‘With good cost management, some insurance companies were able to close 2016 with profitability’

Mayowa Adeduro, managing director/CEO, Anchor Insurance Limited, in this interview with Modestus Anaesoronye bares his mind on the operating environment in 2016, expectations in the current year and other issues affecting the business. Excerpt.

Review the insurance industry vis-a-vis the economy in 2016, looking at the business environment?

2016 was the most difficult year for the country. Though we all understood what happened. A situation where by the oil price crashed by more than 50 percent; a situation where there was bomb blast everywhere; we were nearly in war, you have a situation where restiveness was on the high side in the Niger Delta region to the extent that we were producing less that 50 percent of our capacity in terms of quantity of oil per barrel. You can juxtapose all of that. Scarcity of the dollar also affected the manufacturing sector. Therefore, it was already known how we got into recession.

Insurance is a very resilient business, as quite a number of us resorted to the ordinary people to buy our products, unlike in the past when we all concentrated on corporate business and government accounts.

So, quite a number of the insurance companies suffered reduced gross premium income because we got to that point that the economy was tight. We had reduced income and more claims paid. But following good cost management, some of us were able to close the year with some level of profitability.

As an operator, you must have felt the impact of the operating environment, how did it impact on the business in the out-gone year?

The operating environment in 2016 in terms of regulation no doubt was quite challenging. Although, we understand why the regulator had to be bullish because when an environment like that is not well regulated such that people play by the rule, the entire system can collapse.

So, the reason for bullish regulation is obvious. But in terms of sector performance, I think we fared well when you compare insurance with other sectors. Look at the insurance sector and compare it to manufacturing; insurance sector and banking sector; Insurance and Aviation sector, even oil and gas sector, you will see that we didn’t do so badly as an industry. Oil and gas sector was crawling; banking sector was also struggling with so much of non-performing loans. Aviation was almost in comatose and even state governments could not pay salaries. More than 50 percent of states in Nigeria could not afford to pay salaries of their workers, so you can say that insurance fared fairly well in terms of the environmental situation we all faced in 2016. 

What is your expectation for the insurance sector this year given the state of the economy?

My view may be because of my faith; the worst is over for Nigeria. Having seen a budget of N7.3 trillion, I have seen the opportunities both in the capital and recurrent expenditure. This is the first time government is budgeting this much for capital expenditure and we believe most of this expenditure will need insurance expense. We want to thank God for the success in the war against Book Haram.

It’s almost over. What that means is that government can now inject what has been spent on prosecution of war to infrastructure and other needy sectors of the economy. We are also noticing that the restiveness by the Nigeria Delta militants are reducing following Federal Government’s engagement with them and one good thing that has happened this year is the rising of oil price, and if this continues we expect that there will be more dollars in the economy. So, we expect some of the manufacturing companies closed down to come up again.

There are refineries coming up here and there including that of Dangote, and all of these will spike activities in the economy and insurance will benefits from it. All of these again should be able to bring the economy out of recession. We should expect the best, but cautiously. We should not expect too much.

What key issues do you foresee driving the insurance industry in the current year?

The key issues have to do with the regulatory environment. Our regulator has announced that it will roll out a template for recapitalization in 2017, so that will alter the paradigm in the system.

The risk based capital will affect some operators having small capital base or whose shareholders fund is low; it will also affect human capital ability to manage risk along the line. I foresee more and more foreign firms coming into the country to buy up some insurance companies because it is easy for them to bring in their dollars to buy up these companies now at very cheap prices. More and more companies will be bought over.

I see more mergers and acquisitions here and there in the industry. Again, companies that are not ready to play with technology and look at the retail space will have their margin thin out because if you look at the formal sector the margin is thinning out. Some companies are offering very ridiculous rates to insure cars and some of these vehicles are bought at very high value. Imagine, a Toyota corolla that was sold for N3 million, now three years down the line it is going for as much as N17 million and you are going to insure it at very cheap rate.

Therefore you are going to be paying more claims compared to the premium you are going to charge. Now, the old vehicles you are insuring, you are going to insure them at their old price, and you will be replacing them on the price of new spare parts, and that will mean more claims for this class of business.

And generally too, rates are crashing and it will continue to crash because of the softness of the market. But companies that can look elsewhere and those that can be innovative can still be able to manage their cost.

Now that the industry is confronted with falling rates amidst rising claims, what would be your advice to the industry to be able to survive this challenging time?

The only way out for the industry is more and more collaboration. I do not subscribe to the fact that we need a regulator to come and regulate product rates for us because the data to compute what is economic rate is with each and every one of us.

If we respect our association, we should be able to come to the table and say we cannot continue to do business this way so that we don’t die. It’s about understanding; it’s about cooperation and competition (co-petition). It will no longer be the business of owner takes all. The companies you say are small can actually be more efficient than the big ones. It’s all about working together for the benefit of the entire industry.

Modestus Anaesoronye