Mirroring Nigeria’s insurance industry in the last 4 years

Category: Business Published on Thursday, 30 June 2011 00:00

Though it is not yet uhuru for insurance businesses in Nigeria, the industry has improved significantly in the last four years (2007-2011). Following consolidation in 2007, the industry has witness appreciable growth. Some observers say it is the highest growth rate in the history of the insurance industry.

The Insurance Industry’s growth rate for the year 2004 – 2007 stood at approximately 11 percent.  The same industry experienced a growth rate of 35 percent for the Year 2007 – 2010 which is the highest growth rate ever experienced by the Insurance Industry. Also, the insurance penetration has moved from about 6 percent to about 10 percent and contribution about 1 percent to GDP from 0.6 percent. The industry capitalisation has exceeded N500 billion from a pre-consolidation level of N30 billion. This is expected to grow to N1.1 trillion by the end of 2012 and N60 trillion by 2020.

The above clearly demonstrates the positive influence of the reform programmes and initiatives introduced by the National Insurance Commission (NAICOM) led by Mr. Fola Daniel since 2007. The industry players also recognise this change. For instance, the Chief Executive Officer Niger Insurance Mr. Justus Clinton Uranta recently remarked that the National Insurance Commission (NAICOM) under Mr. Fola Daniel has positively transformed the insurance industry in recent years. According to him, the growth recorded by the industry within the last few years could be traced to the commitment of both the operators and the regulator in spite of the daunting challenges and apathy against insurance business in the country.

Similarly, the Chartered Insurance Institute of Nigeria (CIIN) Director General Sunny Adeda said, “Fola Daniel has actually changed the face and perception of Insurance with his market development and restructuring initiatives. You can see compulsory insurance has been launched in the  six geo-political regions of this country and that means that even the state governments have keyed into this project. That would mean deepening insurance penetration in Nigeria. In terms of regulation, he has adopted a consultative approach in dealing with the market which is the best approach.”

Also, the chairman of the Nigerian Insurers Association (NIA), Mr. Olusola Ladipo-Ajayi recently commended the reforms of NIACOM. He particularly harped on MDRI and robust regulatory framework. He pledged the association’s continued support to NAICOM’s quest to position the industry towards vision 20:2020 objectives.

But before Nigeria’s insurance industry became this positive, it had a chequerred past.  Prior to Mr. Fola Daniel’s appointment as Commissioner for Insurance/Chief Executive Officer of the National Insurance Commission (NAICOM), the industry was experiencing a confidence crisis following a Ministerial Panel’s indictment and subsequent sack of his predecessor for the improper handling of the insurance industry recapitalization exercise.

On the other hand, even NAICOM at some point was experiencing declining productivity. The technical capacity was abysmally below internationally accepted regulatory indices, with core technical staff capacity of less than 20 to a proportion of 153 poorly trained auxiliary staff. This was further compounded with low staff morale owing to poor working condition/environment and poor remuneration. The internal schism amongst management and staff of the Commission culminated in the setting up of a Presidential Panel to review the Recapitalization Exercise and Management of the Commission at some point.

In addition, several litigations were also instituted against the Commission by major trade arms of the Insurance Industry. Some of the suits included the NIA Recapitalization suit and the NCRIB suit to name a few. These problems, amongst others, rendered the Commission virtually incapable of discharging its regulatory oversight.

When change of guard occurred in NAICOM and Mr. Daniel came around June 2007, he completed the recapitalization process in September 2007; this resulted in the consolidation of the then 107 Insurance firms to 51. The recapitalization funds held in Escrow Account were subsequently released; and liquidators to administer the process of winding-up insurance companies that could not meet the minimum capital requirements were appointed.

He also initiated a dialogue between the Commission and the two trade associations – Nigeria Insurers Association (NIA) and Nigerian Council for Registered Insurance Brokers (NCRIB). This saw the legal challenges dropped, paving way for out-of-court settlement. A major dividend of the dispute resolution with the NIA is the unconditional waiver of its claim to a return of about N1.5billion earlier collected from Insurers.  This money hitherto kept in a holding account pending court resolution became available to the Commission for the purchase of a permanent Head Office.

