‘Synergy between stakeholders and the regulator key to successful reforms of the insurance sector’
Sabiu Bello Abubakar is quite conversant with evolution and operational dynamics of Nigeria’s insurance industry, having worked in various insurance companies and the National Insurance Commission (NAICOM) where he rose to the directorate position before he resigned and join Jaiz Takaful Insurance Plc, where he currently serves as the Executive Director, Operations and Training. In this interview with Bala Augie, Abubakar said professionalism and mutual trust among the insurance operators and the regulator, NAICOM, is fundamental to the survival of the insurance sector. Excerpt:
Do you see Takaful insurance making any difference in the insurance industry vis-à-vis meeting market needs and deepening insurance penetration?
Takaful, being an all-inclusive financial service is seriously making significant positive impact on the insurance industry in Nigeria. Takaful insurance is a laudable breakthrough reform of the National Insurance Commission (NAICOM) under the leadership of Mohammed Kari as the Commissioner. So, Takaful will remain one of the remarkable legacies of the Commissioner for insurance.
Takaful is a product of regulatory development function of NAICOM aimed at addressing serious consumer dissatisfaction and abysmal insurance penetration in the country of over a hundred million people. For the reasons ranging from religion to socioeconomic deficiencies, a whole region of Nigeria was once excluded from insurance services. That was worrisome and therefore, the stakeholders could not doubt the urgent need for bringing Takaful into an existence to serve as an alternative in the market in order to capture the insurable uninsured segment of the society. It was an onerous duty for the stakeholders to bring Takaful to the reality in Nigeria’s insurance market because Takaful insurance is also fundamental to the achievement of the National Objective which was targeting year 2020 to achieve 70 per cent national financial inclusion, therefore, NAICOM and other stakeholders had to be thorough and meticulous on the Guidelines.
Also, introduction of Takaful to the insurance sector was expected to change some of the industry’s narratives about insurance, as such, Takaful being a new innovation, the market was expecting to radically change insurance market for better.
How was Jaiz Takaful Insurance Plc 2017 financial year?
When the two full-fledged Takaful Companies were licensed and they commenced operation in year 2016, all the stakeholders were optimistic given the huge and large untapped insurance market ready for them to harness without difficulties. The operators’ and promoters were over ambitious as they were eyeing billions of naira as Premium Income but sooner, the financials of the companies made the shareholders realized that all that glitters was not gold as actual initial result was far from the illusion they created. You do not need to consult oracles to understand the reasons behind their disappointment: first, when you start a new company, you have to create a niche for it to grow gradually before breakeven and profitability. Second, the Takaful companies are not operating in isolation; they are in an insurance business environment where Premium Rates are ridiculously discounted with consumers and distributers as kings. Third, insurance awareness is very low among the people. Fourth, compliance to insurance laws by members of the public is very inadequate. Fifth, enforcement of the extant laws and regulation is virtually lacking. Sixth, market domination by certain players is overwhelming and detrimental to the new entrants. Seventh, dented image and lack of consumers’ confidence is a cause for alarm to the operators. Eighth, there is rampant fake insurance in Nigeria. Ninth, government agencies, ministries and departments (MDAs) behaviours toward insurance as many do not comply with insurance provisions and directives. These are just highlights, I don’t have to discuss them laboriously vis-a-vis your question; you can write a book on each of the highlights.
Takaful insurance is promising given that client who do not suffer any loss would stand to share in profit at the end of the financial year; have you shared any profit after 2017 financial year?
Jaiz Takaful Insurance Plc like conventional insurer has the same concept of risks pooling. However, in Takaful, such pooled fund belongs to the participants (insured) and it is used to pay claims of the participants. After deduction of claims and other expenses such as wakala fee, and reinsurance cost from the fund whatever remains is distributed back to the participants who did not receive claims benefit in proportion to each participant’s contribution to the fund. Thus, participants are the owners of the fund, unlike the conventional insurance where after settling losses, the remaining fund (surplus) is retained by the Insurance Company as shareholders money.
Underwriting surplus/profit sharing principle is one of the value prepositions of our Takaful company. However, you should know that historically or in line with the global business or market phenomenon, Takaful companies do not make surplus/profit in the first to about third year of operation because of the obvious reasons that at initial year of operation, the operator will not have large portfolio of businesses and operational expenses will normally outweigh the income. Furthermore, the operator needs to build enough reserves to take care of subsequent liabilities. Despite these factors, I am pleased to inform you that we at Jaiz Takaful have surplus result in engineering Takaful and General Accident Takaful portfolios but the surplus amount is not voluminous enough such that we can share it out conveniently. Hence, we decide to roll it over to the next financial year account when, by the will of God, the result will improve significantly.
