Claims Settlement: As NAICOM Begins Crackdown on Erring Insurance Firms 

Industry

Last week’s revocation of the licences of Standard Alliance Insurance Plc and Niger Insurance Plc cast a pall on the Nigerian insurance industry which is still struggling to shrug off its uninspiring low level of penetration in Nigeria’s economy put at 0.7 per cent of the Gross Domestic Product. As the two receivers/liquidators appointed to manage the ‘carcasses’ of the two firms settle down for the tasks, the question is: which of the remaining insurance firms is next to be punished for failure to settle claims? Asks Festus Akanbi

For an industry already at the mercy of the current economic challenges, last week’s revocation of the licences of two key players in the insurance industry is certainly going to be a serious setback in the quest to deepen insurance penetration in Nigeria. 

The two affected companies were Standard Alliance Insurance Plc and Niger Insurance Plc and the revocation of their licences took effect from June 21.

The action will no doubt keep other operators on their toes, but analysts also feared the sanction may signal a season of distress among operators and the attendant erosion of confidence in the insurance industry.

The insurance regulator, in a statement issued by its Head, Corporate Communications and Market Development, Mr. Rasaaq Salami, said  “Consequently, the commission has appointed Sanya, Ogunkuade Esq of Plot 217, Upper Grace Plaza, 3rd Floor (left-wing), Shetima Munguno Crescent, Behind Julius Berger Equipment Yard, Utako, Abuja as the Receiver/Liquidator for Niger Insurance Plc and, Kehinde Aina Esq of Aina Blankson LP, 5/7, Ademola Street, SW Ikoyi, Lagos as the receiver/liquidator for Standard Alliance Insurance Plc” to effectively commence the process of winding down both entities.

 NAICOM also advised all stakeholders to forward their inquiries to the respective Receiver/Liquidator for each company for their necessary action. The Commission, nevertheless, assured all stakeholders of the safety and protection of their interests.

Default in Claims Settlement

Although no official reason was immediately given for the sanction, industry sources said the two insurance firms were shut down over their inability to settle outstanding claims for over three consecutive years.

It was gathered that both companies have over N15 billion in insurance contract liabilities. The NAICOM’s hammer was coming one year after both companies were suspended by the Nigeria Insurers Association (NIA).

The financial reports of both companies reportedly show that Niger Insurance Plc has insurance contract liabilities of N11.5 billion, while Standard Alliance has insurance contract liabilities of N3.9 billion.

It was gathered that having detected signs of distress in the two insurance firms, NAICOM had written to Niger Insurance on March 31, 2022, allowing the company a 30-day period to convince the Commission and the Ministry of Finance that it could resolve its operational challenges. 

The letter was said to have been made necessary when it dawned on the regulators that the management of Niger  Insurance had failed to salvage the company’s fortunes which further nosedived in 2021, after previously recording an N2.09 billion loss in 2020, when the COVID-19 pandemic ravaged the industry.

The company’s financial performance also worsened in 2021 with a deficit of N2.63 billion.

In addition, its gross premium recorded in 2021 also dwindled by half to N515.8 million, which was significantly below the N1.03 billion reported during the corresponding period of 2020.

Its weak financials reportedly prevented it from paying insurance claims which were due to clients.

The NIA had explained that the expulsion of Standard Alliance and Niger Insurance had become necessary on the back of their defaults on obligations to policyholders, especially on claims payment amongst others.

Speaking on the action taken in June 2021, where the two firms were axed, the Chairman of NIA, Mr. Ganiyu Musa, noted that the Association would continue to take measures against erring members to reinforce the stand of the organisation and the insurance industry in general.

He said: “We have to be very harsh, as it were, now. We have an active committee on discipline and conflict resolution. The committee has been strengthened and empowered. We now go beyond the usual refrain or chastisement to taking active steps to discipline erring members. Media reports have it that many policyholders with matured policies have been waiting for more than two years to collect their claims.

Analysts, who praised the insurance regulators for last week’s intervention, however, described the development as a confirmation of the fear that many operators are merely living on borrowed time.

