Dissecting the Engagement of Alternative Insurance Distribution Channels

The proposed use of alternative channels of distribution in the sale of insurance products as proposed by the National Insurance Commission is currently raising dust in the industry. Ebere Nwoji looks at many questions raised by the development

The National Insurance Commission (NAICOM), precisely, in August last year, banned the use of alternative distribution channels in the sale of insurance products in Nigeria.

Shortly after that, the commission, announced that it has created new distribution agencies tagged:  “Referral Partners/Agents” for distribution of insurance products in the country.

According to the commission, the channel will entail integrating and involving many organisations to be Partners/Agents of insurance companies in the distribution of insurance products across the country.

It said the initiative is expected to create opportunities for individuals and regulated corporate entities to play a vital role in the insurance distribution chain to access and reach the largely under served majority of the Nigerian population without being exposed to any liability.

The commission recently disclosed that stock brokers and lawyers are part of the new channel adding that while stock brokers will sell insurance products, lawyers will act as referrals to would-be buyers of insurance products.

In doing this, the commission said the target is to create about 10,000 jobs through this means.

This initiative by NAICOM, is good especially now that effort in the industry is geared towards deepening insurance penetration.

However, as good as the initiative is, it has raised many questions especially among industry critiques and observers.

One of such questions is the difference between using these new distribution channels in form of lawyers and stock brokers in selling insurance. Another question being asked is why using the previous distribution partners engaged by the operators such as banks under universal banking and mobile telephone network operators?

It is apparent that one of the controversies that led to rejection of the use of the previous distribution partners was the issue of their registration and licencing by the commission as demanded by law  especially banks, and CBN’s rejection of the idea of NAICOM licencing them.

With the choice of these alternative distribution channels, there is the question on how  NAICOM  will ensure that the regulators of the new chosen channels and referrals like the Security and Exchange Commission and the Nigeria Bar Association  will not rise up like the CBN to challenge NAICOM’s licencing  of the new agents and referrals or is it no longer going to register them as required  by the law .

Prior to now, the commission had insisted  that it must  henceforth licence every  insurance product  distribution channel  before it can operate in the industry.

The Commissioner for Insurance, Alhaji Mohammed Kari, had  at the investiture ceremony of the 22nd Chairman of the Nigeria Insurers Association( NIA),Mr Eddie Efekoha, in Lagos suspended all activities concerning Bancassurance,  insisting that it must licence  channel partners.

On its part, CBN, which is the regulator of banks had maintained that it cannot allow the commission to licence financial institutions in the country especially banks for any reason.

Against this backdrop, Kari,   said  laws guiding insurance industry do not allow anybody or institution to operate or earn commission from the industry without being licenced by the commission.

 “If we don’t licence them, our law forbids anybody to earn commission from insurance company   and it makes it illegal for licenced insurance companies to deal with anybody who is not licenced and as insurance  companies  are licenced by us, it  is them we will go after, if they infringe on the law, we will deal with them. We have always allowed it because we want to deepen insurance  penetration and  at the same time, we are trying to bring out rules and regulation.  They must be done within rules and regulation but that has failed. So we cannot allow it,” Kari insisted.

Kari, said until the guidelines come out, the commission must strictly operate by the rules, which is that anybody who is to transact insurance business must be licenced by the commission.

These he said include all airlines, financial institutions, mobile telephone network operators among others.

“They must all be licenced by us. There are different kinds of operations we have. If you are channel partner to an insurance company, and the product is sold through another provider, that covers you but if you have no approval and so far we have released the draft guidelines for the bancassurance  until we resolve it, we wouldn’t allow operations anymore”, the commissioner said.

According to him, Licencing such channels is imperative to protect the consumers and also to ensure ethical and orderly practice and in further protecting the credibility of the insurance sector which are the principal mandate of the Commission.

Aside imminent controversy from their regulators, there is the issue of creation of employment.

When the former Commissioner for Insurance, Mr. Fola Daniel came up with the idea of reviving and modernising the agency system for insurance distribution under its Market Development and Restructuring initiative, ( NDRI) which has as one of its objectives the creation of 50,000 jobs, it mainly made use of fresh graduates seeking for employment, but  the present initiative,  seeks to make use of stock brokers and lawyers who are already gainfully employed.

This again raises the question on how serious they will take the additional job of insurance marketing assigned to them by NAICOM as well as the question on how easy it will be for insurance operators they are working for to control them.

