Can banking technology drive insurance sector to bring more people into the financial system? Head of Research at Coronation Merchant Bank Limited, Guy Czartoryski, says it is possible. Speaking with COLLINS NWEZE, he said the technology deployed by banks to get 38.5 million Bank Verification Number (BVN) registered customers can be used to deepen insurance penetration. What is needed is more investments in the insurance sector, including industry recapitalisation and right regulation. For him, as more technology is deployed to push the insurance business up, profits will follow and the economy will benefit.
Can banking technology be deployed to increase the customer base of the insurance industry? If so, what sort of technology do you think can be used to boost the activities in the industry?
If you look at the bank numbers, their fees and commissions are growing quite quickly because people are using Unstructured Supplementary Service Data (USSD) code on their phones. If you look at the Telco industry, it is the star of the Gross Domestic Product number because the Telco industry is going up about 11 per cent year on year on the back of the deployment of this technology. In my view, insurance companies can use technology to increase their penetration and coverage similar to the banking industry. There are lots of channels, such as mobile banking, whereby using mobile apps, which banks use to reach out to a lot of customers. That sort of digital platform for insurance would go a long way for the insurance companies. Many people do not go into banks anymore. This sort of technology development can also be used in the insurance industry to increase the penetration. Using mobile channels, using internet platforms as a way of increasing awareness, boosting the brand and customer appreciation requires a lot of investment and that is why a lot of insurance companies have not been able to make those investment. So getting more capital would increase that process of getting access to customers directly.
How convenient is this, considering that insurance does not have all the resources given that with the apps there is a pool of funds for the customers giving them options to choose the transaction they want to do?
The usual way is to go to their office to fill a form. But now I can do that using my mobile app instead of me going to their office, which is the kind of technology initiatives we are talking about. If I want to do my car insurance, I can also do it using my mobile app rather than going to the office, looking at convenience. By using technology, it increases the penetration and usage. Also, constantly using all sorts of tools, using social media and you are always seeing this product it increases the awareness of insurance and trust.
You mentioned that banking technology can drive insurance, so what is stopping it? Is it regulations or the sector is not ready for it yet?
If you are an insurance company, you cannot walk into a bank and tell them to sell your products. For that to happen, it takes a lot of education. If you go into a bank saying I have got this great idea to sell insurance, you would get a good response but you will put a lot of debt in your infrastructure. For a bank to sell the insurance product, you will need a sales team within the bank to actually do it or at least incentivise your existing sales team to sell, which is hard to do. Although there are some markets where bank insurance works and some that it does not work. It works well in France while in the United Kingdom, it does not work. In terms of the regulator, an insurance company can only use two banks as its partner, and banks can only use two insurance companies as its partner.
It is expected that at the end of the recapitalisation exercise, the companies would reduce from 59 to about 25, what are the indicators we are likely to see?
One of the main discussions is to list the other companies and we list the ones that are in capital raising exercises and assume the others cannot raise capital which means they would be bought or merged. It is kind of a guess work, but it is a question of how deep the pockets of the share holders are. Let us say 10 billion for a non life. Capital could mean only your paid up capital, it could mean your paid up capital plus your shared premium account, it could mean your paid up capital plus your shared premium account plus your retained earnings, or it could mean your paid up capital plus your shared premium account plus your retained earnings, plus your reserves with equal share holders funds.
For instance, in 2020, there is likely to be a lot of money in insurance. The challenge is where this capital is going to be used. If you look at the purchasing power of average Nigerians, who are supposed to take insurance policies, they are mostly concerned about basic needs. So, where are the insurance companies going to deploy this money?
If a research team goes out to conduct a market survey in outer parts of Lagos and they understand what the consumer is doing, asking the five things people want, insurance would not be one of them. So, insurance is not a product you can just advertise and sell, it does not work like that which is why micro insurance is wonderful in a way. If you are selling a micro insurance product with something like a Telco which everyone uses and you put a small slice as the Telco fee as the insurance premium, then you can grow it successfully and familiarise people to the market with that at the same time. You cannot put up advert boards and advert campaigns telling people to buy insurance. It is different for pensions because we see people paying pension advancements but insurance does not follow that rule. Therefore, I do not think people would be able to take out money from their account to pay for insurance. Making some sort of insurance mandatory is a better way of doing it. In terms of what a lot of the companies would spend the money on is most likely technology because you are going to create systems that would service a lot of clients.