With restored health in the insurance sector, the Commission began introducing reforms that saw the sector grow significantly. Some of the policies include; Improved Regulatory Oversight: NAICOM also strengthened its core operational departments such as the Inspectorate and Supervision directorates. This has repositioned the Commission and enabled it to effectively supervise a reinvigorated insurance industry. The Commission also released several Guidelines, notable among which are the following: (i) Guidelines on Annuity Business, (ii) Operational Guidelines for Insurance Institutions, (iii) Guidelines for Oil & Gas Insurance Business in Nigeria, (iv) Circular on Financial Reporting Practice by Insurance/Reinsurance Companies, and (v)   Guidelines on Anti-Money Laundering/Combating the Financing of Terrorism for Insurance Institutions.

Market Development & Restructuring Initiative (MDRI): The Commission launched a market development initiative titled, Market Development and Restructuring Initiative (MDRI) in August 2008.  It had the following objectives: To build confidence in the Nigeria Insurance Market; Promote public understanding of Insurance mechanism; Grow the Nations Insurance premium volume and density; Eliminate fake insurance certificates; Enforcing compulsory insurances in the country; Whipping out of fake insurance agents/certificates Reformation of the agency system and,  Risk-based supervision. The implementation of the MDRI which has commenced has helped to increased awareness and enhanced access to affordable Insurance products; Reduce insurance gap and, Boost the Insurance Industry’s contribution to the Nation’s GDP. So far, the programme has been flagged-off in the South-West, South-East, North-Central, North-West, North-East and Abuja. The programme is well received by all stakeholders. The Lagos State government bought into the programme by signing into law the Building Control Bill, which is a variant of the compulsory Builders’ Liability Insurance Policy. But the full enforcement is yet to commence.

Strengthening of the Complaint Redress Mechanism: The Commission’s Complaint Bureau was restructured and strengthened through the provision of required staff and working tools.  This is in line with the Commission’s Policy of Zero Tolerance of Non-Payment of Claims which now compels most insurance companies to treat claims payment promptly. This has expedited the complaints resolution processes and enabled the Commission to effectively monitor Insurance Companies’ claims settlement processes excluding NICON Insurance Plc where a lot of complaints relating to Pension Matters are yet to be resolved. About 1,500 complaints valued at about N2.2billion was adjudicated and resolved between 2007 and April 2011.  This development has increased insurance consumer’s confidence in the Commission and the insurance industry.

Project e-Regulation: this moved manual supervision to IT-driven supervision. When fully operational, it will allow seamless inter-connectivity between the Commission and the Insurance Sector thereby ensuring “real-time-direct data capture” and timely solvency monitoring. This project became the first NAICOM project to secure the positive endorsement of the World Bank resulting in USD$1.5million financial assistance under the Economic Reforms and Governance Project (ERGP).  The project is nearing completion with the conclusion of the business process mapping and training and the recent award of the contract for the procurement and installation of requisite IT infrastructure.

Restructuring of the Commission: With the dearth of necessary Technical/Professional manpower required to discharge its statutory regulatory functions, NAICOM’s ability to regulate and monitor the operations of the operators was seriously handicapped. But the Commission has been restructured for operational effectiveness in line with the recommendations of the Presidential Panel on the Commission’s management. It also conducted manpower audit to identify appropriate manpower requirements and carried out a de-selection exercise. The recruitment of successful candidates was subsequently conducted to fill identified gaps.

The New Financial Reporting Format and Accounting Practice: The present administration also carried out a major restructuring of the Financial Reporting Format and Accounting Practices in the Insurance Industry resulting in the consequent release of Revised Guidelines in 20I0 in conformity with NASB and IFRS standards.  The new guideline imposed a more stringent requirement on the Insurance Industry which requires adjustments by both Operators and their External Auditors.

Code of Corporate Governance for the Insurance:  In 2008, the Commission also introduced a code of corporate governance. As a follow up to the release of the Code, it commenced well thought out seminars and workshops to enlighten all Members of the Board of Directors of all the Insurance Companies.

Local content: The Commission is working to meet up with the Federal Government target of 70 percent Local Content Placement of all insurances.