Already, industry observers have foreseen the failure of the initiative as they said that the present set of agents cannot effectively do the job of insurance marketing which obviously is a very difficult task in Nigeria.

They had expected the commission to make use of unemployed graduates and in collaboration with the operators come up with small incentives that will boost and sustain their interest in the job.

Again is the issue of clash with brokers and existing agents’ roles.

The development, when critically viewed, will definitely bring serious clash between insurance brokers, agents and the referrals.

The industry, is currently battling with an ongoing controversy between pension fund Operators (PFAs) and insurers over marketing of annuity products, should it again be enmeshed into another round of clash between insurance brokers and stock brokers?

Already, members of the Nigerian Council of Registered Insurance Brokers (NCRIB),have expressed their ill feelings on the issue and  the Association of Registered Insurance  Agents, (ARIAN)  made no pretense about their own ill feelings.

NCRIB members, expressing their feelings on the issue lamented that salutary as the initiative to grow the insurance industry may seem in the face of its current growth challenges; the proposal may be counter-productive and antithetical to enduring insurance growth on the long run.

According to the brokers, by definition, insurance agents and brokers play significant roles in insurance intermediary services, given the technicality of insurance practice and the need for well-informed intermediaries to interpret policy wordings, advice clients and assist them when a loss occurs and they are due for compensation. This definitely is the practice all over the world and it is meant to allow clients maximise the value of their insurances and sustain good image for the industry.

The insurance brokers, said the idea of bringing in stock brokers as referral agents would therefore raise some fundamental issues, among them, the competence and capability of the stock brokers to discharge insurance professional duties without requisite qualifications and competence. According to them, aside the image challenge that operation of such referral agents would pose to the industry, especially at the point of claims payment (where insurance brokers are most suitably competent and experienced) the step would cheapen the industry as indicated by the ceding of its responsibilities to other non- insurance professionals.

According to them, image wise, research has shown that the image problem being faced by the insurance industry today was significantly caused in the past by ignorant or half trained agents who held themselves out in the eyes of the public as insurance operators, but later, wittingly or unwittingly, infringed on ethics.  They warned that the industry is likely to have similar challenges if this proposed arrangement is implemented.

In terms of control and regulation, NCRIB, noted that NAICOM, presently regulates and exercises oversight functions over agents of insurance companies who are licensed by the Commission and who could be punished when they err.  They said it will remain a puzzle how NAICOM would wield same control over stock brokers who are under another regulatory authority when they infringe on the rules.

 The NCRIB, which stated these in a position paper on the proposed channels stated: “It was also observed that NAICOM in the report indicated that the stock brokers would only be sales agents of insurance products without being exposed to any risk. This assumption looks improperly conceived. If truly the stock brokers would be mere “placement agents” without any risk attachment, how then would they be expected to discharge their services better than the existing insurance brokers, for instance, who are expected by law to have significant Professional Indemnity against negligence in the discharge of their duties.

 They viewed that much as there is the need to grow the insurance industry as it is today, the strategy for such growth must be birth in consensus by all operators in the industry and be well-conceived, in view of the peculiarity of the insurance industry.

According to the brokers, on the part of NAICOM, the best way to give further impetus to the growth of the insurance industry is to encourage the increase in number of insurance agents and brokers in the market, as well as give the new entrants mandate to provide sufficient interest in micro insurance or grassroots insurance as a prerequisite for their licensing.

“Some forms of waivers could also be considered for the intermediaries who show verifiable inclination towards insurance penetration at the grass roots.

Anything short of this would amount to further diminishing the relevance of the extant manpower in the industry by ceding off their businesses to outsiders. It will also give birth to a long run image implication which dimension would most assuredly blight whatever short term gain that is envisaged for the industry”, the brokers stated.

This being the case, NAICOM,  should therefore in using the alternative distribution channels trade with caution to ensure that in bringing professionals from other walks of life to sell insurance, it does not further expose the industry  to become an object of further poaching as it has happened before. It should remember that sectors like aviation sector was before now itching to start packaging its own special insurance arrangement as well as the Road Safety Commission, which before now was eyeing third party motor insurance to be the issuer before the industry raised alarm and brought it to a stop. NAICOM should not let open the door for them to come in poach the insurance products they are marketing and enmesh into another round of loss of its lines of products.