The insurance sub-sector of the financial services industry in Nigeria is not contributing enough to the nation’s gross domestic product (GDP). The new Group Managing Director, Standard Alliance Insurance Plc, Bode Akinboye says insurance could increase its sectoral contribution if the Federal Government shows leadership by buying and paying for insurance policies. He says the sector should take advantage of the telecoms sector to reach out. He also speaks about the acquisition of strategic shares of the company through Gemrock Management Company Limited; ongoing process to merge the life and its non-life companies. Omobola Tolu-Kusimo met him.
How can the insurance industry be made to drive Nigeria’s economic growth?
One of the areas of challenge for us is distribution and you ask yourself, what has happened to telecommunication companies which from nowhere just took over every area of the economy. Insurance practitioners have a lot of work to do. We need to engage and train the workforce particularly those people popularly called agents or quasi employees in large numbers all over the country. We need to use them as a mechanism not only to popularise insurance but to generate that large numbers in small quantities, little premium but wisely spent.
We need to make plan on the telecommunication sector so as to reach out to customers thereby using mobile devices to support our service delivery. Employment generation is one major key area in the industry. If you create employment and you succeed by generating more income, then you would have been in a very good position to get huge pool of investible fund that can then be allocated to different investment from Treasury bill which is government investment. In other countries, insurance companies are major stakeholders in the industry and Nigeria should not be an exception. Insurance companies can exist in mortgage resolution in Nigeria by helping to create residential houses for people, not only by investing but by creating product by mortgage default insurance that will enable people that may not have enough contribution to go into mortgage. Insurance would give guaranty on their behalf to mortgage institutions. These are areas that would properly position the insurance sector. This way, members of the public and all of us would benefit through impactful activities of the institution.
We have a new government in Nigeria and fortunately, we also have a new Commissioner for Insurance, heading the regulatory body, NAICOM. Incidentally, the regulator is also talking about change. What kind of sector do you foresee in the next two or three years?
I foresee an industry that would be a significant contributor to the nation’s gross domestic product (GDP) and to national economic wellbeing. This could only happen if the change mantra from the Presidency trickles down to the industry. This means that first, government must become the number one customer of the industry and they must walk the talk. Government must buy insurance and pay for it and every other person will follow. One of the reasons why investible fund in the economy is low today is because insurance is not working. You can see what has happened to pension scheme. From almost nothing, they now have N5 trillion under management. It shows what government can do when its agents decide to go and enforce laws which is what the National Pension Commission (PenCom) has done. In our industry today, we have compulsory insurances such as Third Party Motor Insurance, Group Life and the others. Government should buy and enforce this policies and the industry will never remain the same. We believe in the quality leadership of President Muhammadu Buhari and that is why we voted for him. We believe he stands for change; he represents that change and we are expecting to see the change in the industry. We have a regulator who is very good and given that he will also key into the change mantra of the Federal Government; we expect that he would be able to encourage them as the main adviser to government to comply with the law. What makes insurance not to work today is the absence of law and order. We want government to deal with law and order in relation to enforcement and compliance with insurance laws and see what will happen to the industry. If these issue is taken care of, in the next two years we will have a solid foundation in the industry and leverage to begin to address the issue of service in new product on operation of investment capacity in the economy.
The Commissioner for Insurance and other experts in the industry have identified market indiscipline and unethical practices among operators as part of the problem killing the growth of the industry. It is a fact that some insurance companies sell third party motor policy pegged at N5000 for as low as N1000. What is your take on this?
The situation is like an industry that has engaged in self-destructive process. When you look at Potter five forces analysis that talks about value creation, there are different players in every sector. Where one side is taking much more value than the other, that industry is set to die. We want an industry where value creation is reasonably evenly well spread and that is not the case with us. Today Nigeria happens to be the only country in the world where we get the cheapest form of insurance for the poorest service. This is just a natural process. Nigeria is the only country in the world where motor insurance with the comprehensive insurance is based on one flat rate irrespective of the car you are driving, where you live, where you work and what you do. The issue of premium rating is a fundamental problem that is facing the industry and that is why we must commend NIACOM for wanting to look into some companies. The Commission has the authority under the law to approve rate for every insurance company and so it has asked the industry to agree on a rate and submit to the Commission to sign on. Once this happens, it becomes illegal to operate outside of that guideline. We must have a minimum flat rate that cannot be flouted because even the banks have interest and fixed rates approved by the Central Bank of Nigeria (CBN). This is why banks don’t run business anyhow. Our business is supposed to be scientifically driven. It is supposed to be based on the geography of data. This will help us when we are to pay claims and enable us pay the claims as at when due. NAICOM has said each company in the industry should appoint people that will scientifically determine this rate and recommend to them for approval. My submission is that there must be minimal rate for us to survive as an industry.
It is more than two years now that the ‘No premium, No policy cover’ became effective in the industry. How is it working for the industry?
It is one of the best things that has ever happened in the industry. Before now, companies lends premium and they barely collect 40 per cent of it. Insurance company’s balance sheet was carrying large amount of unpaid premium that are never paid for. Yet claims were coming from customers and they insist that you must pay. In order to bridge this gap, the regulator decided to go in accordance with what the law says which is no premium, no cover and it made sense. Insurance is a line of pulling of risk and this means you must pay your own part of the whole rate of the premium. So what the regulator wants is that before you issue any cover, premium must be received. It is good for the industry; it is good for the customer. The customer can now demand for the payment of their claim and get it as at when due while the underwriter also has the money to invest ahead of any casualty. The industry can now really defend the income they have been paid unlike what we used to having the past.
