In an earlier submission, I gleefully reeled out some astounding figures. I had posited a 47% increase in industry premium for the Insurance Industry which stood at N2. 3 trillion and a claims payout of N882 billion which I had labelled impressive.
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Just as I sent out the article, my mind became restless. I had started asking myself some hard questions.
These figures if compared to GDP did it make sense?
I remembered my discussion with a prominent Investment banker, whom I had asked if he was looking at the Industry as an Investment destination following NAICOM’s policy of increased Share Capital and he smirked and said – Edgar, there is nothing there?
All day, I kept wondering if I hadn’t sent a wrong signal to my readers with a jaundiced interpretation of a year-on-year increment in top-line Premium payments and using it as a barometer to engage an industry that has been labelled the poor cousins of the Finance sector.
My worry led me to a former Chairman of an astute Insurance firm and a well-known businessman with a rich pedigree.
Edgar, NAICOM is getting it all wrong pushing for increased capitalisation, they should be pushing for ramping up Risks.
He continued – Insurance Companies are not banks, they don’t need the huge capital lay out to be grown artificially, it must be grown organically by pursuing credible risks and covering them.
My eyes opened, and my fear started crystallising.
It dawned on me that NAICOM was playing follow-up with CBN.
So, any time those ones raise the Share Capital threshold, they too will rush and go and increase their own leading the sector into a blind race to shore up capital that in cumulation still cannot cover one major oil transaction.
The Chairman further dropped a bomb, 95% of the premiums paid are shovelled abroad to International Reinsurers who have the resources and capacity to handle the complex transactions at that level.
What that means is that the big blind Regulator is just regulating a huge broker industry since most of the players just push the risks to off-site insurers and make do with Commissions or whatever it is they call their earnings.
So, you see that this is another drain on the scarce forex that we all complain about.
You can imagine 95% of gross N2.3 trillion moving out in hard currency every year from an industry that has decidedly chosen to remain lame.
Let me further put this in context.
Total Premium generated by the industry is 0.5% of GDP. This is a disgrace to say the least. The international standard is 5% of GDP while South Africa is doing about 6%.
One quick reason for the leprosy situation is the fact that NAICOM could be said to be peopled by those we can safely call ‘failed’ players.
So they carry their dull demeanour after a long career pushing files into NAICOM where they become tin gods and stifle initiates.
Another challenge is that the industry is led by marketers who are driven by sales targets.
So, it’s just a revolving door of mediocrity.
The leaders push targets on mundane insurance products that are archaic and do not represent the dynamism of the economy.
So, what you see are half-hearted and dumb-witted attempts at innovation and after a little push they go back to their traditional 3rd party Insurance and relax.
So, the International underwriters would just be laughing at the mumus as they crawl all over the country in their cheap suits farming out premiums for them for a pittance.
Solution for a more vibrant and representative industry is two-fold.
A government-backed push towards creating more risks since the industry does not have the spine to invest in robust new market opportunities.
Wait, let me explain. The Industry does not have the capacity to underwrite and cover risks so NAICOM goes the shortcut of ordering a periodic increase in Share capital with the hope that well-capitalised players would ensure stability.
This is short-termist and a clear wuru wuru to the answer when the right thing to do is to allow the industry to grow organically as mentioned earlier.
Ramp up premiums by being creative in creating risks that would touch all facets of economic activities.
If this is done, the banks would lend more cos of cover, Health will grow in Malthusian proportions, oil and gas, lifestyle etc.
The premiums will pour in, increasing capacity to cover and confidence will grow.
The Government is already going in the right direction, especially Lagos State for example, which I hear is insisting on ‘construction Insurance’.
Enforcement is another area, since we cannot run away from the government. They must enforce the policies so that engagement can be total in society.
They are even part of the problem. They took the PFAs and Health Insurance which are very creamy parts of the Insurance industry and gave them separate regulators thereby further stifling the industry.
So, they must overcompensate by ensuring strict enforcement and compliance with insurance laws.
If enforcement is high, you will now see the quantum growth in premiums, reducing the colonial-like outflow towards western reinsurance.
Still, on the government, why are they even appointing NAICOM? Why can’t they be an SRO – a self-regulatory organisation so that their independence would drive initiative and creativity?
Another solution is for the industry to begin to give Actuaries a better say.
They are in a better position to understand the terrain and technically push boundaries in a safe and profitable way.
The Marketing MDs can only sell what they have and may not be in a position to use actuary science to develop new fields where reasonable premiums can be mined.
Let me now bite the bullet and call for the current board of NAICOM and its entire leadership to be collapsed to make way for the inclusion of more vibrant policy makers who can push the industry along the very lines that it should go.
If the industry is not tired, we are tired of ‘cut and paste’ regulation that enforces the chicken and egg scenario we have been playing since independence.
It’s time therefore to take the bull by the horns and wrestle it down for the sake of the economy, any thing short of their removal at this point will only perpetuate the laziness that permeates the industry.
Come and beat me.
