Strengthening Nigeria’s Insurance Sector
In its on going efforts to reposition the insurance sector to meet modern demands, stronger financially, the National Insurance Commission may take decisions that might seem inimical to some stakeholders’ interest, writes Ebere Nwoji
Recent statements by both the Commissioner for Insurance, Mr Sunday Olorundare Thomas and the Deputy Commissioner for Insurance, Technical, Sabiu Abubakar on imminent liquidation of more insurance firms and licensing of new ones has been described by insurance sector analysts as a way of sanitising, re-invigorating and stabilising the insurance sector for optimum performance.
Thomas had at the recent Africa Insurance Organisation conference held in Nairobi, Kenya told the media that NAICOM was considering giving operating licenses to more insurance and reinsurance firms that show and have capacity to impact the underwriting sector.
He said in doing this, the commission meant to continue to encourage the development of the insurance sector by ensuring that capable players were welcomed into the sector.
The NAICOM helmsman said insurance and reinsurance firms licenced over a year ago, were granted approval due to their capacity to impact the sector.
Shortly after this, the Deputy Commissioner for Insurance Technical, Sabiu Abubakar, told the media at the 2022 Business outlook conference organised by the Chartered Insurance Institute of Nigeria (CIIN) that more insurance firms might be positioned for liquidation as part of the commission’s move to sanities the insurance industry.
Reactions
The above two statements have generated controversial reactions, especially from workers and stakeholders of two companies whose certificates of operations were cancelled recently namely, Niger Insurance and Standard Alliance insurance.
While insurance sector operators hail NAICOM for taking action that would save the image of the industry, insisting that weak operators in the system have continued to dent the image of the industry, stakeholders in the two firms frowned at what the regulator did, faulting the idea of killing existing firms and planning to license new firms. Both employees of Niger and Standard Alliance Insurance companies said instead of withdrawing the certificates of their firms and proposing to license new firms the commission should have used its position to invite foreign investors that approach it for licenses and encourage them to invest in the firms and inject life in them.
Embargo on Licensing
Before it’s licensing of four insurance and one re-insurance firms in the country two years ago, NAICOM had for over 10 years placed embargo on licensing of new insurance firms.
The then commissioner for insurance Mr Fola Daniel who placed the licensing embargo had insisted that instead of licensing new firms when there were a good number of weak firms in the system, intending operators should buy over weak firms and inject life in them.
After his assumption of duty, Thomas at the 2020 media retreat organised by NAICOM at Ijebuode, Ogun State announced that the commission had handed over operating licenses to four insurance and five reinsurance firms.
The companies are Heir General Insurance Limited, Stanbic IBTC Insurance Limited; Heirs Life Assurance Limited; Enterprise Life Assurance Company Nigeria Limited and FBS Reinsurance Limited.
This brings to a total of 62 insurance underwriting and three reinsurance firms in the country.
With the withdrawal of operating certificates of Niger and Standard Alliance insurance firms which were recently placed under receivership management appointed by NAICOM in addition to Goldlink insurance and one previous insurance firm under NAICOM’s management, if the present managers fail to revive them and they eventually go into extinction, the system will be left with 58 insurance firms .
Stakeholders of the above firms are saying it would have been better that since the commission was in position of authority to receive applications for licenses from new entrants into the market, it would have been better to direct such applicants to invest in those firms as happened in International Energy Insurance rather than licensing new firms.
Operators’ Feelings
But before the withdrawal of their operating licenses, cases of unpaid claims by the above companies placed the image of the industry on a danger list, prompting industry leaders like the former President of Chartered Insurance Institute of Nigeria and Managing Director Risk Analyst Insurance Brokers, Mrs. Funmi Babington Ashaye at one of the media retreats organised by the institute to raise alarm that the image of the entire insurance sector was being diminished by the presence of weak firms left to continue operation in the system.
According to her, because of huge unpaid claims hanging on their necks, image of genuine firms who pay their claims promptly were being tarnished and this affected the operations of the entire industry.
She said the time was ripe for the regulator and market association body to single such firms out and deal with them decisively to save the image of the industry.
She explained that their continued operation was dangerous because to the average Nigerian who purchased policy from them and has his claim unpaid, it was insurance people that did not pay his or her claim not that particular firm.
She said this being the case the commission should call a spade a spade and allow only the healthy firms to remain in business.
The same position was maintained by the Managing Director Consolidated Hallmark Insurance when as the chairman Nigeria Insurers Association he insisted that Nigeria insurance industry had come of age and should be sanitised to stand tall among the global committee of insurance markets.
He said days were gone when the industry had room for quacks and weaklings as such insurance firms which were weak should desist from defrauding people and rise to the challenge of discharging their claims responsibility or close shops.
NAICOM on low capital base
The immediate past commissioner for insurance, Mohammed Kari, said it was for this reason that his administration in NAICOM introduced the Risk Based capital so that each firm would concentrate only on businesses it has the financial capability to underwrite and raise the capital it has the capacity to raise. He said this way there would be no weakling insurance firm in the system.
Kari said he was irked by the continued resistance by operators to raising new capital, a situation which he said was responsible for existence of weak firms in the system described the insurance sector as the weakest link in the Nigerian economy because of the low capital base of operators.
He noted that the sector that ought to insure critical sectors such as aviation, should not be seen to have capital base, which is even less than that of microfinance banks.
Currently capital base of life insurance firms in Nigeria is N2 billion, that of non -life is N3 billion, composite firms have N5 billion capital while reinsurers have N10 billion capital base.
Several efforts even by the present administration in NAICOM to raise the capital base of the industry were strongly resisted by the operators.
Kari stated that whereas the CBN planned to increase capital base of even Micro finance banks, insurers were resisting capital increase; yet they want to underwrite big-ticket business.
Lamenting the poor attitude of operators towards the industry recapitalisation, Kari said, “We are the weakest link in the Nigerian economy and now we are going to be less capitalised than mortgage guarantee banks with N6 billion and less capitalised 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 mobiliser 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?”
Analysts’ view
Industry analysts said to save the image of the entire industry, liquidation of ailing firms is the way to go if all possible efforts of saving them have proved abortive.
According to the analysis, the reason is because they have inadequate capital ratio, they do not pay claims rather they repudiate claims, they don’t pay staff salary neither do they give returns to investors.
According to the analysts, some cook up annual reports to justify their existence. They concluded that such firms were the ones that give bad impression about insurance sector.
According to the analysts, because of their continued existence, clients are dissatisfied and give blanket condemnation of the sector.
On the proposed licensing of new firms, they said NAICOM has been authorised to do; therefore, it is left for the commission to decide to license new firms or to encourage investment into the ailing ones.
The analysts however said NAICOM had no power to compel any investor to invest where he does not want to commit funds.
The new investors opting for fresh license according to the analysts, have the capital base, can hire technical knowhow, can pay claims and NAICOM would have assessed them to be competent using the yardstick and experiences of the past.
According to them, by all standards of measurement, new firms and their investors are presumed to be modern practitioners that will bring in freshness into the system.
They said Liquidated firms may be aggrieved but it does not end there, as they should have acted when they had the opportunity.
Their board members, they argued, should have lived up to expectation by performing their oversight functions of the operations of the companies before their present condition.
