By Henry Uche, [email protected]
In the wake of a recent public hearing at the National Assembly, attention is now turning to the Nigeria Insurance Industry Reform Bill, 2024 (SB 393), an important legislative effort championed by Lagos East Senator, Tokunbo Abiru. The bill, which seeks to repeal the outdated Insurance Act, Cap 117, LFN 2004, has sparked widespread interest and debate among industry experts, policymakers, and stakeholders.
The current Insurance Act, enacted over two decades ago, has been increasingly viewed as insufficient to meet the evolving demands of Nigeria’s insurance sector. As the industry faces new and complex challenges, from technological advancements to shifting consumer expectations, there is a growing consensus that a comprehensive overhaul of the legal framework is necessary. The proposed bill aims to address these issues head-on, with provisions designed to foster innovation, enhance regulatory oversight, and support sustainable growth within the sector.
In this interview with Mr. Raymond Akalonu, a risk management professional and insurance consultant, who is also the Immediate past president of Risk managers Society of Nigeria (RIMSON), he x-rays some possible benefits if this bill scales through.
How do you see this new bill and your take on more penalties as stated above?
First, it’s a welcome development. The truth is that there are clear penalties to ensure consistency and fairness. Penalties in the bill are more stringent and in tune with current realities unlike the current Act that some prescriptions are outdated and some insurers weighing the penalties will prefer to commit the infraction and be penalized. The new penalty regime is a stronger deterrent that will result in a fair, stable and competitive market. It is expected that the new prescribed penalties will provide the needed impetus for underwriters to adhere to established rules, avoiding malpractices that could compromise the integrity of the industry ensuring the protection of policy holders. There are elements of graduated penalties – increasing severity with repeated non-compliance.
As an expert in the industry, what fundamental changes (in your own view) are embedded in the bill?
The existing Insurance Act 2003, having surpassed a two-decade mark, lacks provisions that can adequately address contemporary challenges and support growth and innovations within the industry. Aside from changes in capital, classification and operational guidelines, the fundamental change embedded in the bill is that it provides the much needed flexibility to deal with issues evolving from the dynamism of the insurance business unlike the 2003 Act: the provisions of the current Insurance Act 2003 are too specific and prescriptive thereby making it rigid and not amenable to change to meet the dynamics of the insurance market. It is the provisions that largely prevented NAICOM from embarking on some initiatives that would have impacted positively on the sector. The provisions in the Bill are crafted as framework legislation that provide for minimum or basic requirements while the details would be spelt out in regulations and policy directives. This arrangement allows for ease of amendments and adjustments and substantially limits the need for review of the law. It also allows for timely intervention for the purposes of protecting the policyholders and ensuring financial stability. This also will align the Nigerian insurance sector with international best practices.
Secondly, the new bill makes provisions for fast tracking the process of managing weak companies, thereby strengthening the commission’s distress management mechanism.
In 2023, Founder/Chairman of Heirs Holdings & UBA Group, Mr Tony Elumelu, at NAICOM National Conference, proposed N30bn capital base for general insurance, N20bn for Life insurance, this is quite higher than the proposed bill, would you agree with Mr. Elumelu?
I was at the 2023 National conference when Mr. Elumelu made his position known, thereafter there were a lot of opinions. Personally, I am of the opinion that enhanced or increased capital requirements will be beneficial for the growth of the insurance sector and will lend my support to the provisions of the new bill with respect to 25billion and 15 billion for life and non-life instead of the position of the Chairman of Heirs.
I have listened to the position of the Chairman NIA, Mr. Kunle Ahmed, during the public hearing of the bill held at the National Assembly that capital alone does not determine the capacity of an organisation or company and suggested N8 billion, N10 billion and N20 billion for Life, non-life and reinsurance. He equally asserted that insurance being an international business should align with what is obtainable in other African countries like Morocco, Kenya and South Africa. These positions and concerns are germane, however as a country aspiring to be among the 20 most developed economies in the world we should aspire for more. This NIA suggested a new capital position was canvassed five years ago, events have surely overtaken the proposal.
Your capital determines your retention ability, a situation where most of the special risks are ceded outside should be a cause of worry. There is a need for more capital to secure more risks in the country. The proposal in the bill is necessary going by the inflationary trends in the country and the ambitious $1 trillion economy by the federal government. The insurance industry should hold their won in the Financial services sector instead of playing second fiddle to the banks. The industry should embrace the new recapitalisation proposal and deploy all their efforts to achieve it.
