By Henry Uche, [email protected]
Given the fact that insurance business is a delicate one, first time patronisers (intending policyholders) are always sceptical about the veracity of what insurers proffer to offer the public. Despite the high level of susceptibility in Nigeria’s socio-economic environment, many Nigerians would rather choose to remain unprotected than to commit their life and resources to any underwriter. The truth is that, there are red flags to lookout for, to guide prospective policyholders to avoid falling into wrong hands while deciding which insurance company to do business with.
There are over 50 insurance companies in Nigeria, 13 of which are strictly into life Insurance, 12 are composite, 15 are into General insurance business, three are into Reinsurance business, four are into General & Family Takaful, 7 are into microinsurance, among others.
Choosing among these insurance companies to determine which is better to do business with can be taxing. Though these insurance companies have their competitive and comparative advantage over one another, however there are red flags to lookout for, while deciding which to do business with.
Foremost, lack of trust and lost of confidence
Individuals and corporate organisations are engaged in business transactions on trust. But when a company lost its public trust and worse still get blacklisted by its regulator or the government, its market share falls flat: when customers and investors withdraw patronage. Prospective customers stand aloof and the company goes out of business.
Trust is a virtue earned over a period of time. When people believe, have faith and rely on you to keep to agreements, they can trust you because you are dependable. This trust metamorphosed into confidence on a person who keeps his words. One can know insurance company whose trust and confidence quotient is low by real time testimonials from existing customers of insurance companies. Thus, a person seeking to engage an insurance company for business must sample the trust and confidence level of different Insurers. There are documents and publications in public domain one could read to gain more insight on this.
Unexplained terms and conditions/full disclosure
In every business transactions, there are Terms and Conditions (T&Cs). Most of these T&Cs are expressly stated, but those T&Cs which are not thoroughly explained and understood by the intending policyholders are could legal fireworks. In situations where Terms and Conditions are implied and not communicated, the intending policyholder is advised to withdraw from the contractual deal. Failure to look for the next door insurer, may lead to regret. Cases abound where most companies (not only in the insurance sector) usually conceal some T&Cs from the prospective customers for dubious reasons. Some of these T&Cs are most often printed in a very small font size and type. Mostly sighted on the bottom of the policy documents or attached as a footnote. Because most prospective customers are not patient enough to read through painstakingly, and ask questions where necessary, they end up regretting their inability to see and read through in details every letter words, phrases, and clauses in the documents before they append their signatures.
Any insurance company without full policy disclosure is a red flag. Ensure that you know all the terms and conditions of the policy you are buying and all the dos and don’ts. A good insurance company would be honest and open about its clauses and conditions but some insurance companies wouldn’t and then when you file a claim, they would come up with some clauses and reasons why they cannot pay claims.
Where policyholders can not read nor understand the terms of contract, such should get your lawyer or other professional for interpretation.
Unsuitable products
Any insurance company which has no products or services fit and proper for you is not for you. As mentioned earlier, some insurance companies are composite, some are just Life, some non- life. When an insurance agent try to convince you when to buy a product unsuitable for you, it’s a red flag to call it a day. The type of insurance your business needs depends on the kind of business you do and the industry you operate in. Find out if the company has products that are peculiar to your business needs.
Non-accreditation /licensing
Not every organisation is registered nor recognized by relevant government agencies. In Nigeria, The Corporate Affairs Commission (CAC) is in charge of registration of corporate organizations. As a registered organisation, there are regulators that manage and control the affairs of some certain kind of business organizations.
For instance, NAICOM is the regulator in charge of all insurance companies and re- insurance companies in Nigeria. Thus, it’s imperative to ascertain if the insurance company you want to transact is duly registered and operates under a regulator, to avoid ‘had I known’.
How do you know if an insurance company is duly registered and under the Control of NAICOM, is very simple, approaching NAICOM for confirmation is the best and safest way to confirm this. But when you are not sure about its power to operate as legal entity, its a red flag to run.
Delayed or non- payment of genuine claims
Testimonies abound. The media, policyholders, other stakeholders in the entire value chain, books of records, are all available to ascertain companies that pays clean claims. Since insurance companies are established for other companies to Live on, it’s important to find out if they paid claims to policyholders as and when due. This is just one side of it. Another side is to investigate the process and experience of the policyholders if it’s something you can withstand or not. Investigations over the years have shown that some insurance companies would always find reason/s why they should not settle a policyholder in the event of any mishap covered. Any insurance company that is known for undue delays or outright reneging from claims payment and always subjecting policyholders to undue pains is not worthy to do business with. How do you know Underwriters that pay pronto? The truth would speak for itself. Testimonials from every nooks and crannies are proofs. Some insurance companies even receive awards for prompt payments of claims.
