Leke Odude is Chairman, Lektol Insurance and President, Business Club, Ikeja. In this interview with Medinat Kanabe, the English and History graduate from the University of Lagos speaks on the insurance ecosystem, his career trajectory and lots more. Excerpts:
What is your opinion about the new benchmark for capital base for insurance companies in Nigeria?
The benchmark is no longer a new thing; the policy to implement the reverse capital base was taken years back and the underwriters were given some years to finish it which was about two years ago. It is only recently that the National Insurance Commission (NAICOM) tried to introduce what they now call Tier System whereby they want to refer to some insurance companies as Tier one, some other set as Tier two and Tier three but the market resisted it and the Commissioner for Insurance had to rescind the decision.
Insurance is about trust and if I market to you, wanting you to trust me about replacement of your asset of investment in the future, there are some parameters which are important to be in place for you to trust me and one of such is the capital base. Yorubas say that if I want to sew a dress for you, you will first look at what I am wearing and if you say, ha this person that is shabbily dressed, how can he sew a cloth for me? So if the insurance industry does not have a good capital base, it will not make the insuring public to have confidence in the industry, that was why the government increased the capital base and since then, the insurance companies have stabilised.
Insurance remains a hard sell. As an insurer how have you been able to navigate the terrain?
You see, things operate in the environment that you are in, already the purchasing power of an average Nigerian has dropped sadly, it is not about the income but because there are no infrastructure in place. An average Nigerian has to provide electricity for himself, water, a good school and in most cases medical facilities so when you take that into consideration you will now find out that after all the purchasing, there is hardly little left not to talk of to feed the family.
Insurance is about securing your assets for the present and securing your future, so the person that has not taken care of the present, how do you encourage such people to invest in the future? So it has been a challenging terrain but that is not to say that insurance companies have not succeeded, those who appreciate the value of insurance do take insurance.
Then religiously too, we have this belief that whatever happens to a man is divinely appointed, I mean that is the way God wants it but an average European believes that when he is one position, he cannot go lower than that so the European man goes the extra mile to spend anything as premium to secure that position.
But it is only in this part of the world that you will see somebody lose his house as a result of fire and he is down to square one. It is assumed in a civilized environment that fire insurance and things like that are compulsory. If you buy a wrist watch or a mobile phone in a store they will ask you if you want it insured. You just pay something minimal and you will have a replacement if something happens to it. But it is not like that here but then that is not to say that the insurance is not thriving. Regardless of the challenges, it is still thriving and I believe that insurance will still go to greater heights.
How long have you been operating your insurance broker and how has it been?
Insurance is broken into two, the underwriter and the brokers. We are the intermediary between the insurance company and the insuring public, we are expected to be consultant who are in the position to advise the insuring public which is our client on the aspect of insurance that they would require and how best to go about it, those that are relevant, those that are not relevant and ensure that they go get an optimum cover on the minimum premium. I have been running my broker firm since 1990 and we have been able to break even, have some staff with us and some have been working with me for over 20 years. Some of my staff owns their own houses already. Though I’m in my 60s and in the process of retiring, I’m leaving them to run the business.
Which of these policies will you say come easy to sell?
Insurance is not about an individual policy being lucrative or not, the most common one is the motor insurance. You know mobility is an important aspect in a human life. Every human being is expected to leave his place of residence to his place of work so motor insurance is a very common one and the government has made sure that every vehicle has it. The motor insurance is divided into two, the third party liability and the comprehensive cover. In other words, the fact that I ride a car does not mean that if I use my car to damage another person’s property, either car or building or cause injury to a pedestrian I will not be liable. I will not be in the position to say sorry, I don’t have money in my pocket that is why the government made the third party insurance to be compulsory for every car owner. Nobody is talking about you covering your asset in other words, replacing your asset, what the government is saying is that your liability to others must be well taken care of whereby you will be in the position to say if I damage your vehicle or property, it does not exclude me from meeting my obligation, that is to make good the damage that I have done so the motor insurance is the most common.
Over the years there have been a lot of fake documents flying the street as regards motor insurance, the people believe that the certificate is just a confirmation that I have cover and that is why the police ask for it. That is why the Yoruba says olopa je n simi (Policeman stay off my case) so at the licensing office, you find that there are a lot of fake documents flying around until recently when the insurance industry in collaboration with the government and the supervising agency came together to create a platform whereby they can confirm if your insurance certificate is genuine. So this has substantially reduced the fake document flying around.
The attitude of many Nigerians to insurance is not encouraging, I have seen a man who built a house and can afford a brand new jeep but does not see reasons to do a N5, 000 third party insurance on the jeep.
There are more sophisticated aspects of insurance and that is where the insurance companies make the gains they use to offset the loss of the motor industry. For instance, fire is a good business, the building that is standing here may remain like this for the next 50, 100 years and nothing will happen to it and if there is adequate cover on it the premium will be paid but that is not to say that if there is a loss in fire, at time it can take some 30 years of 40 years to recover the outlay based on the premium that was paid. But then you know that insurance is a common thing. It is a risk transfer mechanism, so while the insuring public transfers their risks to the insurance company, the insurance company also transfer their risks to another market that they call re-insurance.
There is this agreement that whatever loss that is above a certain amount, they will come in so they re-insure their risk making sure that the risks is spread. You know marine was the origin of insurance, it was originally merchants who were going about to buy things, so when they are about to go and import or sell their goods, they put some money together so that if their ship which were not big at that time capsizes and someone loses his goods, all the money that were put together will be given to the person. It was later refined and became what we know it to be today.
What do you think about the many reviews on premium in many insurance companies?
One thing that is constant in life is change and as a result of technology the world has become a global village. As a result of technology there is versatility and if you decide not to move with the trend events will overtake you and I always believe that anything that is versatile is in the interest of everybody. So what we are experiencing is not only in the insurance company. It shows that we do not have monopoly over anything. As an industry, we must be willing to respond to such, and I’m glad the insurance companies are up and doing as regards to that.
Insurance companies are supposed to serve as a buffer to the economy during recession. But in Nigeria the case is not so, why?
Let me first say that anytime there is a recession, the insurance companies are the most hit all over the world. In the first instance, as a result of the recession, those who were paying commensurate premiums will not be able to meet up as a result of the recession so there is a drastic drop in revenue in terms of premium and at the same time there is a high rise in claims in the sense that those who are in economic recession will then start thinking of how to get out of the mess.
Then they feel “look we have been paying insurance without getting any claims, how do we cook up a claim? So what we find out is that they cook up a claim that does not exist with the view to getting money from the insurance companies to get out of their own financial situation.
So when you have a recession, there is drastically a reduction in income and a big rise in insurance claims so the insurance companies are the most hit and that is not peculiar to Nigeria, it is a worldwide phenomenon. Things like this usually are done by Lebanese companies, when they have serious financial crisis, they would have emptied their warehouse, of course, the warehouse is rented it is not theirs but they know that the insurance companies will run records so they would have prepared their adequate records of goods coming in. The next thing we would hear is that there was a nasty fire incidence; meanwhile because everything has been burn to aches, they would only leave some skeletal things. It would be difficult for you to fathom the loss. And what they would do is to bring out their store card to show that just before the lose they had just received goods into their warehouse so you will find out that the insurance companies will have difficulty in disproving the claim; of course they know it so they plan ahead for it.
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