How can we address this issue of trust in the industry?
Trust is very essential in the banking industry as well as insurance. Learning from what happened in the pre 2004 consolidation era, you could count the number of people that had bank accounts because a lot of players and a lot of people had witnessed banks in distress, making people lose interest in banks. Post consolidation, the banks reduced from 89 to 25 banks. Presently we have bigger banks with large balance sheets, huge capital for them to reach out to a lot of customers in order to create a lot of trust and we have seen a massive increase in financial inclusion. For example, Access Bank before 2004 had just about 200 retail customers but now it is about 14 million customers and it is growing by the day. This is the type of effect we are expecting in the insurance consolidation. There are currently about 59 players and the reason people are not patronising insurance is as a result of lack of trust issues such as, them getting paid when the insurance policy matures. By the time the numbers of layers in the industry reduce and we have strong firms in the insurance industry that have huge capital base they patronage in the sector would develop.
What is the interest of Coronation Merchant bank in the insurance industry. Secondly, the capital base of micro insurance operators as specified by the National Insurance Commission is low. So, it is not enough for them to deploy infrastructures to address the issues?
There are numerous ways to make sure banks can service an insurance company. It is all about liquidity, insurance companies are liquid and they can help manage it. Your liquidity might be in the wrong currency, because if someone smashes up their car you cannot go and completely repair it in naira because some of those spare parts are in dollars. Hence, that business inevitably is going to go to a bank. The approach we have had here is to have a separate licence and what I do know is that when you run micro insurance you can either have it in a separate licence which means that capital has to service that particular activity. Also I think you can have a lot of involvement, if you go into Linda Gate’s Foundation site or UK AIDS site, you would see a lot of these people are interested to support us, so you might be able to leverage that capital using Development Finance Institution’s foundation institutions data to find institutions and foundations that are active and willing to support.
Looking at the trust you mentioned, it is a factor that is pulling down the sector so what do you have to say about using slight technicalities to deprive owners of claims?
The profile of insurance companies is increasing in terms of trust, what you are referring to is how people refer to insurance companies in the past, in the last decade the regulators, National Insurance Corporation (NICON) has worked on this and with the help of the Insurance Brokers as well we are seeing the technicalities you have mentioned and insurance companies have become more responsible in meeting up claims.
I do not think it is a major problem like it used to be, and that is why I am saying that the insurance industry has been plagued with this lack of trust issue. There is a lot of work that needs to be done to ensure there is a cleanup concerning this but to be honest in the last couple of years, the issues of not being able to make claims have reduced NICON alongside insurance stakeholders have worked effortlessly to tackle it. I remember in the year 2000, to make insurance claims could take up to two to three weeks, now it can last for two to three days to make claims, and it is increasing which is what this consolidation would further increase because now you have more bigger players in the industry and the time of claims settlement would also be shortened; also, with the risks appropriately priced there would not be any issue meeting up claims so these are the technicalities that have reduced. People still have the old picture in their minds not knowing there have been drastic developments which is going to improve over the years.
What is your view on the government’s patronage in the insurance sector?
The government has numerous assets, such as fleet of cars, properties, which is a different scenario when you have a single car or property which makes more sense for you to insure. If you own 3000 cars you do not insure because you have other cars. The more access you have to a particular asset, the less reason for you to insure them. However, I believe that most governments in the world should have a mandatory insurance policy on all government cars, properties, businesses the same way they insure employees.
I do not think it is a matter of trust, in my opinion I think it is a due to government bureaucracy.In the past, a lot of insurance companies used to write insurance on credit and there used to be a lot of receivables in the books of those insurance companies. We all know about the delay of government to pay up on insurance but now there is a policy of no premium no cover which means the days of receivables are gone. Even if the government by virtue of their policies needs to insure their assets but due to bureaucracy in payment, the asset that should have been insured in 2019 would extend to 2020 and by that period the insurance would have relapsed and that is why there has not been an increase in terms of government patronage in the insurance industry.