Compliance level with regulations & corporate governance practice
Companies that does not comply with relevant regulations and corporate governance practice, is a red flag to drop them from your list. Investigation has revealed that some corporate organizations do not comply with the rules, regulations and guidelines of the regulator. NAICOM for instance had warned insurance companies that failure to comply with provisions, rules and regulations as well as guidelines of the Commission would have itself to blame.
How do you know insurance companies that do not comply with provisions of the law establishing them, rules and regulations, guidelines and commitment to Corporate governance? It’s very simple.
Such companies would always have problem with the regulator or any government ministry, department or agency. Such company often have issues with its financial book of records due sharp practices and insensitive decisions making.
Prospective customers would know all these when they read wide: books published by regulators and other government MDAs. Most books and documents emanating from such government agencies contain information about the operators in that sector. Following news from accredited media organisations (just as you are reading it now) would help you get this vital information.
Weak/poor risk management approach
Because insurance companies are in the business it managing risk and hazards, how well they fare in these core areas should be a matter of concern to any intending policyholder. An insurance company with weak or poor approach to risk management is always experiencing and recording losses and all kinds of negative indices including zero return on investment. We have seen occasions where some insurance companies were kicked out of the industry, one of the reasons been inability to manage risks and hazards of themselves and other companies under their cover. Thus, it’s imperative to get this knowledge.
How do we know this? Their financial records and other books and Publications that gives insights on companies performances are helpful.
Unimpressive books of records/ Financial instability
Companies with such unimpressive books of records/ financial instability are directly dangling the red flag.
For those interested in the audited financial records of insurance companies especially those quoted in the Nigerian stock market would need to confirm if such records are in line with the latest International Financial Reporting Standard (IFRS) and other standards. The Profit After Tax (PAT), Total Assets Value and Working Capital are hints for decision making in respect to picking insurance policy. Some people are much interested in the books of corporate organizations before deciding on doing business with them or not.
Incompetent management
A company with no competent leaders is a red flag. Everything rise and fall on leadership. When a business is progressive it is attributed to the management team, likewise when a business is retrogressive, people lambast the management who are the pioneers, captains/ leaders whose decisions and policies determines the overall performance of the company. Some people believe in the capacity, capabilities and character of certain individuals. When they see or hear that someone is a member of Board or Directors of a Managing Director or Chief Executive Officer of a company, they hesitantly subscribe to such company, either buy shares or do any other business with them. The reverse is the case when a notorious person occupies a key position in a company. So it’s important to find out why some management team ticks while quiver.
Poor Public Perception is another red flag
What people say about you (may) have little or no impact on your progress in Life. Howbeit, it’s important to watch our actions as people are now more informed to dig out and verify anything any piece of information. With the advancement in science and technology, information spread like a whirlwind in a sunny dry season.
Poor comments from Policyholders, Shareholders, other stakeholders is red flag
This is probably one of most useful means to ascertain who insurance company is doing well or not. The truth would always speak for itself. Unsatisfied customers of a particular insurance company is a de- marketing tool that tarnishes the image of the company’s products and services. This is a red flag to watch before you leap.
Visibility/Localization (Online bank as case study)
Some business enterprises though registered with CAC, do not have physical administrative office/structure where people could interface with them one- one -one. It’s a red flag. For instance, some fintech companies and online finance house without physical offices are roaming around looking for whom to devour (literally). One could be transacting with phantom unknowingly. It’s important to know if you are dealing with or about to deal with real humans of humanoids. How do you know? You ask questions and request to see them in their office.
Unapproved premiums sales
NAICOM in December 2022 reviewed the third party motor insurance and others upwardly, though with enormous benefits, however the Nigerian Insurers Association (NIA) has roared in the recent past that some insurance companies are selling the policy below the approved rates. This is a red flag. There are documents and professionals to consult to verify any piece of information from an insurer. More so, It’s important to know how much you are to invest by dawn and how much you expect by dusk. Would you be comfortable with the amount of premium on daily, weekly, monthly, quarterly basis? If the premium is not comfortable, convenience and does not guarantee you peace of mind, then think twice.
Company’s history/prospect
The history and prospect of the company are signposts for one to follow or withdraw. How do you know this? There are a lot of books to consult.
Other bad signals not mentioned here could be red flags anybody to choosing a particular insurance company to do business should consider. While it may not be entirely possible to see an insurance company having all these negative signals, an insurer with a two third of these does not deserve