Last year was tough and critical for the insurance industry in terms of regulation by the National Insurance Commission (NAICOM). In this report, Omobola Tolu-Kusimo takes a look at the challenges and achievements of the industry in 2013 and prospects in 2014 and beyond.
The insurance sector has witnessed some positive changes owing to stricter regulatory and operational frameworks enforced by the National Insurance Commission (NAICOM).
Although the sector is yet to reach its peak, what obtains is a departure from a sector that was previously characterised by poor regulatory framework, coupled with poor service delivery and a battered image.
Earlier, the industry was laden with a myriad of problems, ranging from lack of trust, non-payment of claims, rate cutting, delays in premium remittance, inability of players to explore and exploit opportunities presented by the implementation of the local content policy of the federal government and unethical practices, among others.
Presently, the number of existing insurance firms in Nigeria include 14 life, 31 non-life, 11 composite and two re-insurance companies. Total net premium of the industry’s contribution to the Nigerian economy is N185 billion with total gross premium put at N234 billion.
Regulation, Sanctions
and Penalties
NAICOM has continued to play its supervisory role with increased on- and-off site inspections of operators. This has ensured prompt settlement of claims, improved corporate governance and risk management capacity and reduced the incidence of non-remittance of premium to insurers. It also intensified its enforcement of regulations and guidelines in the review period, in line with global best business practices, thus improving the confidence level of the insuring public as well as investors and stakeholders.
The Commission instilled discipline among the operators by wielding the big-stick against erring companies where necessary and adopting the carrot approach in some instances. For instance, the commission decided to waive the N5000 penalty charged daily on late submission of result because of the challenges they faced in transiting to the International Financial Reporting standard (IFRS).
NAICOM is silent on whether if will wield the big stick against seven companies that were unable to submit their 2012 financial statements one year after, going by the Insurance act, 2003.
There are pending issues that bother on regulation involving Investment and Allied Assurance (IAA), Alliance and General Insurance (AIG), Fidelity Bond Brokers and others that were suspended from the market owing to financial misappropriation and corporate governance abuse, among others. However, in the case of AIG and Fidelity Bond, NAICOM is incapacitated because the duo have dragged the regulator to court.
No-Premium,
No-cover policy
The year started with NAICOM announcing that insurance will no longer be sold on credit, but on a cash-and-carry basis.
Commissioner for Insurance, Mr Fola Daniel, said with effect from January 1, 2013, the enforcement of sanctions against insurance operators who issue policies, or grant covers in violation of Section 50 (1) of the Insurance Act, 2003, will commence. The section states that “the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.”
He said the Commission deemed it imperative to ensure compliance by all insurance operators with the provision of the law in order to protect the interest of policy holders and other stakeholders from the negative consequences of the existing practice.
Daniel said the current state of affairs before its announcement did not only increase the credit risk of insurers, but also introduced uncertainty in the market as to the capacity of insurers to meet their obligations to policyholders and other stakeholders.
He advised Ministries, Departments and Agencies of governments, corporate organisations and members of the public to ensure strict compliance with the law.
International Financial Reporting System
The year also heralded the full implementation of the IFRS. Underwriters jostled to comply as their 2012 accounts were subjected to tough scrutiny by NAICOM. Many of them made frequent visits to the Commission’s office in Abuja, as they ran around to answer volumes of queries on their accounts.
As at end of 2013 financial year, only 38 firms’ accounts were approved with companies such as Oceanic Insurance Company Limited; Lasaco Assurance Plc; Crystal Life Insurance; Mutual Benefits Life Assurance Limited; Mutual Benefits Assurance Plc; Nem Insurance Plc; Linkage Assurance Plc and Union Assurance Limited getting the last minute approval as at December 20.
Merger and Acquisition
The industry witnessed one successful merger by Crusader Insurance Plc and Custodian and Allied Insurance Plc. Old Mutual, however, acquired Oceanic Life and is about adding the general arm of the group, Oceanic Insurance Company Limited. Others such as FBN Life, Linkage, Cornerstone, AIICO, Insurance PHB, also mulled the option.
Release of Takaful and
Micro insurance guidelines
Less than two months to the end of the year, NAICOM released guidelines on Takaful and Micro Insurance in line with the provisions of the 1997 Insurance Act, and the need to complement the current drive for Financial Inclusion to increase insurance penetration in Nigeria.
