Mohammed Kari, seven months ago took over the mantle of leadership as the Commissioner for Insurance and CEO of the National Insurance Commission (NAICOM), having been an operator for over three decades in an industry many have said is yet to realise its true potential, given the population of Nigeria. In this interview with senior editors of BusinessDay during his courtesy visit to the newspaper’s headquarters in Lagos, he shares his assessments on the state of the insurance business in Nigeria, regulations, and what competitive advantage the industry has to compete with its peers in the developed markets, among other topics. Excerpts:
The insurance industry in Nigeria has come of age, but still cannot compete efficiently with its peers in developed economies. What is the industry doing to put this sector on the path of competitiveness?
The current efforts we have all embarked upon in the market will bring back the glory of insurance and people will begin to appreciate what insurance would do for them and their businesses. These efforts will also be able to clarify the wrong impressions people have about the sector. The irony of that impression is that most of them are not consumers of insurance products. If you look at ten critics of insurance, hardly will you find one having an insurance cover. But in Nigeria, we always broadcast and amplify what we don’t know and what we don’t partake in. But we believe that when criticisms like this arise, we take them up and use the opportunity to restate our mission and re-assure the public, especially people who are already insurance consumers. And we are making efforts to sanitise the operations of insurance in Nigeria and operators in the sector jointly support this effort.
Obviously, it’s not everybody that would agree to be penalised when they commit an offence. But it is our job to enact the law. We are not only licensing operators, we have to guide them and provide the guiding principle of regulations to ensure they operate within the bracket of the law also. And if you find yourself on the wrong side of the operation, we will not shy away from bringing you to book.
As a regulator, I am working with the market and also sensitising the consumers, including the government, which is supposed to be the biggest consumer. If you look at the law, there is a requirement to protect public assets. Instead, officials in that segment have put insurance down the ladder, which is rather unfortunate. They do not see it as a responsibility they owe the public to protect government assets. We have therefore taken up the initiative to sensitise them and bring government officials to respect the law by insuring government assets as appropriate.
This week, we’ve released a circular, advising all of officials to take insurance policy for government assets and I am sure that the circular will be made public, next week.
We are working with the Chartered Insurance Institute of Nigeria (CIIN) to extend the distribution channels that exist presently because in Nigeria, the only distribution channels are brokers and agents, but there are more. Thank God, the CBN has allowed the banks to market insurance to their customers. We’re releasing our bancassurance guidelines by next week; CBN has earlier released their own. We are designing guidelines that would enable them to also enjoy the benefit of such client-base. As a regulator, I have always been emphasizing the need to license operators; the need to do this business properly and the need to do it within the context of the law. If you do it in an organised way, you’ll benefit from it and also, will the consumer.
And most importantly, as far as the company’s efforts are concerned, the investor is always interested in how well the company’s stock trade. We, as insurance investments can only invite investors if we can show them that we’re worth investing in. Now, to worth investing in, you will have to display a reasonable level of confidence and you will have to have appreciable returns on your investment before you can attract investors.
After we have provided regulations and guidelines, the next level would be to ensure that we have good corporate governance. And that’s why in our last meeting with the market, we reminded them of our corporate governance guideline which has been in the market since 2009. And we made them realise that it is in their interest that we fully implement the code of corporate governance, which will be effective April 1, 2016.
Certain sections have been complied so far, but we believe there would be a full compliance by April 1 and this would give us an excellent opportunity to have new crop of directors; insurance companies creating effective structures and insurance companies looking at their financials. We are going to ensure that they have the adequate capital to meet their business requirements.
We have promised the market that by second quarter of this year, we would come out with a full implementation plan and the timeline which we will use to achieve A, B, or C. Before now, we have allowed companies to operate as windows with provisional licenses for micro insurance and Takaful. But now, we are encouraging those companies to come up and take specialised licenses for those areas of operation. And we are staggering also the capital requirements for each of those licenses so that small professionals who want to go into insurance can afford it.
We have observed that penetration has been a problem in the industry and this still continues to be an issue. Another one is the nature of the composition of insurance in Nigeria. Taken the issue of penetration and composition, what are you hoping to do to turn the table around in those two areas, making insurance users more comfortable?
Two things that are making penetration difficult before now are usually- the issue of cultural and religious perspective, and most importantly, the affordability of that product, called, insurance. A lot of people have the misconception that their culture or religion stops them from taking insurance. That is wrong because there are insurances that are provided to attend to those particular cultural values and their requirements, which we are now giving prominence. But the publicity drive that we are now taking jointly with the industry is to be able to dish out that information, so that people can be aware. There’s always an alternative and there’s an opportunity in the product that suits every requirement.
The issue of affordability, unfortunately, is based on the theory of economics, your spending power, and your desirability. But most importantly, insurance is a big component in every transaction you undertake, no matter how small. There is no way you can mention life without insurance, just as you said it is in developed economies.
Everyone has three or four policies- on property, himself and his family. So we want to see such here too.
