Despite efforts to get Nigerians to embrace insurance and reap its numerous benefits, the National Insurance Commission (NAICOM), the sector’s regulatory body, says about 90 per cent of Nigerians do not have insurance cover. This is worrisome, says Godwin Ejembi Odah, Managing Director/Chief Executive Officer, Union Assurance Plc, who in this interview with UYOATTA ESHIETaddresses the issue and other challenges facing the industry. Excerpts:
What is responsible for the lack of interest in insurance ?
I think a lot of it has to do with lack of awareness, because you have to embrace something that you know. If you don’t know about something, it will be difficult for you to deliberately embrace it. If Nigerians are not embracing insurance to the extent that they should, I would say it is because they are not fully aware of the benefits.
Having said that, there are some Nigerians who have unsavoury experience in the past with some providers of insurance services, and some of these Nigerians point to that fact that they did not have a good experience with past dealings with some insurance firms. There is also the fact that the economy is not doing as well and so disposable income is low, and when people want to allocate their disposable income, they allocate them in order of priority; insurance is not likely to be the first priority. So, when you put all these together, you can see why the demand for insurance is not as high as it should be.
What is the level of acceptability of insurance?
The penetration of insurance is better in virtually every other developed country than in Africa. And within Africa, it is still deeper in many other African countries than Nigeria. South Africa, Kenya, Egypt and others have deeper insurance penetration, relatively speaking. In many places, it is better than Nigeria.
There are reports that poor legal framework and low perception are also responsible. How true are these?
Image arises from experience sometimes, though there are people who despite not having any personal rely on the experiences of others. There are also misinformation and speculations about what insurance companies do, and all these will affect the industry. On legal framework, there is enough legal frameworks to encourage demand for insurance and that is why National Insurance Commission (NAICOM) came out with the Market Development and Restructuring Initiative (MDRI). This is a strategy that is built around the existing legal framework, in the sense that NAICOM wants to enforce laws that are already in our statute books, existing laws that make insurance compulsory in several situations. Motor insurance, insurance of buildings under construction, insurance of employees, and all that, so I would say that there is a reasonable legal framework within which to encourage Nigerians to take up insurance in crucial situations.
What are the other major constraints?
In countries where insurance has thrived successfully, there are one or two things that are in place that we do not have in Nigeria. Where credit is very low, you are bound to have problems because if you have to have money before you access anything you want to buy, if you have to pay cash in order to buy whatever you want, then when you don’t have cash, you are not able to get what you really want. That really is a problem.
The absence of credit is a problem in Nigeria. Elsewhere, if you want to buy a house or motor vehicle or other assets, you have credit facilities granted you by the banks and the way the banks protect this credit is by ensuring that you insure the asset acquired with the credit. In Nigeria, it is very difficult to have facilities to buy a house or a car, people have to struggle to save money to buy these assets, this is why when they finish buying them, because there is no framework to force them to take insurance, as would have happened if there was credit institution that granted him the credit facility, so they don’t bother. This is a major factor; we don’t have a credit system that would have automatically ensured that assets that are purchased with this credit are insured. That is a major problem confronting insurance penetration in Nigeria.
There is the issue of compulsory insurance. Why should people be forced to insure?
It is like saving someone from himself. If someone is trying to commit suicide for instance, his family and friends have the responsibility to prevent such a person from committing suicide. If you want to, for instance, drive your motor vehicle anyhow you like – at the expense of other road users who could be motorists themselves or pedestrians, it is not right to allow that to happen. The idea behind compulsory insurance is to protect other individuals against the harm that you can cause them. If you have a motor vehicle for instance, the government expects you to take at least a third party insurance. The idea behind that third party insurance is to protect other road users against your recklessness. If you want to be reckless, let it be that at least you have insured a potential damage you can do to this other third party.
There is also the law that says if you employ up to five people, you must provide them with an insurance cover against certain risks. Even though this is in the interest of both the employer and the employees, the employers often see it as they are being forced to do what is good. If they are being forced to do what is good for the sake of other people, I think it is for a good course.
If you have a building under construction and the government says you must insure it because there is a possibility that it can collapse and kill other people, if you the builder do not see any good reason in ensuring that other people are protected and the government sees a good reason, is it a good or a bad thing? It is wrong to say people are being forced to insure; rather they are encouraged to or compelled to take insurance in the interest of other people.
Are insurance firms doing enough to expose the business to as many Nigerians as possible?
I think there is a lot that has been done, and a lot more can still be done under various umbrellas. Under the umbrella we belong to, that is the Nigeria Insurers Association (NIA), where all the underwriting companies belong, we regularly advertise in the newspapers. National Insurance Commission (NAICOM), being the insurance industry’s regulator, also does the same. Individual insurance companies also advertise in various media, both electronic and print. A lot of efforts have been put in, and a lot more can still be done.
Insurance seems to be a city-based issue in Nigeria as one can hardly hear of it in the villages. What is the industry doing about this?
