Mr. Fola Daniel, Commissioner for Insurance had a chat with journalists recently. In the chat, he disclosed the reforms the Commission has embarked on in order to make insurance attractive to Nigerians. He said that going forward, insurance companies must pay their claims promptly now that they have cash at their disposal
Excerpts:
What reforms have you carried out since you became Commissioner of Insurance?
You know we have migrated from the Nigerian Generally Accepted Accounting Principles, which is called NIGAP to International Financial Reporting Standard (IFRS).
Other reforms on the table stipulate how insurance operators must interact, how they must behave among themselves primarily and how they must inter-relate with the insuring public.
Claim settlement reform is also coming; we are going to be very strict on insurance companies fulfilling their promise to the insured. When an insurance company collects premiums and there is a problem arising from that contract, they do not pay when they like, they must pay when the customer is happy. If a customer gets your money after sweating, it is going to be a terminal deal and we do not want that to happen any more. Even if he did not get it on time, it should not be as a result of annoyance following from mis-behaviour.
So, the claim settlement is coming, we are also having financial inclusion programme on the table. This is in tandem with the Federal Government’s objectives to expand financial literacy. NAICOM is an important arm of the committee of regulators that has been given this national responsibility. NAICOM is doing its own bit and of course, we know one or two things we have done to ensure that we have financial inclusion – micro insurance is one of it, Takaful is another one.
Our micro insurance guideline is completely holistic. We have decided to also embrace other parts of insurance into that one guideline so you don’t have multiplicity of guidelines. All these reforms are geared towards enhancing the perception of insurance positively by the populace as against the mindset that insurance is just to collect money and they neither pay nor render service. We want to be seen as serious business people because insurance is business anyway and unless we do this business well, we cannot thrive no matter how best suited our salesmen are.
Once the people are buying insurance, people who we persuade to buy insurance, if they are not persuaded, if they do not see value addition, we are not going to move far. In order to ensure understanding and build adequate capacity among the stakeholders, the Commission did resolve to conduct a series of workshops and seminars for all our stakeholders and this forum is one of it. It is an appropriate channel to raise public awareness on the key initiative of the Commission aimed at further opening the insurance market and by extension, increasing the Commission’s gross domestic product. I deliberately left out the MDRI.
What is MDRI?
Market Development and Restructuring Initiative (MDRI)) is part of our initiatives. One year ago, if you had asked me, I would not have been very assertive about it but today, I am very glad to say that we are recording appreciable progress. We are deepening the market. State governments are partnering with us to bring the dividends of MDRI to the grassroots. We have an on-going partnership with states government. Enugu State government just came on board and I think one other government in the South-South and the South-East, other governors are coming in and of course, you will remember that Lagos State Government also enacted a law which supported our MDRI programme as a challenge to public buildings collapse. We have had series of them in Lagos, but fortunately, it is reducing. It means more and more people are being conscious and the town planning authorities are also more diligent in approving building plans that are before them. We also recognise the urgent need to develop the retail insurance market which has remained currently untapped considering the bad policies of the country.
What is micro insurance?
Micro insurance is small sum insured that can relate to people’s needs and their pockets. If someone is taking N5 million policy, that is no longer micro. Micro means small, N5,000, N20,000, N50,000, and N100,000 and may be maximum of N1m. They are amounts that you and I in the city look at as insignificant, but they are sums of money that if an ordinary person in the village or rural area loses, he goes completely into bankruptcy. We have released Takaful guidelines and I have said micro insurance guideline has been released. Also, one significant thing that happened last year was the implementation of section 51 of the Insurance Act 2003 and we deliberately did not make noise about that because for me, it is better for us to beat our chest and say ‘oh I think we are happy or we are lucky not to be indicted for not implementing that section.’ That section of the law predated the 2003 Insurance Act. Indeed, that section of the law was in the 1990’s Act.
And what was this for?
It was for protection of insurance companies because you cannot sell a promise on credit and when the event will sure happen, you issue a credit note, nobody is going to take that from you and if you begin to claim that, well, we were not paid, it becomes later time argument. No one is going to respect it and when we look at the financials of insurance companies, through 2012, if we do analysis, (you can go back and the records are there), you find that most of these companies wrote an average of N1.5 billion, whereas the capital deployed statutorily even for a life office is N2 billion, for non-life office that is writing N1.8 billion and celebrating at the AGM, where there should be a riot!
