…As industry boss digs in on tier-based capitalization
By Rosemary Onuoha
Multinationals and high networth individuals are now engaging in double insurance by insuring same asset locally as well as offshore due to inadequate capacity of Nigerian insurance industry.
Vanguard findings show that these set of people and corporates are compelled by the local content policy to insure locally, otherwise, they would totally ignore the local insurance market.
Commissioner for Insurance, Alhaji Mohammed Kari, who disclosed this to Vanguard, noted that they pay for double cover because they don’t thrust local operators’ capacity.
Kari stated: “A lot of the big clients in Nigeria still do double insurance. First they insure to meet the requirement of the local content. However, they still insure abroad independent of their local insurers. So, they prefer to pay insurance twice because they don’t trust local operators’ capacity.”
According to Kari, the current capital level of insurance companies was introduced thirteen years ago which is contrary to what is obtainable in other financial sectors.
He said, “The current capital of insurance companies was increased thirteen years ago. Which financial sector leaves capital stagnant for thirteen years? In the last ten years, microfinance banks license have been reviewed five times. That is how a financial sector operates and to a large extent a responsible operator should do these things without regulatory prompting.
“We are the weakest link in the Nigerian economy and now we are going to be less capitalized than mortgage guarantee banks with N6 billion and less capitalized than microfinance banks with N5 billion. How can an insurance company that insures the aviation sector have capital less than that of microfinance banks? We should wake up.
“Some insurance operators argue that capital is not important. If capital has no function, how come banks bought over insurance companies that used to be owned by insurance companies? “Insurance anywhere in the world is the mobilizer of funds and provider of security.
You cannot provide security if you don’t have capital. How can you approach a microfinance bank of N5 billion and tell them you want to give them protection. What is your capital? “The claim you pay and the liability you hold is a function of your financial ability. Check any jurisdiction in the world, insurance companies are more capitalized than banks.
“Insurance companies own virtually all the financial sector in the world. They fund infrastructure because they have long term funds to fund long term business. If the insurance industry don’t need capital, why are they the weakest link in the financial sector?
“We have had three regulators in Africa who had come to understudy the Tier Based Minimum Solvency Capital, TBMSC, structure because they loved it and they are thinking of introducing it in their market.”
Kari noted that the TBMSC policy is just a document with a name because the regulator has always been implementing it directly in the past.