Insurance penetration in Nigeria stood at 0.7 per cent of Gross Domestic Product, GDP, below the global and sub-Saharan African average of 7.20 per cent and two per cent respectively.

Analysts believe that a major factor responsible for low insurance penetration in the country is a culture of non-settlement of claims by insurance companies.

New Capital Requirement

NAICOM introduced new and segmented minimum paid-up share capital requirements for insurance companies in Nigeria in June 2020. However, the second and final phases of the Nigerian insurance industry’s recapitalisation exercise which should have ended in September 2021 were halted by litigation from aggrieved stakeholders. 

A NAICOM circular to all insurance companies on June 3, 2020, titled, ‘Segmentation of minimum paid-up share capital requirements for insurance companies in Nigeria’, mandated underwriters to meet the deadline for the first phase of the recapitalisation exercise, which was slated for December 31, 2020. The final deadline was September 30, 2020. 

Life insurance companies were ordered to raise their capital from N2bn to N4bn at the end of the first phase and N8bn at the end of the second phase.

As of September 2021, the insurance sector’s total asset was N2.09trillion from N1.8trillion in June 202, rising by N228.24 billion. 

The NAICOM had identified one of the reasons for introducing the recapitalisation exercise in the industry as an effort to strengthen the performing firms and sieve out the non-performing ones. 

It stated that some underwriting firms already had liquidity problems and were not meeting their claims obligations.

Rising Claims

Analysts said the insurance industry seems to have come under pressure of massive growth in claims far ahead of Gross Premium Written, (GPW), a development which has brought down aggregate industry profit by 5.1 per cent to N16.8 billion in the first half of 2021, H1’21, against N17.7 billion recorded in the corresponding period of 2020. 

According to them, industry profitability has remained threatened as claims payments grow faster than GPW, the industry’s major income line in H1’21.

Turnaround

Studies reveal a positive correlation between a high insurance penetration and higher economic development thus the supporting role insurance plays in stimulating economic growth. Bearing this in mind, one can only imagine what effect an increase in insurance penetration even by the slightest margin will have on the overall Nigerian economy. However, a combination of factors which include inappropriate pricing and risk profiling, poor product-market fit, inadequate distribution channels, and low public confidence currently plague the Nigerian insurance industry.

Observers maintained that unless the regulators and key industry operators can demonstrate enough strength, sincerity, and professionalism capable of sustaining the interest of a few Nigerians already captured in the insurance net, all the efforts currently being put in place to aid insurance penetration will be futile.

One of those calling for a turnaround in the sector is the Managing Director, SBG Insurance Brokers Limited,  Mr. Sammy Dalmeida, who has lamented that insurance penetration in Nigeria is among the worst in Africa. He, therefore, called on insurers to stir Nigerians’ interest in embracing the sector.

Dalmeida also urged insurance brokers to explore “blue-ocean strategies” and digital technology to enhance their continued relevance and strategic positioning in the nation’s insurance market.

He said, “The growth of the market for insurance in Nigeria has been relatively limited. Our insurance penetration ratio of 0.5% (computed as GPI as a percentage of GDP) ranks amongst the lowest in Africa. However, the low insurance penetration rate shows that there are abounding opportunities for the growth of the market.

“But to achieve a positive transformation of Nigeria’s insurance market, operators would need to stimulate the appetite of Nigerians for insurance with the introduction of innovative products and digital disruption of traditional processes and practices.”

Analysts, therefore, expressed the need for insurance companies to have effective and efficient claims departments equipped with modern technology and qualified claims manager(s) to oversee the management and settlement of valid claims of their policyholders to increase insurance penetration in Nigeria; Nigerian insurance industry regulators should enhance its supervisory frameworks to ensure that genuine claims are promptly settled by insurance companies and defaulter adequately punished. This will have a positive impact on insurance density because more Nigerians will be encouraged to buy insurance policies. In line with the theoretical framework adopted for this study, and in addition to the settlement of valid claims, insurance companies should periodically carry out marketing research to discover the insurance needs of their customers as well as prospective customers through product revitalisation and new product development to increase customers expected utility for buying insurance. This will encourage Nigerians to purchase more insurance, and in turn, enhance the development of the Nigerian Insurance industry.