I mean, they are under-trading, they are not utilising the capital. But that is not the worry, the worry is, if you look at the element constituting this N1.8 billion hypothetically generated by the insurance companies, about 90 per cent reside in collectables. You have 90 per cent that has not been collected and the tax authority, FIRS, will slam their price and you pay tax. Some of these companies are so dynamic that we even see people still manage to pay dividends; how they do it, I don’t know.
May be when I become a journalist, I will try to investigate because if you have done business of N100.00, and you collected only N40.00, you still pay tax, pay staff and you are looking happy, everyone is fine and you pay dividends, something is wrong. If it is full stop here, that would not have been a problem, but we begin now to see incidences of unsettled claims, for companies that celebrated AGM’s last week with a lot of champagne and some gullible investors clapping. We expected that cheques should be rolling out, but we find incidences of unsettled claims and we said that as regulators, there is nothing, no innovation that we will bring about, as long as the populace is not happy about claims settlement ability.
What did NAICOM do?
We did a study, why are they not able to pay claims? Many of them were having cash problems, so they could not pay.
We discovered that the cash flow of the insurance industry was very poor and brokers were keeping insurance money. In other climes, the underwriters are the lords not the brokers. But here, if you are coming down from an aircraft and a Kaduna broker is coming, an MD is most likely to greet that broker first before the Commissioner for Insurance. They are the lords; they are keeping the money and that should not be. So, we could not do anything else than to look at the law, what does the law say? That is why we decided that it has become imperative to implement no premium, no cover.
In addition to the cash flow problem, we also saw traces of wiping out of these outstanding premiums because we are also not going to admit 100 per cent of these outstanding bills because there are threshold bills which we are not going to accept. Once it goes into one year or two years, it is written off and that is one of the reasons insurance financials do not command credibility. When foreign investors want to come, they look at the books and they know the law, if you go to Lloyd’s of London, they know exactly how the insurance industry should operate given the available law.
So, we resorted to doing that and I am very glad to say to you that the Federal Government showed huge leadership because if you do the analysis of clientele of insurance companies, the biggest customer still remains the government. So, if people owe insurance institutions, the government probably or most likely would owe, but the government decided to be responsive and they never opposed our implementation of these laws. All others can easily follow because if the government will not pay these premiums, how can we persuade Sheraton to pay? Because they are business people, they need that money to do some other things. If you are not asking for money, why do you throw money at someone who is not going to collect it? So the Federal Government showed leadership and complied completely. But from that time, no government policy took place without money having been paid.
What did we have after that?
We had tremendous improvement in the cash flow of companies. The apprehension of the insurance companies was anchored on the fact that they are likely to lose business and I said to them, ‘that is going to be temporary’. Those who had already imbibed the spirit of buying insurance will not suddenly draw back, they just do some adjustments.
How can they adjust?
If you require them to pay for one year, and because they are not used to paying you upfront, they can take short-term policies for three months, they can pay for three months. They know that they have a cover that lasts for 90 days. After 90 days, they can also take another one, there is not going to be a break. They discovered that a few businesses were lost, though insignificant, but on balance, they had more money at their disposal. Now that insurance companies’ have more money at their disposal, I can wield the big stick because if you go to the mortuary to flog dead bodies, you are dissipating energy, even God will be angry. Why should you do that to the dead? What I am saying is that if an insurance company is broke, if they do not have money at all, I am not required to cancel their licence from day one, I just look at the gaps, you have insolvency margin, liquidity squeeze; the law requires that I give them 60 days to make good that deficit. Can you imagine what damage would have been done to people who have suffered losses and then you wait for 60 days before they find more money?
In practice, those 60 days is not doable because there are other regulators that would be involved. So really, when you say 60 days, literally, you are talking of about five to six months. A lot of damage would have been done. We now have a situation where companies have enough cash and they can pay. It is no longer beating a dead body. If I knock at your door, you know that I know you have money and you will pay. That money you put in a fixed deposit, quickly you will terminate it so I don’t make a public show of you.
