Nigeria: As NAICOM Moves to Stablise Insurance Sector

12 January 2022

The need to reposition insurance industry to achieve maximum premium growth and meaningful contributions to the national GDP has been of great concern to the insurance industry regulator, National Insurance Commission. The Commission is now poised to adopt new strategies and initiatives to achieve effective regulation of the sector, writes Ebere Nwoji

For more than a decade now, the insurance regulatory body, the National Insurance Commission (NAICOM) had been on its toes in the efforts to institute a new phase of insurance sector that is generally accepted by Nigerians in terms of believability and patronage with the overall aim of making the industry contribute meaningfully to the GDP of the economy.

The commission in this regard among other things tries to ensure that the operating firms have adequate capital with industry operators, playing according to market rules in the area of official premium charges and claims payment among others .

These efforts started way back in the days of Chief Oladipo Bailey as the Commissioner for insurance, to Fola Daniel up to the regime of Mohammed Kari as NAICOM's helmsman.

At present, the insurance commissioner, Mr Sunday Olorundare Thomas, is still pushing hard to achieve the target.

Present Focus

His main focus in this regard aside his initial effort to beef up the sector's operating capital through the failed share capital increase initiative is in the area of digitalisation.

Indeed, Thomas said he is not looking back on his on going efforts to see that operators in the sector digitalise their entire operations.

Insurance industry analysts were of the view that one of the reasons the insurance sector has been backwards among other finance services sector of the economy is conservatism.

According to them, the sector does its things in its own way and this has remained the bane of its growth

But since his assumption of office barely two years back, Thomas has determined to move the industry from manual system of operation to digital system. Thomas, in September last year, announced the digitalisation of all NAICOM's operations.

He made this announcement in a letter that was addressed to the Managing Directors/Chief Executive Officers of insurance firms in Nigeria. He told them that the move was to enhance efficiency and effective service delivery.

In a circular signed by Director, Policy and Regulations, NAICOM, Leonard Akah, the commission noted that its engagement with all insurance institutions would transmit from manual to online processing and that all operational activities or issues concerning insurance companies that require the Commission's attention, comment, and approval would be submitted and processed via NAICOM Licensing System.

"Consequently, all insurance institutions are required to align their operations to NAICOM portal for submission and processing of all requests such as certificate of registration/renewal, approval-in-principle (AIP), product authorisation, micro insurance, Takaful Insurance, letter of request, financial statement approval, enforcement actions, governance and complaint issues, etc.

NAICzoM, in the circular made the operators to know that there should be no manual submission of requests/applications effective from 1 September 2021 except online through the designated portal.

"All inquiries on the adjustment of NAICOM's operations should be sent to portal@naicom.gov.ng," the memo stated.

The insurance regulator sought the maximum compliance of the insurance operators with the directives.

In addition to this, Thomas recently informed the insurance Chief Executives to get prepared for migration to IFRS 17 next year warning that there was no going back on that.

This according to him is to position the insurance sector in Nigeria as global competitive sector.

Thomas is also not blinking over quality service delivery and prompt claims payment in the industry.

In one of his meetings with insurance company directors, he insisted that directors that sit on the board of insurance-firms must be grounded in insurance matters.

He explained that this would help to ensure efficient service delivery.

"The times in which we require more prudent management of resources in order to meet all stakeholders expectations, including ensuring quality return on investments. Our focus must shift to service delivery which will make our companies to seek more reasons to settle client's claims and less reasons for repudiation of claims", the Commissioner stated.

According to him, the era of huge backlog of claims should no longer be associated with our companies and while the Commission is profiling companies with huge unsettled claims for necessary regulatory action, companies that are responsive to the plight of their clients in prompt settlement of claims are encouraged to sustain the good business conduct.

"Operators in the industry must strengthen their human and financial capital for effective participation in big ticket risks. It has been observed that the gains of domestication policy of the government as enshrine in the Nigeria Content Development Act 2010 is gradually loosing its meaning for the insurance sector".

He noted that more businesses especially in the oil and gas and the aviation sectors were re insured abroad, adding that of more concern was the declining participation of life companies in the annuity business which was the emerging business for insurance industry.

Thomas noted that those were the areas where the industry could impose itself on the economy through the control of funds for national development.

The Outcome

But a critical examination of these efforts vis-a-vis the outcome shows that despite the fact that in recent years, there have been minimal growth and developmental light in the area of patronage and awareness of the industry by the populace, NAICOM and the operators are yet to reap bountiful harvest from their efforts in popularising insurance and standing the industry at the same pedestal with its counterparts in other climes.

One of the reasons for this remains the fact that both the regulator and the operators are not working and walking at the same pace in their efforts in this regard.

Indeed, the regulator is often much more faster while operators with their heavy weights are dragging the regulator backwards with the result that they often end up in disagreement.

In most of the regimes, the operators often hook up to the legislative powers of the court to successfully shorten the regulatory arms of the regulator and drag it down, a situation which often keeps the industry at a stagnant position for a whole business year and even more before both parties arrive at point of resolution.

