The Chief Executive Officer of Krabond Insurance Brokers Limited, Mr. Kola Ahmed, who is also a former Director-General of the Chartered Insurance Institute of Nigeria, discusses the difficulties and opportunities facing the insurance industry in this interview with NIKE POPOOLA.
How has the insurance industry in Nigeria changed over the course of the past forty years?
The insurance business has experienced consistent expansion and development over the course of the past four decades. Both the capacity of the sector as a whole as well as the knowledge base that underpins it have significantly expanded. The minimum amount of capital required has increased from N200,000 to 5 billion. Although there are now more qualified professionals, this does not necessarily mean that they are any more professional in their work. This presents a significant conundrum. In the 1980s and early 1990s, there was a trend towards specialisation within corporations as well as among individuals. There used to be businesses that were renowned for their expertise in a limited number of subfields within the insurance industry. Some businesses were known for their expertise in life insurance, while others were renowned for their abilities in engineering and contractors’ all risks insurance. Others found their advantage in unforeseen circumstances, such as fires and break-ins, and so on.
On a more individual level, certain names become indistinguishable from particular types of businesses. Marine subject matter experts include names like Oviosu, Oladosu, Akinyemi, and Shobowale, among others. All three partners of Law Union & Rock, Wokocha, Oyetoyan, and BS Oke, were well-known in the fields of engineering and contractors’ all risks insurance. Accident specialists were B.O. Banjo, Egwuonwu, Joda, Akamiokho, Alegiuno, Alhaji Mustapha, Mrs. Rowaiye, Mrs. Temowo, Ladipo Ajayi, and Olatunji. Life specialists included individuals such as Nsoma, Oyelami, Eleoramo, and Shobanjo, amongst others.
When I was growing up, being professional was expected of everyone. Insurance firms acknowledged and valued the areas of expertise that were unique to each particular company. No other business would even consider submitting a price proposal for engineering if Law Union & Rock (Wokocha) had not first signed the document. Additionally, once UNIC (Oviosu) had granted a rate on marine, any company that was asked later would quickly follow the lead given by the previous company. The same can be said for other categories in which corporations possessed comparative advantages.
The industry was able to achieve sanity, professionalism, and specialisation as a direct result of the mutual respect and understanding that existed inside it. This time period has the potential to be considered the golden age of the insurance industry in Nigeria.
As the years went by, there was a gradual decline in the level of professionalism and specialisation that was there. Insurance companies initially began establishing marketing departments without giving much thought to the nature of the customers they were trying to attract. In terms of the regulation component, the regulation was inadequate and almost non-existent. It was the industry that was responsible for its own self-regulation. Because of the establishment of the National Insurance Commission, regulation and supervision have vastly improved over the course of the years.
There have been three rounds of recapitalization thus far, and each one has ushered in a newfound vitality for the sector as a whole. Naturally, there were mergers and acquisitions with each cycle of recapitalization, resulting in an industry that was leaner, more sanitised, and more manageable on the side of the regulator.
When you started your career in insurance forty years ago, did you find it to be an appealing option?
Not much, but it’s a very intriguing work, and I’m extremely happy with how it turned out. When I entered the insurance sector in 1982 as a recent college graduate just entering an industry that was not particularly welcoming of university graduates, it was a bit of a challenge to find one’s feet and establish one’s place in the world. The difficulty one faced back then was that of acceptability, namely in terms of being granted the opportunity to demonstrate one’s worth. It wasn’t so much the attractiveness of the opportunity as it was the difficulty of competing for the space to run your business and demonstrating your mettle. After spending four years in school learning about insurance, it was impossible to imagine working in any other industry than that of insurance. One must pay tribute to our ancestors, the pioneer group of Unilag insurance graduates (1978), who paved the way and set the scene for us to follow in their footsteps. There is no way around paying tribute to them for the pioneering role they played. The likes of Eleoramo, Uzoma, Adepoyigi, Oyelotola, Ozioko, and Oyelami, along with a multitude of others whose names I am unable to recall at this time. The 19th of October, 1982 was the day that I reported for duty at Hogg Robinson Nigeria. One had to learn the ropes from more experienced and well-trained but less educated seniors in order to become a “established staff,” which is how recent college grads were referred to back then. The training was intense, but it was comprehensive. In order to obtain rates for insurance proposals that you would eventually place with them, you were required to walk from Apongbon, which is where AIICO was located at the time, all the way down Marina, visiting UNIC, Niger, SUN, NICON, Royal Exchange, and moving on to Ajele, which is where Lion of Africa had its office, and from there to LASACO at Catholic Mission Street. During this entire journey, you were required to keep your brokering slip tucked under your armpit. Training and experience like these, which would later have a significant impact on one’s profession, were rigors but ultimately gratifying. The early years of experience, during which one worked as a broker trainee for a total of ten years with two different brokers of varying sizes, served to sort of prepare and toughen one for the problems that lay ahead. When one considers the past in the present day, they get a pang of melancholy for the times when professionalism, specialisation, and market coherence were at their peak.
