jittery as transferring the fund would seriously affect their financial position. However, PenCom said that the decision to move annuity assets from life insurance companies to PFCs is to ensure consistency with Pension Reform Act (PRA) 2014 and strengthen the processing of administration of retirement benefits.

Risk Based Supervision draft guidelines
Also within the course of the year, NAICOM released the draft guidelines on Risk Based Supervision, RBS, to the industry operators for review, make input and come up with recommendations before final implementation of the final copy.

Implementation of good corporate governance code
NAICOM in the course of the year commenced the implementation of guidelines on Code of Good Corporate Governance for insurance industry six years after initial resistance by operators.

Following the implementation, some board chairmen that had held such position over the course of ten years period, resigned, as well as some directors too.

According to the guidelines on composition of the board of directors of insurance companies, “Without prejudice to the provisions of CAMA, non-executive directors shall not be re-nominated and appointed for more than three terms of three years each.”

New NIA chairman
The Nigeria Insurers Association (NIA) in the course of the year elected the Managing Director of Consolidated Hallmark Insurance Plc, Mr. Eddie Efekoha, as its new chairman.
Efekoha, who took over from Gus Wiggle, assumed the chairmanship during the 45th Annual General Meeting (AGM) of the association in Lagos.
Efekoha promised to address four critical areas in line with the theme: “Sustainable Market Development through Stakeholders Engagement” and he listed the areas as stakeholders’ engagement with policy makers, regulatory institutions and industry players; enforcement of market discipline; review of the NIA constitution to make it more dynamic and to embark upon projects, such as the NIA Building.

Outlook for 2017
Operators are a bit skeptical on rebound of the sector in 2017 as they have affirmed that the insurance market cannot be exempted from what is happening across the globe.
Managing Director of Continental Reinsurance Plc, Mr. Femi Oyetunji, said, “The Nigerian economy is in recession, and when economies are affected or we have a downturn, the first casualty is insurance. We have seen a lot of reduction in interest in insurance and we have also seen a new risk come forth which is the risk of currency fluctuation. The insurance industry has been impacted on all these fronts.”

Chairman of NIA, Mr. Eddie Efekoha said, “Insurance business thrives on the back of the economy. A lot of people who naturally will buy insurance will regard it as a secondary issue. The first issue on the minds of people is survival before they begin to consider protecting and providing for tomorrow.”

On the way forward, Director General, CIIN, Mr. Olutayo Borokini, said that if manufacturers could have easy access to foreign exchange, then production will be revamped and demand for insurance will increase. Capital is going to be available to businesses and individuals, and as such, activities in the sector will pick up.

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