Insurance should not be a city issue. It is like when you want to begin a fight you pick the easiest fight first. The cities are where you have the most literate people; it is where you have the most economic activities, so the city is where most demand for insurance is. That is why insurance companies seem to concentrate in cities. But with time, these efforts also will have to go into the hinterland because economic activities will also gradually spread into the hinterland. If you take agricultural insurance, it will be more relevant to people outside the cities. So, when agric insurance becomes more and more potent than what it is now, you will find out that people outside of the cities, farmers in the various villages will then become subject of agric insurance; so it is a matter of time, we are just at the beginning of a long and important journey and that is the journey of providing insurance for virtually everyone who is a Nigerian because every Nigerian needs some form of insurance, or the other.
Which other factors affect insurance in Nigeria?
Poverty certainly negatively affects insurance because you should be able to afford it to pay for the services, the premium, which is what you pay in order to be granted a cover. The level of education also affects insurance because you need to understand the contract you are going into. Our contracts today are written in English language. In other words, you have to read and understand what your rights and obligations under the contract are, you have to be literate. This should not be a barrier because there is nothing that stops us from writing our contracts in our local languages, but even to do that, you should have some indication of demand. With time these things will come to pass.
There are complaints also of the issue of technicalities in the trade. Are these technicalities not putting off potential clients from its acceptability?
It is a very simple thing. There is nothing too technical about insurance. Insurance is about you handing over the risk when you run to a company that specialises in handling such risks and you pay them a little amount of money called ‘premium’. When the risks crystallise, that is what you never wanted to happen, if such ever happens, then they pay you and put you in the same position you were before you started taking that risk.
What people complain about may be the wordings of the contract and insurance companies have started making efforts towards simplifying the wordings of the contract. Because it is a legal contract, it has some level of technicalities to it. The relationship between the insurance companies and the person being insured is a legal relationship; legal contracts are not always very simple but despite that, efforts are being made to simplify the wordings in a manner that people will now understand with ease.
Union Assurance has held its Annual General Meeting (AGM) where an impressive result was posted. What made that result possible and what are you doing to sustain and improve on it?
Sustained hard work and the benefits of the Enterprise Restructuring Program (ERP) that we put in place in 2009, that is the goal of the transformation programme that we courageously began in 2009.
How is Union Assurance driving insurance penetration?
We sell all the normal insurance products and we are also working hard to develop new products. We have five new products that are awaiting the approval of NAICOM before introducing them into the market. We are a company driven by the desire to innovate, that innovation can only show by way of new products. We sell all the products that other insurance companies sell, both on the life and non-life side, but in addition, we are developing new products based on our observation of the needs of the insuring public.
Do you see the efforts of NAICOM, yielding the desired results?
What you are talking about is the Market Development and Restructuring Indicatives (MDRI). It is a courageous project and also one that have a lot of potential. We may not reap all the benefits this year but there is the likelihood that things are going to work better in terms of the income, the increase in premium income in the industry.
Nigeria recorded the worst flooding ever, where millions of people were displaced in most parts of the country, and over 140 were said to have died. What is the insurable value of the assets destroyed during the disaster, because the cost of Hurricane Sandy that happened in the United States after the flooding in Nigeria has been put at over $20 billion?
We don’t have accurate statistics for it. It is not every policy holder that has flood policy. Right now, it is difficult to say what percentage of the affected population that has flood policy or what percentage of those that have flood policy that were affected in the flooding in Nigeria. It is statistics that need to be obtained. The American environment is driven by statistical information. That environment is different from our own and that is one of the major problems we have as a developing country.
The government is said not to match words with action when it comes the issue of insurance premium payment. How does this affect the industry?
The government does pay premium. It is only that it takes time. They don’t pay as at when due, but the government does pay. The government generally take time in everything; for instance, the budget that is the basis for everything does not usually become operative immediately because of the process that it goes through. The National Assembly has to approve budgets before they can become operational. That is why the government takes time before paying premium but it does pay. But we hope that there will be changes because we are moving towards a state of ‘no premium, no cover’. If you don’t pay premium, there will be no cover for you.
In the capital market the insurance stocks are often referred to as the ‘penny penny stocks’ because they are at nominal value of 50 kobo except for about two stocks. What is the cause of this pathetic situation and how can it be rectified?
The value of stocks is mainly driven by demand. What causes the demand for a particular stock is the potential or prospect of profitability of that stock. The day insurance companies begin to declare reasonable profits for their shareholders, other potential shareholders will begin to look at the stock and think about buying them.
Right now, many insurance companies are struggling and that is not unusual because when an economy is struggling, it is difficult to for a component of that economy to outperform it and insurance in particular because demand for insurance in Nigeria is pretty lower and what causes how much income you get is as a result of the demand you get for your product. So, as long as the demand for insurance remain low, insurance companies will have little money to play with and with the cost of operations and other overheads, at the end of the day, you don’t have much money to declare by way of profit. The low profitability of the insurance industry is the reason insurance stocks are not attractive. The stocks will become attractive when people begin to demand to buy them and that is when they begin to become profitable.