Why is this industry still relatively unimportant in comparison to many others inside the economy?
The contribution of the insurance industry to the nation’s gross domestic product has, on average, been less than one percent. When compared to the contributions made by other parts of the financial services business, this is a significant departure. The absence of support from the government is the primary contributor to this extremely bad performance. The government has not demonstrated a sufficient amount of political will to execute its own law on insurance, most especially the rules on mandatory insurances, and this is a significant problem. Both the banking business and the insurance industry are part of the financial services sector of the economy; however, the government has not provided the insurance industry with the same or a similar degree of assistance as it has provided to the banking industry. This is mostly as a result of people not having an adequate understanding and appreciation of the role that insurance plays in the economic development of any nation.
What are some ways in which you could characterise the industry’s ability to underwrite large risks?
In Nigeria, the insurance industry is undergoing change, and its capacity is increasing on a daily basis in order to meet the demands of the market and the complexities of business. If the conditions are favourable and conducive, I believe that the insurance business in Nigeria is capable of rising to the occasion and meeting the task of providing coverage for a wide range of assets, properties, and liabilities, regardless of how large or complicated they may be. The insurance business is robust, strong, and up to the challenge of underwriting significant risks with the capacity that is available in the local area. In terms of strengthening the industry’s capacity to take on significant and major risks, as well as high-tech industries, the initiative that the regulator has taken in adopting Risk-Based Supervision is a step in the right direction that is a step in the right direction.
What sort of assistance should the government provide the insurance industry in order to encourage its expansion?
Over the course of these many years, the contribution of the insurance sector to GDP has been less than one percent. When taking into account the size of our population and our economy, this number is laughably low. It is not implausible, however, that low growth and a negligible contribution to GDP are both caused by the same thing. The contribution of the insurance industry to the nation’s gross domestic product would greatly improve if it had the same level of support from the government as that given to the banking sector, which is approximately fifty percent. As a result, the insurance sector need support from the government, not only in the form of new legislation and laws, but also in the form of stricter enforcement of the laws that are already in place. In the past, we have seen instances in which the government stepped in to save failing banks by providing bailouts to the institutions in the amount of billions of naira. In the history of insurance, something like this has never occurred. It would be beneficial for the government to give significant and ongoing support for the insurance business by ensuring and/or enforcing that all government property and assets are insured in accordance with the provisions of the law. The government ensures that the premium for the insurance policy that was purchased to protect its assets, both human and material, is paid in full and on time. NAICOM, the industry regulator, should also be granted more authority and fortified so that it may more effectively carry out its supervisory, regulatory, and market expansion functions.
There are a lot of people who are unaware of the distinction between an insurance broker and an insurance company. What sets them apart from one another?
There are primarily three trade bodies that make up the insurance industry in Nigeria. These trade groups do not include the regulatory body or the training and examination body known as the Chartered Insurance Institute of Nigeria. Insurance firms, brokers, and loss adjusters make up the industry’s three professional associations. The part of the industry that is responsible for taking on risk is represented by insurance companies, which are also often called operators. They are the ones who offer protection against the hazards that have been entrusted to them. They conduct surveys either before or after a loss has occurred, and they live up to their commitments by paying claims when an insured person experiences a catastrophe that is covered by the insurance policy. Under the direction of the Nigerian Insurers Association, the country’s many insurance companies do their business.
Brokers of insurance policies, on the other hand, are the industry’s professional sector. They function as impartial professionals who facilitate communication between the policyholder and the insurance provider. The buyers of insurance policies and the insurance firms themselves are both parties involved in the brokering of insurance policies. On behalf of their customers, who are the people who actually buy insurance, insurance brokers execute a wide variety of tasks. An insurance broker is someone who possesses the professional skills and knowledge necessary to evaluate risks and determine the likelihood of loss on an asset or investment. They then proceed to advise clients on the appropriate insurance cover to arrange for the protection of such assets or investments. Brokers will perform risk evaluation and assessment services for their clients, during which they will define risk management techniques that are appropriate for the clients in question. They explain to their clients the terms and circumstances of the insurance they have negotiated for them, as well as the rights and responsibilities of the clients in accordance with the policy, as well as the process for reporting and documenting claims in the event that losses occur. When it comes to any insurance-related issues that may have an impact on their clients’ businesses or operations, insurance brokers serve as advisers.