According to industry pundits, this has in no small measure dragged the industry further back in its efforts to meet the banking industry.

It happened in the days of Oladipo Bailey, Emmanuel Chukwulozie as commissioners of insurance. It was only Fola Daniel that escaped it. Mohammed Kari's regime got its own share.

These regulators except Daniel lost their jobs on account of their efforts to improve on the sector's capital.

Stakeholders' View

Stakeholders in the industry like the president Progressive Shareholders Association; Boniface Okezie blamed this on the timing of implementation of its regulatory initiatives by NAICOM.

According to him, NAICOM failed in its recent capital increase bid which was billed to be concluded on December 31,2021 because both the tier base and its subsequent share capital increase implementation came up when politics was the main concern of government and given investors' sceptical of business climate of Nigeria in 2019 election and COVID19-19 pandemic outbreak. He said the policy was the worst mistake any regulator would make.

Industry analysts noted that every new business year, the commission dishes out one initiative or the other aimed at expanding the frontiers of insurance sector and enhance its contributions to the Gross Domestic Product of the economy.

For instance, during Mohammed Kari's regime, the need to achieve this was one of the factors that moved NAICOM to embark on the controversial recapitalisation exercise that scaled the industry operators into three tiers based on level of capital and risk bearing capacity.

Through this, the commission targeted at redefining and restructuring the industry to bring it to the globally acceptable level that will enable it stand in competition with its counterparts in other countries.

Operators Expectation from NAICOM

At present, the regulator has brought up digitalisation and technology acquisition. They viewed that as the industry welcomes a new business year with high expectation NAICOM, which is yet to unveil its regulatory agenda for the year, should take heed to come up with initiatives that would have a smooth sail through acceptance by all and Sundry.

One of the operators who pleaded anonymous wants the commission to take necessary action against unhealthy competition ruining the industry.

He said over the years, the commission has been paying lip service to this but has failed to punish any offender.

He said this was why the anomaly has continued and is now harming the operators.

According to the operator, unprofessional practices like price wars, rate cutting, return premium among others have retrogressed the premium growth of the industry placing operating firms in weak position that incapacitated them from paying genuine claims, a development which weakens public confidence in the industry and tarnishes the overall image.

He said closely connected to this is the issue of non-payment of claims by some operating firms including the big players.

He noted that NAICOM has been warning such operators but because no punitive action has been taken against any firm, the situation has persisted.

He also pointed out insurance penetration problem, adding that though this has been echoed for some years now, policies like its re-launch which NAICO came up with but jettisoned should be revisited.

"In fact, the Nigerian insurance market is grossly under served with insurance services", he concluded.

Need for Insurance Penetration

Survey conducted by NAICOM in recent years shows that most Nigerians who are alienated to insurance services do so not because they don't like the services or are too poor to afford them but mainly because no body extended insurance services to them.

Indeed, most Nigerians especially those in rural areas going by the result of the NAICOM's survey have no idea of what insurance is all about and what benefits are there for them because of lack of education on insurance.

To address this, the commission, had two years back designed a programme tagged Reaching the Unreached. This was targeted at bringing Nigerians often left behind in insurance service provisions under insurance coverage.

Briefing the media on the programme, NAICOM Director of Authorisation, Pius Agboola, at one of the workshops organised by the commission, noted that one of the greatest challenge in serving Nigerian population with insurance services was the distance.

He noted that whereas bank operators have successfully spread their branches to the remotest parts of the country, insurers are yet to do so.

According to him, branches of insurance firms are only located in capital cities and at best in state capitals.

He cited examples saying in northeast, out of 112 local governments, it was not certain that there was a branch of insurance company there.

According to him, in north west, out of 126 local governments, 106 branches of different banks were there but insurance firms have no representative branch adding that the story was the same with some parts of north central.

According to him, the result is that due to over concentration of insurance firms and their marketing staff and agents in the cities and too much focus on corporate business and government accounts with little or no efforts towards development of retail market which is available in these neglected rural areas, operators resort to cutting corners in order to grab the available businesses and grow their premium income.

This he observed has resulted in unhealthy competition that gave rise to the prevailing rate slashes which is killing the industry.

The insurer said NAICOM in coming up with its initiative for the new year, should take cognisance of this for a better change.

For instance, financial report of operating firms released by NAICOM few years back, showed that some firms have for almost three years been operating with capital below the minimum required level while others were exactly on minimum required capital, a sign that they will soon operate with capital below the required level.

Thomas had in one of the media retreats in Edo state, said the commission would look critically at how to penetrate every nook and cranny of Nigeria with insurance services.

He said the commission, had got some strategic policy on how to sustain all the achievements it made in the previous years in its effort to deepen insurance penetration in the country.

He said because of the National Strategic policy of lifting the economy by the federal government, the commission, has come up with the idea of launching the second phase of the MDRI.

But stake holders were of the view that while the regulator girds itself for a new set of initiatives that will guide operators this year and beyond, it should take cognisance of the 2023 up coming elections .

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