2016: Recession, low penetration, corporate losses roil underwriting

The Insurance industry in 2016 has not been left out in the current economic meltdown in the country. About 30 percent of insurance companies have still not presented their 2015 financial records. Up to 95 percent of companies have made losses and unable to pay dividends to their shareholders.

Across the world, insurance is seen as the last hope of the common man. But the penetration level in some African countries has remained low as against Europe, Asia, and South America who are advanced in insurance adoption and acceptance.

Nigeria is not an exemption in this regard, as penetration remains at 0.3 per cent while the contribution of the insurance sector to the nation’s Gross Domestic Product (GDP).

With the current financial crisis occasioned by high inflation and low disposable income, most individuals and corporate organizations are sacrificing their insurance budget to meet their more immediate needs, until things change.

Yet, experience has shown that the best time to procure insurance is during economic hardship, the values of assets increase every day, meaning it would cost more to replace an asset bought before.

According to a recent report by The Daily Times, at least 17 insurance firms, some quoted on the Nigerian Stock Exchange, are still struggling with their financial records which have kept them from conducting their 2015 Annual General Meeting (AGM).

This compares with 52 licensed insurance companies in the country, according to information on the website of the Nigerian Insurers Association (NIA).

Some of the companies, from records over the last five years have been unable to present financial scorecards for the regulator, National Insurance Commission (NAICOM) to scrutinize, not to talk of paying dividends.

Linkage Assurance, African Alliance Insurance, UNIC Insurance, NICON Insurance and Guinea Insurance are still battling regulatory issues, as they were unable to do the needful to have their accounts approved by the insurance industry regulator. As at 7th of November, 2016, Great Nigeria Insurance, Industrial and General Insurance, Goldlink Insurance, Alliance & General Insurance, Alliance & General Life, Investment & Allied Insurance Plc, Spring Life Assurance Plc, Nigeria Agricultural Insurance Corporation and Unitrust Insurance Company had not even submitted their 2015 accounts to the regulatory authority.

Fin Insurance, Equity Assurance and International Energy Insurance that have gotten their accounts approved were unable to brief their respective shareholders on the 2015 financial positions.

Most of the affected underwriters are loss-making institutions and till date are still having challenges balancing their books.

While most of the underwriters are making profits on a yearly basis, the investigation revealed that they devoted most of their profits to clear their negative reserves. Until they extinguish the debts, shareholders would have to wait longer for returns on their investments.

At AGMs, shareholders have lambasted underwriters for their failure to give them dividend or bonus, especially as some companies has declared nothing to their shareholders in the last five years.

Speaking recently on this development at a seminar organized by the NAICOM for insurance correspondents in Gombe, the Director of Finance and Account at NAICOM, Mr. Nicholas Opara, disclosed that, by regulation, the companies are not allowed to pay a dividend until they clear their negative reserves.

“The commission will always ask them to extinguish the negative reserves before they pay a dividend. Hopefully, most of them are making profit and if it continues, they should be able to declare a dividend in the near future,” he pointed out.

Shareholders of insurance firms across the country are unhappy that their companies, for years, have yet to declare a dividend.

The shareholders, who expressed their grievances at the AGMs of the underwriting firms that had so far held their 2015 AGMs, were unhappy that their companies, in spite of making profits, still could not pay meaningful dividend or bonus to shareholders, while some had their accounts in negative after offsetting their previous debt.

National Chairman of the Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, was unhappy about the low level of insurance penetration in the country and its contribution to the Gross Domestic Product (GDP), stating that this has accounted for the below par value at which most of the listed insurance stocks are being sold on the NSE.

The shareholders, he pointed out, require return-on-investment and performance, charging insurers to improve in this regard.

Also in the year, the National Insurance Commission (NAICOM) ordered the 58 insurance companies in the country to cancel any form of channels used to sell their products and services except the ones licensed by the commission.

The commission equally disclosed that all previous and current relationships of underwriting firms with any financial institutions, telecommunication companies, and airlines are no longer valid starting from August 17, 2016.

Henceforth, the Commission wants to license any agency and referral agents that are doing businesses and earning commission from the insurance industry.

Meanwhile, findings show that most underwriting firms who are in partnership with the big telecommunication outfits, such as Glo, MTN, Airtel, and Etisalat on mobile insurance will have to terminate such transactions that are generating the benefiting insurers several millions of naira on a monthly basis. However, the bancassurance arrangement between the banks and insurers has equally been put on hold.

Enforcing its order, NAICOM threatened to sanction any firm who may ignore the order and continue to use financial institutions, telecommunication companies, and airlines, as channels to sell their products and services, unless these distribution agencies are licensed by the commission to do so.

Alhaji Muhammed Kari, Commissioner for Insurance, NAICOM, addressing journalists in Lagos, warned that any insurer who goes against this directive would be sanctioned by the regulatory body.

He stated that the commission had asked banks acting as agency or referrals of insurance firms to offer themselves for licensing by the commission, but got a letter from the Central Bank of Nigeria (CBN) last week, saying, NAICOM has no power to license any institution within the purview of the CBN.

Without a doubt, the order further reduced the penetration which was celebrated owing to leveraging on the widespread telecommunications’ network in the country.

Furthermore, the insurance industry took the idea of rebranding the industry on a top priority before it was later suspended over inadequate fund for the multi-million naira project.

The multi-million insurance rebranding project was expected to take off in October 2016 after all financial commitment to the project ended but the committee lamented the inability of its member companies failed to remit their part of the contributions.

The rebranding initiative is funded by the National Insurance Commission (NAICOM) as well as the 58 insurance companies in the country.

The insurance rebranding project is an innovation of the Insurers’ Committee aimed at deepening insurance acceptance and penetration through massive insurance education and awareness across all states of the federation, with Lagos and Abuja as pilot areas.

Mr. Oye Hassan Odukale, Head, Media and Publicity Sub-Committee of the Insurers’ Committee, at a meeting in the year said that the first phase of this multi-million Naira project will use the online medium such as Facebook, Twitter, and other online platforms to create awareness on the need to subscribe to insurance products and services, following the rapid increase in the number of Internet and online users in the country.

Looking back on the year, Mr Gbadebo Olameru, President of the Association of Registered Insurance Agents of Nigeria (ARIAN), called on Nigerians to take the issue of insurance seriously so that they don’t have to spend more whenever mishap occurs.

He stated that the little money in the economy left people with less disposable income, and this was reducing the level of insurance businesses underwriters were currently getting.

The people, according to him, don’t have money to purchase insurance cover, while the existing customers were not finding it easy to renew their insurances.

“Most people, who have risen above poverty before become poor again because their sources of livelihood were not insured. A manufacturer, who fails to insure his factory just for a token premium, will regret not taking that decision, when fire razes his factory,” he said.

On his part, the managing director, Anchor Insurance Company, Mr. Ademayowa Adeduro, said, “You may think that you don’t have enough money to feed; you only have one car, struggling to pay school fees. What if there is a cut off from that small income you have? The car you bought one year ago, if it is a total write off, how will you replace the car?” he queried.

“So, we just have to face it, and I encourage people that are well enlightened, the educated workforce, to embrace insurance. That is the best product I can ever sell to anybody now.”

The Director-General of Chartered Insurance Institute of Nigeria, Mr. Olutayo Borokini, on his part, said a lot of local industries closed up during the year because they could not purchase raw materials for their operations. He noted that if the new forex regime was perfected and people have access to dollars at a flexible rate, most of those industries would be revamped and then, of course, demand for insurance would also increase ultimately since the rate of insurance adoption is based on the state of the economy.

THE DAILY TIMES NIGERIA