Insurance claim settlement ability has significantly improved. If you look at the Nigerian Police claims for 2012, as a result of the unfortunate incident that is on-going in the North-East of Nigeria, you could see that there has been an upsurge in claims by the police and the armed forces. Can you imagine if claims were not settled, the kind of security situation we would be having? People have lost their dear ones; they should not be made to suffer. They should not be made to cry again because they have shed all the tears. The insurance industry has been very responsive. You all remember the Dana crash. The Dana crash was a very big claim. At a time, there were technical hiccups sufficient for some insurance entity to say we walk away from this business. Insurance practitioners are not just businessmen; they are nationalists, Nigerians, human beings. We sat together and we said, yes we know technicalities you can deploy to do this work, we have lost more people; the international community is looking at us, let us rise to the occasion and I am very happy about what I am about to say: the claim has been dealt with satisfactorily. Those who have genuine reasons to disagree, we are able to persuade them and say please let us not deploy technicalities, we are not going to win the argument if they call for public opinion. We’ve had other claims – I think the NIA should be able to better showcase what claims they are exactly because they have all the details.
As a regulator, I have a reasonable overview of what is happening. All of the initiatives I talked about are meant to entrench consumers’ confidence; we also recognise that even if insurance companies have all the cash, some people might still be needed or might still need to keep some people out of old habits. And so, we said now that there is money, what do we do? We need to reinvigorate our claims to complaint bureau which is dedicated to take complaints from members of the public. We once spoke to the NIA, the insurance spokesperson, let’s use the two hands to wash each other so that we can be on the same page, and they responded by setting up an OBUDSMAN in the NIA, the OBUDSMAN is headed by a very reputable appeal court judge.
What they do is, instead of allowing issues to be dragged to courts where you can have protraction, they look at technical issues, they look at the nitty-gritty and they are able to give succour to the claimants. So that supports our effort in the CBU, so that some of these cases that come to us ordinarily, we just throw it back at the NIA as it is within their remits, they can deal with it very quickly.
So, the NIA, OBUDSMAN and the complaint bureau we established are working well. I was in India sometime in 2012, and the Indian regulator is one of the closest to us because it is the same kind of environment, a third world country. India is not a third world country, the only thing that is third world about them is the huge population, but they are very advanced. We compared those and I opened my mouth to say that our motor portfolio is one of the best in the world, highly profitable, an actuary was sitting in my front and Mr. Akah was sitting beside me by my left and was stepping on my shoes and I was angry. Why does he want to ruin my shoes? He was sending me signal. So, when the actuaries spoke, I knew why this guy was going to ruin my shoes.
The actuaries responded by saying, if you have this kind of claim ratio to premium, it means one or two things, insurance companies are declining to pay their new claims or the claimants are not aware of their rights under the contracts, and that is why all your underwriters are smiling to the banks.
If you operated in the northern part of the country in the past, and there is an accident where 10 people died on the spot, the relations, what they want to do is to lay the man to rest in the bosom of Allah, they do not talk or think about insurance, they say let him go. But let’s go to Ghana where the motor account is very unprofitable. You know why? They are also religious; there are Muslims there but the Ghanaians are ahead of us in some respect but they do not have oil as much as we have, fortunately also, they do not have the population that we have.
Ghanaians are very conscious of their rights so much so that at a magistrate’s court on a Monday morning, you find lawyers all dressed up, you would think that they are going to court, they are not, they are going round, they will even go to mortuary to find out how this and that accident happened – they pick the name, find out what happened and how it happened, and on Tuesday morning, they file charges against the insurance companies. Ask some Nigerian companies that ran out of Ghana, I wouldn’t mention names, they learnt they could not cope.
These lawyers will sue these insurance companies voluntarily. The motor account in Ghana is not profitable and that aligns very well with what the Indian actuary said to me. Should we go back home and be jubilating that Nigerians don’t know their rights? Principally, that is why we are profitable in motor underwriting. Should we keep quiet? Now we have started what we call contact centre. In this contact centre, we are going to populate all the newspapers and electronic media with numbers you can call if you have anything that is grieving you against an insurance company, broker, anybody, just phone that hotline. Whereas you can write a letter to us, you drop a letter in my office in Abuja at 6pm on a Friday, I am guaranteeing you not to see it until Monday but we have contact centres that people can phone, you don’t need to write letter, give us details of your complaint about or against any insurance institution and an insurance person dedicated there will take note and get in touch by phone with the insurance company. We will open it up because I don’t want to think that the complaint bureau we have is sufficiently known to even the journalists. Some of you don’t know about it, so the ordinary Nigerian might not be aware of it.
You talked about financial inclusion, that inclusion has to go with serious enlightenment and campaign. If you look at what is happening in the system, virtually everybody has a blackberry, smart phones and ipad. These are areas insurance can develop products for. What is NAICOM’s plan in this regard?
