Unhealthy competition, others hamper insurance growth – NAICOM Chairman
Dr. Abubakar Sani is the new Chairman of the National Insurance Commission Board. He talks about the insurance industry and how the sector can make a significant contribution to the Nigerian economy, in this interview with ODINAKA ANUDU
Augusto & Co published a report in March 2022, revealing that insurance penetration in Nigeria was below 1%. This figure is lower than the African average of 2.78% and the global average of nearly 8%. How will your leadership drive insurance penetration in Nigeria?
It’s basically our own problem, especially in Africa. Insurance came from Europe and we swallowed the hook, line and sinker laws without adapting them to our needs. What we are going to do is start with the framework or the law, specifically the Insurance Act 1997. We will look at it in depth, the objectives and then we will see if there are aspects of this law that are stifling the growth of insurance in Nigeria. . For example, we will look at issues relating to social capital. This time, instead of social capital, we will talk about venture capital. The initiative is launched, the commission talks about micro-insurance, which will meet the needs of small businesses and large retailers. This, I believe, will help with penetration. Again, there are people who see conventional insurance as contrary to their faith. Now we have Takaful insurance which is linked to the Islamic financial system. Many people buy it today. All of this will help us benefit from financial inclusion and I think it will increase penetration in the country.
Apart from penetration, experts estimate that the Nigerian insurance industry is not maximizing its potential as it contributes less than 1% of gross domestic product. As Chairman of the Board of NAICOM, what areas of insurance will you champion to ensure the industry maximizes its potential?
You see, today we lack adequate enforcement for some of the policies initiated by the commission. An example concerns the field of compulsory insurance. This has not been applied as it should in the private and public sectors. We have already launched a campaign on this subject. We start this week. We will visit some of the government institutions responsible for implementing this compulsory insurance. We start with the Federal Ministry of Finance, Secretary to the Government and Head of Service. Currently, most government facilities are uninsured, which is abnormal. You will see the kind of funds that will flow into the economy if these facilities are provided. Also, in the private sector, a lot of money will flow into the economy if gas stations, schools and shops are insured. Construction sites are not carried out by many institutions. As institutional investors, they play a key role. These are things that I will help to highlight.
Speaking of insurance that doesn’t maximize its potential, let’s look at the agricultural sector. The federal government funds agriculture, but the insurance industry is reluctant to take advantage of opportunities in this sector. Why do insurance companies ignore this sector?
Agricultural insurance is absorbed by society, especially with regard to the anchor borrower scheme. This is one of the mandatory things you need to do before you qualify for the Anchor Borrowers Scheme and it works really well. But outside the Anchor Borrowers Scheme, agricultural insurance is not working well. There are large farmers, industrial farmers across the country who are adopting it. They find it easy to take out insurance because of their financial situation. This helps them reduce their risk exposure. The only thing is that we have to educate traditional farmers and advertise there. We must attract them and ensure that they create cooperative societies for this purpose. So it takes a lot of persuasion and publicity.
But it seems that the government itself is not running it?
It is not the government alone that should do this. The government started with the Anchor Borrowers Scheme, but to anchor it everyone needs to be involved. The media, insurance institutions and community leaders should be involved. In all the countries where agriculture contributes a lot to the GDP, it is often the private sector that draws it. Think of Malaysia, Indonesia and Thailand, it’s individual effort, backed by insurance, that drives agriculture forward. Our Board of Directors recognizes the enormity of the work we have to do. We will look at these sectors with the aim of elevating the insurance industry. Most of these things are rooted in financial investments. If insurance grows, the economy will benefit.
NAICOM recently suspended the recapitalization exercise. Why is this so? Are there any plans to restart it?
This matter is before the court and as president I don’t want to talk about an issue that is already before the court to avoid any contempt of court. We are studying the question and very soon we will take a position.
But aside from the court case, are there any mergers and acquisitions going on in the industry? Are there companies willingly talking to each other without being pushed by NAICOM?
We have to be honest with ourselves, this economy is dynamic. The capital and assets of the Nigerian National Petroleum Corporation, NNPC, today amount to billions of naira. This was not the case 10 years ago. They need insurance to cover their risks. It’s a great opportunity. There is a need for improvement and recapitalization so that they can effectively sell insurance to avoid capital flight. If you really want to be a player, you don’t even need the regulator to ask you to recapitalize. You are the one who will increase your ability in order to compete.
As far as companies talking to each other, yes, there are. Naturally, if you don’t have the capacity and you lose business, without being asked, you can talk to each other to merge and take more risks. For example, Tangerine swallowed three companies, including Law Union and Rock. There are also others. Today, they are great players. Due to the competition requirement, others will follow.
Recently, insurance licenses were withdrawn from Niger Insurance and Standard Alliance. Some industry observers see it as a witch hunt. Why did the commission decide to retain only these two?
Revoking licenses is not something that happens overnight as the Insurance Act 1997 mandates investigations and inspections, and they are statutory. If a business starts going bankrupt, doesn’t meet requirements, or management control isn’t there, the license can be revoked. The company would be informed in the process. And when it fails to meet its obligations, cannot operate properly as a business, and cannot meet its obligations, the regulator will use a sledgehammer. Even then, by law, companies are allowed to appeal to the minister who would decide whether due process was followed or not. Thus, it is never about bias, and more companies that do not meet will also face penalties.
So, could there be sanctions on other errant companies?
Yes, we need to clean up institutions and the only way to do that is to stop letting weak companies carry on in order to protect policyholders. This is important so that no one criticizes the commission for having weak regulations in the end. We really want to protect policyholders.
One of the main problems in the industry is the inability of players to attract foreign investors. What is the problem here and what should stakeholders do to attract FDI in the industry?
We have to change our attitude. The holding attitude of enterprises should change. It is better to have a small percentage of shares in a company that will last for generations than to keep a company that will collapse. Insurance is universal. In addition, Nigerian insurance can attract foreign investors if the players keep their books well and make sure to provide this information when needed. We call on these companies to attract foreign investors to enhance their performance and boost the Nigerian economy.
What is the industry’s biggest challenge and what steps need to be taken to address it?
I think the major problem is the cutthroat competition, in that adequate bonuses are not paid because they are undervalued. You pay claims when you do not have sufficient reserves. It is important to ensure that adequate rates are charged and anyone not doing so will be penalized.
Do you see any risk in using pools of pension funds to fund, say, infrastructure?
In other climates, pension funds are used to finance infrastructure. But you need technical experts to match what is collected today with what will be needed at certain times in the future. It is important to ensure that the money is available when needed. It could be invested, but make sure contributors get their money when they need it. When you examine it through technical expertise and detail it, you can use the funds for infrastructure.
What do you want to be remembered for after serving as Chairman of the Board of NAICOM?
As Chairman of the Board of NAICOM, I intend to instill discipline in the insurance industry by ensuring compliance with ethics. Second, I intend to ensure that the insurance industry competes favorably with other industries in the financial sector. Insurance has not maximized its potential in Nigeria due to so many factors. One of the reasons is the lack of strict regulations. In the past, insurance companies were allowed to operate in such a way that they brought a bad name to the industry. I intend to change this narrative.
I have the vision and mission to strengthen the industry so that its contribution to GDP compares favorably with other countries like South Africa, where insurance contributes 10% of GDP. Insurance has a role in economic development. This gives impetus to other businesses to thrive. It helps raise funds and creates jobs. Unlike other industries, insurance has excess funds that are supposed to be dedicated to investments. I will ensure that the insurance industry plays its own role in achieving this. My main objective is to ensure that it improves the economy.