Daniel said the Commission was prepared to give all the necessary support for this segment of insurance which is expected to create wealth, alleviate poverty, increase penetration of insurance and, to a larger extent, bring insurance practitioners in Nigeria to the same page as their counterparts in other jurisdictions.
Products Development
Following the trend of the emerging market, NAICOM encouraged the insurance companies to design and market attractive new products to entice customers with the aim of deepening the market and increase sales. Companies were asked to submit updates on products’ performance on quarterly basis after approval has been granted by the Commission to sell the products.
Presenting an update on the performance of products, NAICOM said about 80 per cent of the products approved in 2012 performed well as at end of last year.
Market Development and Restructuring Initiative (MDRI)
Although the MDRI initiative was meant to achieve a N1.2 trillion premium income as at end of 2012, consumer apathy in the market lowered prospects of actualisation of the target.
Last year, the momentum to sell the compulsory insurances around the country by operators was low due to the inability of the commission to gather full support of law enforcement agencies to enforce the law.
Consultation Committee
The industry inaugurated the Insurance Industry Consultation Committed (IICC) headed by the President, Chartered Insurance Institute of Nigeria (CIIN), Fatai Lawal. It was charged with speaking for the industry and helping to resolve all issues among operators from the different arms of the industry.
2014 Projections
Operators and stakeholders are of the expectation that by 2014, various initiatives of the regulator will increase insurance penetration and more Nigerians will buy into insurance. This, they believe, would boost the industry’s contributions to the nation’s economy.
Insurance veteran, Prof Joe Irukwu, said the industry fared well in 2013 but could do better this year. He said premiums were growing, but that the level of insurance awareness remained very low.
He said: “Everybody in the industry has to do everything possible to get as many Nigerians as possible to appreciate the value and the benefit of insurance. Insurance would have made more contributions to the development of the country if we have many more people that are aware of its benefits.
“The situation was worst in the past because government and everybody ignored insurance but I think with the new NAICOM and its Commissioner, Daniel, the industry is becoming more recognised. But there is need for more work to be done. Unfortunately for us, insurance is linked with the economy and when the economy is doing well, insurance does well. But when the economy is not doing well, the industry will suffer,” he added.
On industry prospects this year, Irukwu said operators and stakeholders are poised to see that the industry plays a more active role this year.
“If we solve the political problems that we have and if there is the political will, businesses will thrive, security will improve and more jobs will be created. This is when insurance will play its part. But this requires the effort of everybody, not just government. Everybody has to be on board to make our insurance culture more positive than it was before”.
Managing Director, Custodian and Allied Insurance Plc, Mr. Wole Oshin, said regulation has improved tremendously, adding that the introduction of the IFRS, though with its attendant challenges, is a welcome development and a positive step in the right direction.
He noted that a uniform way in the reporting of accounting procedures and operation will be achieved, while it will also increase transparency and coherence with the international standards.
Oshin said the regulator has acted in the best interest of the industry with the enforcement of the no- premium, no-cover policy, noting that the response of the insuring public has been positive. He said the insuring public that had rated the industry as unserious, now deals with industry with much seriousness
“In the coming year, I expect that the public would properly understand that the industry is working and that things will even get better. I believe we will move to a greater height this year,” he said.
For Managing Director, Anchor Insurance, Mr Muyiwa Adeduro, 2013 was a year with mixed feelings even as he felt excited that operators, including himsel,f survived the tough regulatory year.
He said: “It was a year of the adoption of IFRS and a year of Enterprise Risk Management (ERM) and so many other regulations that we need to comply with so it was a tough and learning year.
“In terms of income, the no premium, no cover initiative by NAICOM is commendable because it has helped the industry tremendously in terms of premium collection and increased our income. Although, we lost quite a number of customer that are used to paying installmentally or at the end of the year but we believe that coming 2014 will be better.”
On the economic environment, the Anchor boss said there has being a positive side in the economy.
He noted that the same cannot be said about the real sector.
“We still have a lot to grapple with on growth in the real sector. Electricity generation depleted in 2013 and quite a number of people sustained their operation throughout the year with running of generating set and buying diesel.
“But I believe that quite a number of initiatives of the NAICOM is going to rub off on the industry. The launch of microinsurance and takaful, retail sector among others are avenues we are looking at for next year. It is sad that out of over 160 million Nigerians, only few have one form of insurance or the other.
Insurance penetration is still lower than two per cent in the economy and these are the issues we should work on next year and I believe that 2014 will be a very good year for us in the sector.