There is no doubt that a New Minimum Capital Requirement will have a significant impact on the Nigerian insurance industry. Given Nigeria’s untapped vast potential in the global insurance market place, a well-capitalized industry with insurers who have deep pockets and excellent local is desirable and will contribute to improving the Nigerian economy.
The regulator should take a second look at the provisions of the bill Part IV section 27(1) while indicating in clear unambiguous terms assets to be invested in, it should provide adequate penalties for breach to address the concern that with the new capital insurance companies will just be sitting down and investing the funds in things that are not insurance related instead of deepening the insurance penetration. Part IV Section 27(1). I am sure that with the ongoing engagement of all stake holders that a new capital that may not be what the NIA is asking for or what the bill is proposing will be reached for the future of the industry and the country at large.
The bill plans to licence insurance companies according to their specialisation being life and general insurance business, with no provision for composite structure. What is your take?
I will start by referring to some provisions of the new bill “Part 111 section 6(2) – Notwithstanding the provisions of subsection (1) of this section, a company — (a) licensed to operate a life assurance business may own or acquire shares in a non-life insurance company; and (b) licensed to operate a non-life insurance business may own or acquire shares in a life assurance company”.
I am of the opinion that a specialised insurance arrangement might provide the needed stimulus for growth, for the following reasons: Specialisation: Allowing insurers to focus on specific areas can lead to better expertise, risk management, and customer service.
Regulatory oversight: Specialized insurance arrangements can make it easier for regulators to oversee and enforce standards. Innovation: Specialisation can drive innovation, as insurers focus on developing products tailored to specific needs.
However, it’s essential to consider the potential impact on customers and the market. A balanced approach which the bill provides for, such as allowing insurers to operate separate life and general insurance subsidiaries, is a viable compromise. Allowing life companies to own general companies and vice versa enables the insuring public to enjoy all the advantages of a composite arrangement.
Do you see a comprehensive legal framework for regulating and supervising all types of insurance businesses in Nigeria with the bill?
Sure, the provisions of the bill when passed will have a far-reaching effect in the regulation and supervision of the insurance business, it strengthens that following aspects or sections of the Insurance Act 2003 – Statutory framework, Regulatory bodies, Licensing requirements and tenure of licenses for the brokers etc., Policyholder protection and dispute resolution mechanisms.
Despite being one of the oldest industries in Nigeria’s financial services sector, insurance has not achieved significant growth, what radical strategy is required to grow the sector?
I completely agree that insurance has not achieved significant growth owing to the conservative nature of the industry. There is the need to remove bottlenecks to Insurance companies management like requirements for ACII for top managements to inject fresh ideas into the sector, a lot of what the then GTAssurance achieved was as a result of the injection of fresh ideas from the banking sector which resulted in the new company making significant strides within the shortest possible time attracting foreign investment as a result of the growth and potentials it showed.
To radically grow the insurance sector in Nigeria, consider the following strategies:
First is Compulsory insurance enforcement: Strictly enforce compulsory insurance policies like third-party motor insurance, building insurance, and professional indemnity insurance.
Microinsurance products: Develop and promote microinsurance products tailored to low-income individuals and small businesses.
Digital transformation: Invest in digital platforms, mobile apps, and USSD codes for easy policy purchase, claims processing, and customer engagement.
Bancassurance partnerships:
Collaborate with banks and mobile money operators to offer insurance products to their customers.
Takaful insurance: Introduce Islamic insurance (Takaful) to tap into the underserved Muslim population.
Index-based insurance: Offer index-based insurance products for farmers and small businesses to mitigate climate-related risks. Government-backed insurance programs: Partner with the government to develop and promote insurance programs for critical sectors like agriculture, health, and education. The new Executive order on Health by the Lagos state government provides opportunity for collaboration and partnership.
Insurance literacy programmes: Launch nationwide insurance literacy programs to educate consumers about insurance benefits and importance.
Innovative distribution channels: Utilise unconventional distribution channels like retail stores, markets, and community centers. The inclusion of Insuretechs and other financial ..in the new bill will further give the sector the required leap.
Regulatory sandbox: Establish a regulatory sandbox to encourage innovation, testing, and launch of new insurance products and services.
Capital injection: Attract foreign investment and private equity to boost industry capitalization and capacity.
Consolidation and mergers: Encourage consolidation and mergers to create stronger, more efficient insurance companies. These radical strategies can help stimulate growth in Nigeria’s insurance sector.