A universal believe is that some economies are buoyant because they have robust insurance industry backing other businesses, do you see Nigerian insurance sector strengthening the economy and contributing to the GDP?
It is a fact proved beyond reasonable doubt that insurance is bedrock of nations’ economy. So, it should not be seen otherwise in Nigeria. For instance, it was recently reported that twenty Nigerian insurance firms which are listed on the Capital Market paid at least N77 billion claims just within the third quarter (Q3) of this year. If insurance do not back these businesses, they might have gone moribund or extinct. Once we are guided by the sense of doing the ‘right thing’ and doing ‘things right’, our economy should not expect different results from what is obtainable from the global spheres where compliance to insurance culture and laws are divine commandment unlike in Nigeria. We have six compulsory insurances and compliance; which is enough to sustain our economy considering our population density, enormous private and public assets. Count how many vehicles are on our roads all over the federation, how many have genuine insurance? How many public buildings do we have all over the federation and how many are insured? Repeat same questions on building under construction, group life, professional indemnity, marine imports and employers’ liabilities insurances you will discover that with only enforcement of compulsory insurances the contribution of insurance sector to GDP would have been equated to banking sector’s contribution or more. Nigeria is losing a lot from insurance sector.
Sequel to the Federal High Court order, your regulator, NAICOM, suspended the Tier-based Minimum Solvency Capital which was to take effect from October 1, 2018. Don’t you consider it ridiculous that stakeholders are questioning the regulator’s capacity to issue guidelines; this is not common to the CBN and commercial banks in this country?
No, it is not ridiculous rather it shows extent of democratic freedom in Nigeria. However, it was an indication that may be the regulator did not carry the stakeholders along in developing and implementing the Tier-Based Minimum Solvency Capital. People tend to support a course they help built thus regulatory reforms are successful whenever the stakeholders are part of the reform process. There are a number of reform initiatives by NAICOM that are still pending; some have been started but not concluded. A few have been implemented such as Premium Remittance, Takaful Insurance Operation Guideline etc. These reforms have been successful because of the synergy between the stakeholders and the regulator. However, NAICOM reforms on public sector insurance, enforcement of compulsory insurances and many other initiatives are still being awaited.
NAICOM has enough legislative powers more than many other insurance regulators in other African countries, yet the commission is seen struggling to enforce the extant laws and regulations unlike other financial regulators in the country. The long-aged provisions of Insurance Act 2003 have been there since and due for review in order to catch up with the modern development but they are yet to be reviewed by the legislators despite NAICOM’s series of requests demanding for the review. It is believed that if it were CBN’s request it would have been granted.
How do you measure regulatory efficiency and effectiveness of the insurance industry within the last twenty years?
Measuring the regulatory efficiency and effectiveness depend on the context one is looking at. The scope of this question is too wide. However, we can narrow the discussion to the roles and functions of the NAICOM. You can refer to various provisions of the NAICOM Act 1997 and Insurance Act 2003 to see the roles and the functions of the regulator.
In view of the above, NAICOM has been efficient in discharging its functions over the years by developing insurance companies in Nigeria from mere agency outlets of European nations’ companies to independent companies with capital base to underwrite our enormous risks, from few numbers of companies to 59 companies with ability to retain all domestic insurance products and significant percentage of special risk businesses reducing the capital outflow drastically. However, NAICOM need to do more in terms of the companies’ financial capacity and local content law, insurance penetration and compliance with compulsory insurance. Thus, local market insurance capacity is still low; large uninsured populace, gross inadequate insurance compliance. Consequently, regulatory effectiveness is still needed to bridge these gaps.
In terms of regulatory supervision and development functions, the regulator seem to focus more on macro-insurance operators with heavy regulatory requirements and pay less attention to micro-insurance operators with less regulatory activities.
Moreover, despite the enormous need for Nigerian insurance market capitalization, the reinsurance operators in Nigeria are less or not regulated at all. The regulator needs to come up with regulatory initiatives to promote more reinsurance companies in Nigerian market and recapitalize the existing reinsurance companies to boost the Nigerian market’s capacity to underwrite large risks and attract foreign businesses and investment instead of overburdening the local insurance companies to recapitalize, considering the Nigerian business environment where the demand will not compensate additional capital. Hence recapitalization of insurance companies may be in futility and may put too much pressure in their operations with negative consequences.