Financial inclusion cover for somebody who lost ipad and that reminded me, the director next to me was in the US and on his way back, they sent a distress message that he lost his ipad and he was asking for a replacement, I pretended I didn’t see it because I felt the ipad we bought for him should last six months and insurance people should be more cautious.
What you want to know is, are people aware? I think there is a growing awareness. It is not my responsibility to create all the awareness; I do not have the capacity or wherewithal to do it alone. What we are doing is opening windows for insurance operators, they are important stakeholders. I am very happy to know that a good number of them are taking advantage, some of them have even gone into arrangement with MTN with Airtel to do insurance product and we have approved a few. In the next few weeks, you will be getting text messages asking you to buy this cover.
Another company wrote to us last week that they wanted approval to do a road show of micro insurance and we quickly obliged and said ‘please don’t do it alone, let us be part of it and we can do part funding’. What that company wants to do is to go to secondary schools and teach people what micro insurance is, what we should be doing. A good number of insurance companies are seizing the initiative and I am sure that is where we are going to entrench awareness faster than if we attempted to do it on our own. I was in Jos to pay courtesy visit to an old friend who used to be the DG of Custom and now the chief of Jos. He read insurance; he was so knowledgeable that I had to tell my colleagues the man read insurance in APU before going into Custom.
Is compulsory insurance in force?
You want to talk about compulsory insurance, we have small entrepreneurs, they need cover, all the potatoes you consume, 90 per cent is from Jos area and these people need some cover. By early next month/later this month, we have given them our readiness; they want us to organise a micro insurance seminar and workshop in Jos, which the governor will personally grace for the two days. We are moving round to create awareness as much as possible, but no matter what we do, if the people will primarily benefit, it’s ok, that is what we discovered during the MDRI. They just allow us to run the photo show, they are not doing anything and when we stepped back, they started calling us and we said, if you want us to come back, go and do A B C. Many of them took advantage and they are doing it. It has spurred some jealousy among them. People complain that this is what one company is doing, they are selling compulsory insurance using NAICOM logo, why not? Because we support it, go and do it over, do it and bring it back and we can then moderate it, but doing nothing is not an option.
FG is said to owe about N20billion unpaid insurance premium, what is the position now?
On debt of over N20 billion, I think that is speculative, I am not ready to give you anything. Government is a growing concern; there is no government that will not owe money either to oil marketers or to insurance companies at any point in time, particularly when you indicate limitless appetite for being owed as we demonstrated in insurance. Government pays for everything, if a government official wants to travel, ask travel agents. they used to give them on credit those days, but now, they’ve repented, they do not do it any longer, so government will find money to pay. Anything that is imperative, anything that is necessary, government will pay. The N20 billion in speculative, I do not know exactly how much it is but I believe government will look into it and if they owe money, they will want to pay because it is part of re-inflating the economy. If you owe people money and there is none in circulation, there will be no real growth. You will only be having bad growth. I believe government as responsible citizens will pay their debts.
Are federal agencies complying with no premium, no cover?
For Federal agencies, I can tell you they are fully compliant as far as group life is concerned. NNPC is a very good example, since I knew NNPC, it had never paid premium on time except in 2013, even in the past when NNPC had the benefit of rebate incentive to pay on time, they still did not pay, but because of our insistence on compliance, the NNPC cover that expired 31st March last year was fully paid for before the inception of the policy on April 1, it has never happened in the history of this country and NNPC is probably the biggest premium payer. They paid and the money they paid was almost N100 million. It was fully paid for.
Why is incidence of fake insurance cover persisting in the country despite your efforts?
Fake insurance is not the only problem we have. We have fake Custom people, we have fake journalists. I think it is a national problem and hopefully, we will grow out of it. Let me address the question, we are leveraging on collaboration with the Nigeria Police because I do not have the power to arrest, we have done some road shows in the past where we go to licensing offices, round up some people for the cameras and somebody granted them administrative bail.
Now we are partnering with the SSS, with the Nigeria Police and other law enforcement agencies. Where we know there is prevalence of fake insurance sales, they are cooperating and I hope the picture will change, we have fake banks also.
Quote: If you have this kind of claim ratio to premium, it means one or two things, insurance companies are declining to pay their new claims or the claimants are not aware of their rights under the contracts, and that is why all your underwriters are smiling to the banks.