There is the issue of bancassurance, which we believe will bring a lot of potential into the industry. And those are the additional distribution channels we are displaying. Not only that, we are identifying big chunk of businesses that are not placed in the local market. NNPC at the end of the day only gets about 15-20 percent of their insurance done locally. So they are left with no choice than to insure themselves, which is not good for risk management, depriving the insurance industry of that self-insurance premium. But if we open up and let them see the benefit of bringing that self-insurance into the market, we believe it will surely profit the insurance industry.
Taking an example of a product that had succeeded, which did not succeed without enforcement, is the pension scheme. The pension scheme you remember was part of insurance industry, but when it was exercised and given the power of enforcement; you see what it has become. It has belittled the insurance sector in just twelve years. So, we believe, given the compulsory insurance that now exist in the law of insurance, if properlyenforced will give the industry a quantum leap.
A lot of issues are happening in the economy, particularly the issue of foreign exchange; drop in oil prices- all are impacting on business. Can you share with us its impact on insurance and how the industry is managing to wriggle out of it?
Yes, I will. I was happy to read a story on the front page of BusinessDay on the fall in the dollar and the rise in naira. Now, naira has come back in the three hundred brackets and this is very comforting. The Nigerian insurance sector does not have the appropriate capacity to retain the size of risk we have in Nigeria. So, majority of the extras are taken abroad on reinsurance basis. The medium of international business is the dollar, and it is so relevant to our operation that any hike in its price affects the insurance industry and affects reinsurance, which is the rates and in turn, affects the services we provide to the real sector. And we’re afraid that the hike in the value of the dollar against the naira will make consumers of insurance products retract to self-insurance or more, if they can’t afford to play in the public gallery and in the arena, to be able to pay those requirements.
The rise is not only affecting the insurance sector but every sector in the economy. And the stronger our local currency is, the better for every other sector.
I have heard you mention the issue of capacity, which causes a lot of funds going outside Nigeria. As a regulator, how can that be handled because it’s been on for a long time?
We’ve been able to put a lot of checks on that. I’m one of those that believe strongly in local content law. And the local content law provides that you must engage Nigerians in all the services, including insurance as long as there is availability of local capacity and expertise. So, we have that guideline that dictates that if for any reason you want to take insurance abroad, you must saturate the market. You must apply to us to give approval because if you want to execute a business, you must do it through the CBN or interbank transfer. And CBN can only approve your request for currency, if we approve it. That is one of the ways we have reduced the outflow.
But ultimately, the bigger picture is- does the Nigerian market have the capacity to retain more? We say No! Like the example I gave about the agency, which has been able to access only twenty percent of its requirement in the local market and to be able to check these outflows more, there is a need for us to consolidate to make the players stronger.
To be stronger could be financially, recapitalising; you can also encourage them to merge. If they cannot merge and they cannot recapitalise, then they can be acquired. And when they fail ultimately, we can withdraw their licenses so that the players can be more focused.
You remember what happened in the banking sector. After their recapitalisation, they came out stronger and they were able to operate in other countries. So, we want our insurance companies to be ready to take up that kind of challenge, not just locally but also internationally.
Talking about capacity, the impression is that either the operators are not creative or they are laidback. Take the issue of third-party motor insurance for instance, we have millions of naira going down the drain, yet insurance operators are doing nothing. What is your take on this?
I don’t think it is fair to say that the industry is not doing anything. I’m sure your colleague can tell you some of the efforts, the sufferings and pains the industry is going through to ensure that they actualise that dream of bringing everything into the formal sector. Especially insurances that are compulsory like the third-party as you have mentioned. The insurance industry has got a lot of initiatives that are currently and gradually being enforced. We have created the industry database and every necessary thing. We are working with the Federal Road Safety Commission and checking the uninsured vehicle. We are also working with the Fire Brigade Service for the insurance of public assets and public premises because our law also encourages that the fire brigade gets some portion of insurance premium to encourage them to build up their capacity.
Now, the effort of the industry is running in line with the effort of the Federal Government because there’s a very big initiative of the government towards consolidating their revenues sources, which I would say is almost leaking.
All vehicles in Nigeria are supposed to be registered by law. But not all vehicles are captured by customs; not all vehicles are registered by licensing authorities. So it’s not all vehicles that are insured. Government has identified all these gaps and has decided to bring all these authorities together under one database. The idea of that project is that anything entering Nigeria must be registered.
You have been an operator, now you are regulating. It shows an academic preparedness for the work. How do you ensure that insurance becomes a pride in the economy?
I don’t want to pre-empt the operators because they are planning a visit to your Newspaper. They just held a retreat to re-strategise on how to move the industry forward. But they have realised that they have not been doing enough. And they are coming up now. If you see how they appreciate those interests we have in them now, you will believe that they have all intentions to make it worthwhile. Unfortunately, they left it for too long. And I think they have now accepted these responsibilities and I can tell you that shareholders, who are looking for returns on investment, will not spare any management that does not make returns.
Mohammed Kari