The nation’s inflation rate has been trending upward for some time now. Is this anything that the insurance industry should be concerned about?
Everyone is impacted in some way by inflation. However, the impact it has on insurance is really significant. There is a common proverb that asserts insurance is not purchased but rather sold. The vast majority of business owners in this region are only compelled to obtain insurance because doing so is a prerequisite for securing facilities from financial institutions. The exception to this is a small number of large corporations and multinational corporations that purchase insurance as a matter of policy and as part of their overall business plan. When it comes to the spending priorities of individuals and owners of small businesses, the insurance company typically occupies a lower rung, if not the lowest one; however, the situation should actually be the opposite of what it is. Because of this, when there is inflation, it is far more difficult to sell insurance policies. This is due to the fact that the population’s disposable income and purchasing power have both decreased as a result of the economic situation. As a consequence of this, they are compelled to rearrange their spending priorities and reorganise their budget. In the majority of situations, insurance is typically the first sector to suffer as a result of the prioritisation plan. On the other hand, it will be required for those businesses that still have the financial muscle to revalue their assets and shore up the sums insured on their policies. This will be the case for those businesses that still have the financial muscle. The industry as a whole will see increased production and higher premiums as a direct result of this.
How is the current difficulty of a lack of available FX in the economy influencing the business of providing insurance?
There are three important variables that can have a significant impact on any economy. One of these is the currency exchange rate. Inflation and interest rate levels are the other two factors. It is inevitable that any change in the availability of foreign exchange will have a significant effect on all areas of the economy, including the insurance market because Nigeria’s economy is largely dependent on imports, particularly because of our penchant for foreign goods and the inability of local industry to meet the large demand. This is especially true given that local industry is unable to meet the large demand. A lack of available forex could have a dual impact on insurance. In the first place, the cost of insurable property, most notably raw materials, plant and machinery, will grow, which will in turn lead to an increase in the amount of premium that is generated by the operators. On the other hand, the cost of reinsurance would increase since operators will have a harder time acquiring foreign currency to fund the reinsurance treaty premiums they are required to pay.
How can the mandatory insurance requirements be fully implemented across all levels?
In order for the law mandating insurance coverage to be adequately enforced, the central government will need to demonstrate a strong political will first and foremost. Additionally, in order to be able to properly enforce compliance, the regulatory body, NAICOM, needs to be adequately empowered and strengthened. Other measures that need to be taken to achieve full implementation of compulsory insurance include obtaining the buy-in of law enforcement agencies, which should be backed by proper training and encouragement from both the regulator and operators; domestication of law on compulsory insurance by state governments; massive, aggressive, sustained, and widespread sensitisation and campaigning by the market, regulator, and operators; and obtaining the buy-in of law enforcement agencies, which should be backed by proper training and encouragement from both the regulator and operators.
By bringing the campaign to different parts of the country in a variety of different geographic zones, NAICOM is doing a good job in this regard. Last but not least, the industry’s operators, particularly the brokers who represent the industry’s professional arm, need to step up their game by ensuring that the market is covered in an appropriate and sufficient manner.
What part does insurance play in the whole process of economic development?
The expansion of any economy is significantly aided by the participation of the insurance industry. Any economy that minimises the importance of insurance or fails to accord it the recognition it merits will never reach its full potential. This is because economies cannot grow without risk management. Because insurance functions as a mechanism for transferring risk, it offers the essential safety and support that makes it possible for business, commerce, and industry to take risks without restriction. As a result, these sectors are able to go all out in their pursuit of the objective of propelling their companies to new heights. Insurance offers the incentive to allow businesses and the economy to thrive by taking off risks that could have prevented such progress. These risks could have been mitigated by the purchase of insurance. In the event that unanticipated events occur, businesses, particularly smaller and medium-sized enterprises (SMEs), can find relief in the form of insurance, which enables them to more quickly resume normal operations following a calamity. Therefore, any government or economy that embraces, encourages, and supports insurance would have less to worry about in the event of disasters such as the frequent market fire in Nigeria, and they would be able to channel the scarce resources towards the provision of essential infrastructure and other economic benefits for their citizens.