How do we address insurance apathy and low penetration especially in rural areas to boost financial inclusion?
Addressing insurance apathy and low penetration especially in the rural areas in Nigeria requires a multi-faceted approach. Here are some strategies to consider:
Awareness campaigns: Educate the public about the benefits of insurance through targeted campaigns, workshops, and community outreach programs.
Simplify insurance products: Offer easy-to-understand products with clear benefits, flexible premium payment plans, and hassle-free claims processes.
Digitalisation: Leverage technology to make insurance more accessible, affordable, and convenient, such as online platforms, mobile apps, and USSD codes.
Inclusive products: Develop insurance products tailored to low-income individuals, small businesses, and rural communities.
Regulatory support: Strengthen regulatory frameworks to ensure a stable and trustworthy insurance industry.
Distribution channels: Expand distribution channels, such as agents, brokers, banks, and mobile money operators. The recent acquisition/merger of a new bank and one of the old banks with the largest branch network in the northern part of the country will enhance financial inclusion. Bancassurance affiliations and relationships with the resultant entity will further enhance penetration in the rural areas of the Northern part of the country while replicating same with banks that have serious footprints in the southern rural areas.
Partnerships: Collaborate with government agencies, NGOs, and private organizations to promote insurance awareness and adoption.
Data-driven approach: Use data analytics to better understand consumer behavior and preferences.
Incentives: Offer incentives, such as discounts, rewards, or bundled services, to encourage insurance uptake.
Capacity building: Train insurance professionals to improve service quality, customer engagement, and claims handling. By implementing these strategies, you can help address insurance apathy and increase penetration in Nigeria.
How the insurance sector can boost Nigeria’s GDP
A strong insurance sector emboldened by the new bill (having re- capitalisation as one of its provisions) when passed into law will enable the country to unlock the following benefits and promote economic growth, stability, and development:
Increased capacity to invest: Recapitalised insurers can invest more in assets, such as government bonds, stocks, and real estate, stimulating economic growth.
Improved risk management: Stronger insurance companies can better manage risks, reducing losses and claims, and increasing confidence in the economy.
Enhanced financial inclusion: Recapitalized insurers can expand coverage to more individuals and businesses, increasing access to financial services and promoting economic activity.
Job creation: Recapitalized insurers may hire more staff, contributing to employment growth and reducing unemployment rates.
Increased tax revenue: A stronger insurance industry can generate more tax revenue for the government, supporting public spending and infrastructure development.
Economic stability: A well-capitalized insurance industry can contribute to economic stability by providing a safety net for businesses and individuals, reducing the impact of shocks and crises.
Increased foreign investment: Recapitalized insurers may attract foreign investors, bringing in new capital and expertise, and boosting economic growth.
Improved infrastructure development: Insurers can invest in infrastructure projects, such as roads, bridges, and buildings, supporting economic development.
Increased consumer spending: With more comprehensive insurance coverage, individuals and businesses may feel more secure, leading to increased consumer spending and economic activity.
GDP growth: The cumulative effect of these factors can lead to an increase in Nigeria’s GDP, as a stronger insurance industry contributes to economic growth, stability, and development.
Do you think insurers are ready for new insurance re-capitalisation and operational changes coming up?
I am certain that all the Insurers are ready for the new re-capitalization as it has been in the making since 2011, recall the attempt by NAICOM at raising the capital base across the industry through a risk-based capitalization scheme, communicated via a circular dated August 27, 2018 titled: “Tier Based Solvency Capital Policy for Insurance Companies in Nigeria” (“TBSC Policy”), was and subsequently withdrawn on November 23, 2018, following protests by some stakeholders and an order of the Federal High Court restraining the TBSC Policy from being enforced.
Even the consolidated bill that was not signed by the immediate past President PMB has pointers to re-capitalization.
Looking at the fresh re-capitalization drive within the banking sector, any discerning mind will know that insurance companies without being prompted should buckle up at least to provide the required protection and support to the other sectors and make Nigeria’s vision of being Africa’s financial hub and one of the twenty largest economies in the world a reality.
This is an opportunity the industry has been waiting for, they should seize the moment and ensure that not only that the bill is passed but that it is signed into law, judging from the body language of the President, you can be sure that it will be signed into law to stimulate the much-needed economic growth. The new bill provides the much needed supervisory authority to deal promptly with issues evolving from the dynamism of the insurance business.