Insurance sector growth essential for economic development, says Igbiti
Nigeria as a developing nation would need to support growth and development of the insurance sector because of its potential for business sustainability and poverty reduction. Edwin Igbiti, acting managing director, AIICO Insurance plc in this interview with MODESTUS ANAESORONYE reviews the sector and it contribution to economic development. Excerpts
The level of insurance penetration in this part of the world is abysmally low due to high level of ignorance. Being an expert, what would you say is the role of insurance in an economy?
Insurance has a significant but understated role within the economy. It is the mechanism through which governments, corporations, small businesses, individuals, households and even associations transfer their risks to duly licensed insurance firms at an agreed price (premium) which is paid to the insurer typically on an annual basis.
For example, an import/exports businessman will be indemnified for his losses if he has a valid marine (cargo) insurance policy from an insurance company in the event of loss or damage to his goods during an incident. Similarly, companies and other institutions may acquire a Group Life Policy which guarantees payment of predefined benefits to a named beneficiary in the event of permanent disability or death of staff.
In order words, insurance minimises the impact of disruptions to business and life in general. It serves as a safety net, providing a sense of stability and peace of mind as we conduct our business and daily endeavours.
Insurance can of course act as a catalyst for business growth, stimulating trade, commerce and industry in different parts of the globe. It is not surprising therefore, that most developed economies across the world have a robust and mature insurance industry capable of supporting domestic growth and development as well as raising the overall standard of living of the citizenry.
The global positive impact of insurance therefore cannot be overemphasised as it is essential for sustainable economic development and supportive of the poverty alleviation aspirations of many developing nations.
What are those things Nigerians need to know and appreciate about insurance to deepen penetration?
Insurance is relevant and available to all Nigerians, home and abroad. You may choose to insure your life and those of your family, as well as assets and other valuable possession.
You can receive sound financial advisory and counsel to guide your insurance decisions from any of the reputable insurance companies operating in the country. Details of your insurance policy and other related matters will be kept confidential, barring specific instructions to the contrary.
Your insurance policy entitles you to full indemnity i.e. the insurer to whom premium was being paid will restore the customer to his original position or circumstance prior to the occurrence of the loss.
There are pertinent questions Nigerians should always have at the back of their minds i.e.
• What can go wrong in my business, personally, etc?
•What can I do to prevent harm from occurring and recurring?
• How will I recover and respond to loss?
• How will I raise cash to start all over?
Nigerians and potential policy holders need to know, understand that the benefits of insurance are enormous and far-reaching. Some benefits include:
Insurance allows companies to embark on large projects. For example, a manufacturing company with assets running into several millions of naira assumes large risks and hazards such as the potential loss to fire or collapse; but with insurance, there is protection, cover and recourse in case of an incident or loss.
An insured company will be adequately reimbursed to rebuild the factory and continue production with minimum disruption to business operations. Large projects like these often have economies of scale, so they can produce goods more cheaply when compared to small-sized projects and SMEs.
Life insurance, which is probably the largest business lines of AIICO insurance plc provides monetary benefits to the bereaved family or other designated beneficiary, and may specifically provide for income to an insured person’s family, burial, funeral and other final expenses.
Provision of employment: normally, insurers and the insured provide job opportunities to the citizenry. The insurance companies do employ additional hands as their business expands, while investors who take insurance protection are confident to invest and or expand their business. By so doing they equally employ people to work for them.
Having been in operation for a long time, what would you say are the major challenges facing the insurance industry?
When we think about the challenges facing the insurance industry, what instinctively comes to mind is insecurity. Inadequate security apparatus and lack of modern crime fighting methods poses a serious threat to this business in particular and financial institutions generally. Government should do more in the area of security so as to restore confidence.
On the economic front, the current weakness and volatility of the stock market have also negatively impacted both new sales activity and the investment quality of the insurance industry. Government and private sector players need to do more to create an enabling environment in order to attract investors both foreign and local; this will translate into funds and quality investments driving sales.
Inappropriate risk management apparatus; inability to maintain low cost and retain business in a competitive market are other apparent issues insurance companies face on day to day basis.
How would you access the economy and impacts on the insurance business in Nigeria today?
Nigeria is the third fastest growing nation with GDP growth forecast of 7.85 percent in 2014. With over 160million people, Nigeria is the seventh largest economy in the world, with information communication technology – a major connectivity/distribution tool, growing at 25 percent YoY.
Foreign Direct Investment (FDIs) was $8.8 billion in 2013 alone. There has been a steady expansion of the middle class and high networth individuals with growth in average disposable income across all income categories. All of these factors combine to improve the attractiveness of the Nigerian market in general, and specifically for insurance as well.
Oil and gas is a major business of the industry; how has the operators responded to building capacity?
Local insurers and operators have seen underwriting and retention capacities grow significantly over the past seven years. This was achieved due to a combination of business-friendly policies by the regulator – NAICOM and private-sector capacity building initiatives.
The local content guideline which stipulates the 70 percent of oil and gas business be sourced locally before off-shoring has stimulated knowledge/technical transfer, improving balance-sheet strength and retention capacities of local insurers and re-insurers.
Insurance operators have also seized the opportunity to review and re-negotiate their treaties and reinsurance agreements in order to secure more favourable terms and conditions.
The average Nigerian insurer has developed from being a “funnel” to becoming a bonafide big-ticket underwriter in collaboration with global reinsurance firms. A lot more traction and gains could yet be achieved following the local content law.
What class of business has been recording huge claims in the insurance sector and, what is responsible for this?
Claims profiling by class of business would reveal that the highest claims over the last few years have emanated from the public sector – group life account, which is directly attributable to the high incidence of death of our military personnel, especially in the Nigerian police. Majority of the casualties are as a result of a mayhem and destruction inflicted by terrorist groups.
E-business is becoming a growing trend in the economy; how has this assisted in driving insurance?
Electronic systems are fast developing in Nigeria, and government is fast-tracking its widespread acceptance and uptake through the CBN’s cashless economy and financial inclusion initiatives.
The banks were the first to embrace this shift from traditional modes of payment (i.e., cash, checks and other forms of paper-based legal tender) to electronic alternatives (e-payment systems), while the insurance companies and other financial services sub-sectors have also followed suit.
Today, customers can make premium payments through mobile transfers, direct debits and internet payments. Similarly, e-receipts and electronic policy documents have replaced paper invoice and policy documents in print.
These electronic systems have provided reliable alternate methods of payment and distribution while reducing the cost of handling cash, incidence of fraud and eliminated the need for physical contact and proximity in business.
AIICO Insurance plc has taken a frontline role in this positive development via our e-insurance portal which is available on our website, and AIICO e-Cashier which is a self-service platform installed at our locations for quick, secure and convenient premium payments. In order words, premium payment and claims can be registered online; enquiries and feedback are also available at the click of a button via AIICO portal.
Looking at your CSR initiatives, how have you impacted on the life of ordinary people?
AIICO Insurance plc has a very rich culture of giving back to the society. The company has a robust corporate social responsibility platform which ensures that we are constantly giving back to the society, developing our operating environment, supporting the poor and protecting the vulnerable amongst us.
Routinely, donations are made to motherless baby’s homes, orphanages and the infirmary. Numerous foundations including Pacelli School for the Blind in Lagos are among beneficiaries of our CSR initiatives.