The Crisis of Confidence in Insurance - Ekerete Gam Ikon

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The Crisis of Confidence in Insurance: What Fola Daniel Did Not Say

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The Crisis of Confidence in Insurance: What Fola Daniel Did Not SayMonday, 23 July 2012 / Ekerete Gam Ikon MNIM, CPP [[email protected]] / Third Party Media

The Insurance Industry in Nigeria has not enjoyed the required public confidence neededto fulfil its potentials since the takeover of foreign insurance companies by Nigeriansabout 50 years ago. Mostly, non-insurance professionals, those Nigerians have beenproviding employment for insurance professionals and helping to grow the insurance

industry in ways that continue to earn them socio-economic status while it remains ahuge unending struggle for the insurance professionals, operators and, indeed, theregulator partly on account of the public trust and confidence deficit.

Unfortunately, the regulator who should invoke powers to reset the direction and injectconfidence into the psyche of policyholders and the entire industry appears institutionallyweak and lacks the legal covering ordinarily required for taking critical change-enabling

actions, including announcing names of insurance companies that are insolvent andoperating below acceptable standards.

Two reasons readily come to mind for this rather disturbing situation. Firstly, it could beadduced to the fact that the laws and regulations guiding the operation of insurance in

Nigeria was produced and subsequently amended based on inputs driven by insuranceprofessionals - operators who would naturally focus on how to protect their turf.

Secondly, the regulator lacks such absolute powers like others in our clime to exercisethe terms of the laws that established it i.e. considering the chain of command it mustabide by. Unlike others, the insurance regulator cannot pronounce and seal up acompany that does not have a Group Life policy for example; whereas the Federal Inland

Revenue Services can take such action against a tax defaulter!

Fola Daniel, the current Commissioner for Insurance and Head of National Insurance

Commission (NAICOM) may have shown greater understanding of the circumstances ofhis office than his predecessors by such grandstanding as he did before the House ofRepresentatives last week. However, what he has missed is that place in the history ofinsurance in Nigeria which would have recorded him as the man that CHANGED the

insurance industry in Nigeria.

How and why?Too many times during his tenure (now in his second term), Fola Daniel has playedwithin the box created by the law thereby failing to score significant milestone evenwhen the opportunity appears quite evident. It will serve well to be reminded of thesaying that Winners think and function outside the box to make history! It is therefore

not surprising to have the Commissioner beg the issue which evidently requires hishammer after these firms had been confirmed to be operating below acceptable

standards!

Considering the banking industry reforms which started with Chukwuma Soludo and got

boosted by Sanusi Lamido Sanusi, many would wonder why similar drastic measureswere not taken in the insurance industry without appreciating the differences in


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regulatory latitude. Luckily, the Commissioner for Insurance has been around sinceSoludos era to relate with his efforts until Sanusi came and deepened it.

Sadly, with Fola Daniel, it has remained a rather lukewarm period for insuranceregulation, without the desired bite and the needed kill. He probably knows that if hemust withdraw the operating licence of any insurance company like the ten (10) he has

told us are operating below acceptable standards, he can only recommend; and once itcomes to the knowledge of the owners of the company, he knows his job is up for grabs.To announce the names as the insuring public requires appears a task outside his jobdescription.

What Fola Daniel did not say to the House of Representatives was that he had no legalprotection to name those ten (10) insurance companies and go back to work the next

day.

What was however instructive in his address to the members of the green chamber wasin what was unspoken the attempt to cry out for help and the manner in which it was

done has opened up the industry for a fresh crisis of confidence and possible

confusion/de-marketing. Many companies will now have to go the extra-mile to convincetheir clients that they are not on that list of 10. Given the cut-throat competition in the

industry, should it surprise anyone if anytime from now, scooped versions of the list of10 be enter into circulation to push sales in favour of a few relatively strong entities?

The Question of Numbers!!!

Fola Daniel, apparently giving his scorecard to the Nigerian public through the address,announced that 38 insurance companies were penalised for failing to submit evidence oftheir reinsurance arrangement. Given that there are 48 insurance companies currentlyoperating in Nigeria, would that mean only 10 were qualified to start the year? Andwould such penalty mean they lost premium earned from unsuspecting policyholders andinsurance buyers between January and June this year?

The Commissioner told the Honourable Members that 19 insurance companies werepenalised for breach of oil and gas insurance policy guidelines BUT did not say whetherthe 10 he announced as operating below acceptable standards were amongst these 19.Should the oil and gas operators not know whether their insurance policies are still intactand that such insurance companies will be in a position to honour their claims and otherobligations?

In a situation where ALL insurance companies with operating licence and in fullcompliance with the guidelines from NAICOM can participate in oil and gas insurance, itmight be necessary to clarify whether the penalty on the 19 debarred or suspendedthem from future opportunities, in view of the juicy and irresistible dollar-denominated

premiums at stake.

While Commissioner Fola Daniel also reported that some insurance companies were dealtwith for infractions relating to submission of annual accounts and financial statements,

he did not tell the insuring and investing public through the address to the peoplesparliament that those companies, by failing to meet the submission deadline of June 30,had placed NAICOM in an embarrassing position when, and inevitably, the SEC and NSE

bring stiffer penalties upon the listed concerns.

Most observers fail to understand why NAICOM allows the period up to June 30 forsubmission of audited accounts to lapse, especially given the negative perception the

insurance industry gets every time such occurs. The question is asked by concernedwatchers should the position of the NAICOM Act in this respect not be brought out aspart of the financial guidelines to ensure alignment with the stipulations of SEC? This is


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probably the only point where NAICOM addresses the issues of investors and it ought tobe handled in a better manner, one would imagine.

Currently there are one or two insurance companies embroiled in private placementinfractions which continue to impact the trust perception of the industry.

The NAICOM boss had further disclosed that the Commission issued several guidelines togive effect to the provisions of the law but did not say that the delay of the NationalAssembly to legislate on and pass the amendments to both the NAICOM Act and theInsurance Act had made his job effectiveness-challenged and laborious; acting to impedethe realization of the potential of the insurance industry in Nigeria.

It would seem the regulator relies more on the guidelines than the law!

Closing ThoughtsGiven the bigger challenge of transforming the insurance industry in Nigeria to align withthe significant growth and transformation that has happened in the banking industry, it

is important to arrest the crisis of confidence in the insurance industry by ensuring that

any amendment to the NAICOM Act and Insurance Act gives reasonable level ofautonomy to NAICOM even as the regulation of the industry must be kept above the

operational level.

As seeming outsiders have been brought in to sanitize many regulatory agencies ofgovernment in Nigeria including NSE, SEC and FIRS, insurance deserves such a move if

it must be transformed and strengthened to meet up with the extent of work others havedone to catch up and achieve the progress in Nigerias financial sector.

It is a good time for the voices of the Nigerian people in the House of Representatives tocompel the Commissioner for Insurance to publicly name the 10 insurance companiesoperating below acceptable standards as a first step to addressing the malaise in that

sector.

The unsuspecting members of the public should not be kept in the dark while theaffected insurance companies should equally not be allowed to enjoy any new patronagefrom individuals, brokers, private organizations and governments. Sounds punitive yetoffers the building blocks upon which the trust deficit and confidence crisis can becontained.

The insurance industry in Nigeria is on its knees today and might remain there if urgentsteps are not taken to reposition the regulatory body (as a change catalyst) and possiblygive room for more experienced financial experts to contribute to the growth anddevelopment of insurance in Nigeria.

The Crisis of Confidence in Insurance - Ekerete Gam Ikon

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