You were out of the insurance industry for a while and now you are back sitting as the Group Managing Director of Standard Alliance Plc. Can you tell us what brought you back?
I worked here in Standard Alliance from 1997 to 2009 and that was almost 13 years of non-stop activities and at that point, I thought I needed to go and refresh myself. I went to school and was also working to look at the industry. Five years after, there was an opportunity to come back as an investor manager and so I took advantage of the opportunity and came back.
There is board change in the company and you are a new investor. There has also been shakeup among workers which led to some them being laid off. Can you shed more light on this recent development within the organisation?
Basically, we came in here with a lot of investors and the objective was to put money in the company and have strategic interest that must be able to influence the direction of how the business is going to be managed and that involved the board and the management composition. Today, we have a new board of directors that is more or less made up of predominantly new members and we also have a new management which I am heading as a result of the new investors. There is a transformation going on and so we needed to look at people we inherited. We have met with people on ground to redeem the system. We also employed more people. We tried to inject the change mantra into the system to achieve the transformation. We are also trying to attract new workers within the financial service sector and other related sectors to help in positioning the institution. Presently, new senior hands have been hired in retail, investment portfolios, corporate strategy, quality process and technology.
How are you dealing with the issue of profit making which is critical to the shareholders of the company?
We have dealt with the issue of people which is the most important asset that can be used to drive any system in the insurance or banking sector. So how do we service our internal customers first? How do the departments relate to one another in order to be able to collectively service their external customers in streamlining their processes and documenting their processes? Having dealt with the issues of processes and product, we had to look at which product do we take out to the customers and the medium channels of getting to them. This company is almost 20 years old. We have customers that have remained in this institution through both the thick and thin and are still very satisfied with the company no matter the challenges. Presently, we are going back to the basic which is our customers. We have reassured them that we will continue to delight them. We have also backed up our return with action by paying claims mostly inherited. Confidence has being restored and business has started in the top line because we have dealt with the issue of processes. It means we have also streamlined these stages and minimised the cost of running the business. The natural thing that follows is profit when your top line is still relying on growth and you manage your cost at the barest minimum.
‘The issue of premium rating is a fundamental problem that is facing the industry and that is why we must commend NIACOM for wanting to look into some companies. The Commission has the authority under the law to approve rate for every insurance company and so it has asked the industry to agree on a rate and submit to the Commission to sign on. Once this happens, it becomes illegal to operate outside of that guideline. We must have a minimum flat rate that cannot be flouted because even the banks have interest and fixed rates approved by the Central Bank of Nigeria (CBN)’
You are in the process of merging the non-life company to the life company. Why did you take the decision?
Standard Alliance Insurance has a subsidiary which is the life insurance company, SA Life Assurance Limited while we are also doing general business. These two businesses are similar with different focus. Life is more on long term and non-life general is more on short term business and we believe that if it means combining the two businesses together to bring stability, then it is the way to go. By bringing the two businesses under the same balance sheet, you will have a structure of one board instead of two different boards and one branch per location instead of multiple branches for each of the branch. Perhaps management team is marginalised because you will have one managing director instead of two, we can have the life team, technical team and the general team. At the end of the day, you have one person coordinating the two sides of the business and you also have share facilities, shares support services, share technologies, share administration and this brings massive savings which goes straight to improve the Company. This is why we are merging the businesses together. We believe companies that are doing pretty well in the market today such as Leadway, AIICO, Mansard have this kind of structure.
Can you shed more light on the merger? At what stage is it now?
We have commenced the process of the merger. It is a process that regulatory authorities must approve. The Securities and Exchange Commission (SEC) has approved it and our regulator, the National Insurance Commission (NAICOM) has given us a no-objection approval and we are moving to the next stage which is to submit our application to Corporate Affairs Commission (CAC) to get approval for the merger.
What should customers and shareholders expect from the company going forward?
Going forward, you will see a combined force with a team that is ready to offer customers so many products from life to non-life. There will be a more coercive force out there giving quality service and with improved top line and bottom line. We expect to see a more progressive and prosperous company by the end of the year, an investment that would be worth the while for our shareholders. We want to be a dominant player in the insurance sector. The sector is still at a developmental stage in Nigeria and is contributing less than five per cent to the nation’s GDP. In South Africa, the contribution of insurance is about 15 per cent of GDP while the United States and others are between 20 and 25 per cent. So you can imagine if we can move our contribution from 0.5 per cent to 10 or 5 per cent, companies that have performed well can become number one which is open to everybody because the room for growth is massive. So only those who are ready to run the race will be able to determine in five or 10 years’ time. We are working hard, we are here with the new energy, new team that is focused and committed to do their best. This is the time for people to look at insurance stock because penny stock will become mega stock. Historically, when a sector is at the kind of level that insurance is presently is the right time and only those who can take the risk will bear the reward.
‘We believe in the quality leadership of President Muhammadu Buhari and that is why we voted for him. We believe he stands for change; he represents that change and we are expecting to see the change in the industry. We have a regulator who is very good and given that he will also key into the change mantra of the Federal Government; we expect that he would be able to encourage them as the main adviser to government to comply with the law. What makes insurance not to work today is the absence of law and order’
Source: The Nation