Daily Independent (Lagos)
Sola Alabadan
5 November 2008
The Federal Government has raised an alarm that with the way the Nigerian insurance industry is constituted at present, the industry is not in a position to make meaningful contribution to the government's vision in the Financial System Strategy (FSS) 2020 project.
Minister of Finance, Shamsudden Usman, stated this in Lagos during the insurance stakeholders' parliament organised by Financial Standard Newspaper in collaboration with Risk Analyst Insurance Brokers.
"Under the current circumstance, that very important sub-sector (broking) of your industry may not possess the wherewithal to contribute effectively to our vision in the FSS 2020 project," he said.
In view of this, Usman, who was represented by Commissioner for Insurance, Fola Daniel, pointed out that there is need to review the operations of the insurance brokers in order to engender value added for the industry.
To this end, the government indicated its intention to ensure that insurance brokers in the country conduct their businesses professionally and ensure that sanity prevail in the sub-sector.
He said, "although current legislation in respect of insurance intermediaries gives room for considerable flexibility, the government will re-examine possible gaps that could aid malpractices."
Usman stressed "currently, most insurance brokers seem to have been set up mainly to seek patronage rather than serious professional intermediaries. This situation creates opportunities for malpractices, overcrowding and simply job for the boys."
The Minister had earlier informed insurance operators in the country to brace up for stricter regulation of their operations to prevent a possible collapse of any company operating in the sub-sector.
He maintained that in the face of global financial crisis, there is need to strengthen insurance regulations locally to ensure that insurance companies which are tending towards conglomerates could meet up with future challenges.
While saying that even though the nation's insurance industry is often said to be over-regulated; he added that the current happenings have proved that such over-regulation is a positive rather than being a negative development.
Using the embattled insurance giant, AIG as an example, he said that although the company gained prominence as an insurance firm before diversifying into other areas in the financial services industry, its present crisis did not affect its insurance operations due to stricter regulations.
In spite of the fact that this may be kudos to the quality of regulation of insurance business, it nevertheless calls for continuing vigilance to avert any contagion effect, the minister cautioned.
Besides the global economic recession, he maintained that it is in the interest of all stakeholders that the evolving goodwill of the insurance industry is not lost through the inability of insurance companies to meet their obligations to policyholders and investors.
"In order to maintain the tempo of your growth and quality of assets, you must bring an end to unethical rate cutting, unsustainable underwriting and huge management expenses that erode your reserves and returns to shareholders," he noted.
Rather than concentrating all efforts on corporate customers, he also charged insurance operators to give considerable attention to small businesses and individual customers. This line of business, according to him, is a huge untapped market which will provide a dependable source of revenue for the operators.
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