Dr Abubakar Sani is the new chairman,Governing Board, National Insurance Commission. He speaks on the insurance industry and how the sector can make meaningful contributions to the Nigerian economy, in this interview with ODINAKA ANUDU
Augusto & Co released a report in March 2022, revealing that insurance penetration in Nigeria was less than one per cent. This is below the African average of 2.78 per cent and the global average of nearly eight per cent. How will your leadership boost insurance penetration in Nigeria?
It is basically our own problem, especially in Africa. Insurance came from Europe and we swallowed the laws hook, line and sinker without tailoring them to suit our purposes. What we will do is to start with the framework or the law, especially the Insurance Act of 1997. We will look at it thoroughly, the objectives, and then see if there are aspects of that law that are stifling the growth of insurance in Nigeria. For instance, we will look at issues around the share capital. This time, instead of share capital, we will talk about risk-based capital. The initiative is on, the commission is talking about micro insurance, which will meet the needs of small businesses and those on the retail end. This, I believe, will help penetration. Again, there are people that see conventional insurance as inimical to their faith. Now, we have Takaful insurance which is linked to the Islamic financial system. A lot of people today are buying it. All of these will help to make us have financial inclusion and I believe it will increase the penetration in the country.
Apart from penetration, experts believe that the Nigerian insurance industry is not maximising its potential as it contributes less than one per cent to the Gross Domestic Product. As the chairman of the governing board of NAICOM, what areas of insurance will you champion to ensure that the industry maximises its potential?
You see, today, we lack adequate enforcement for some of the policies initiated by the commission. One example is in the area of compulsory insurance. This has not been enforced the way it ought to be in both the private and public sectors. We have started a campaign on this already. We are starting this week. We will visit some of the government institutions that are responsible for effecting this compulsory insurance. We are starting with the Federal Ministry of Finance, Secretary to the Government and Head of Service. As it is now, most of the government facilities are not insured, which is abnormal. You will see the kind of funds that will go into the economy if those facilities are insured. Also, in the private sector, a lot of money will go into the economy if filling stations, schools and shops are insured. Construction sites are not being done by many of the institutions. As institutional investors, they play a key role. These are things that I will help to bring to the fore.
Talking about insurance not maximising its potential, let us look at the agriculture sector. The Federal Government is financing agriculture, but the insurance industry is shying away from leveraging opportunities in this sector. Why are insurance companies ignoring this sector?
Agriculture insurance is being imbibed by the society, especially when it comes to the Anchor Borrowers Scheme. It is one of the compulsory things you must do before you are qualified for the Anchor Borrowers Scheme and it is working very well. But outside the Anchor Borrowers Scheme, agriculture insurance is not working well. There are big farmers, industrial farmers, across the country that are embracing it. They find it easy to take insurance because of their financials. It helps them to lessen their exposure to risks. The only thing is that we need to educate the traditional farmers and carry some form of publicity there. We need to entice them and ensure they come up with cooperative societies for this purpose. So, a lot is needed through persuasion and publicity.
But it looks like the government itself is not driving it?
It is not the government alone that should do this. Government has started with the Anchor Borrowers Scheme, but to entrench it everybody needs to be involved. The media, insurance institutions and community leaders need to be involved. In all countries where agriculture contributes a lot to the GDP, it is often the private sector that drives it. Think about Malaysia, Indonesia and Thailand, it is individual efforts, backed by insurance, that drive agriculture. Our board recognises the enormity of the work we have to do. We will look into these sectors for the purpose of uplifting the insurance industry. Most of these things are anchored in financial investments. If insurance is developed, the economy will benefit.
NAICOM suspended the recapitalisation exercise recently. Why is it so? Are there plans to re-start it?
This issue is in the court and as a chairman, I don’t want to talk about an issue which is already in the court to avoid any contempt of court. We are looking into it and very soon, we are going to come up with a position.
But apart from the case being in court, are there mergers and acquisitions happening in the industry? Are there companies who are voluntarily talking to each other without being prodded by NAICOM?
We have to be honest to ourselves, this economy is dynamic. The capital and assets of the Nigerian National Petroleum Corporation, NNPC, today are in trillions of naira. It was not so 10 years ago. They need insurance to cover their risks. This is a big opportunity. There is a need for improvement and recapitalisation so that they can sell insurance effectively in order to avoid capital flight. If you want to really be a player, you don’t even need the regulator to ask you to recapitalise. You are the one that will increase your capacity in order to compete.
In terms of companies talking to each other, yes, there are. Naturally, if you don’t have the capacity and are losing business, without being asked to do so, you can talk to each other in order to merge and take up higher risks. For instance, Tangerine has swallowed three companies, including Law Union and Rock. There are also others. Today, they are big players. Because of the exigency of competition, others will follow suit.
Recently, insurance licences were withdrawn from Niger Insurance and Standard Alliance. Some industry watchers see it as a witch-hunt. Why did the commission decide to pick out only these two from the bunch?
Revocation of licences is not something that is done in a day because the Insurance Act of 1997 prescribes investigation and inspection, and they are statutory. If a company starts failing, does not meet the requirements or the management control is not there, the licence can be withdrawn. The company would be informed in the process. And when it fails to meet up with its obligations, cannot adequately run as a company and cannot meet up with obligations, the regulator will use a sledgehammer. Even then, by law, companies are allowed to appeal to the minister who would decide whether the due process was followed or not. So, it is never about bias, and more companies that do not meet up will also face sanctions.
So, there could be sanctions on other erring companies?
Yes, we have to sanitise the institutions and the only way to do it is to stop allowing weak companies to continue in order to protect policy holders. This is important so that nobody will blame the commission for having weak regulations at the end of the day. We are out to really protect policy holders.
One of the key issues in the industry is the inability of players to attract foreign investors. What is the problem here, and what should the stakeholders do to attract FDIs to the industry?
We need to change our attitude. The attitude of holding onto businesses should change. It is better to have a small percentage of share in a company that will last generations than hold onto a business that will collapse. Insurance is universal. Also, the Nigerian insurance can attract foreign investors if the players have their books well kept and ensure they provide that information when needed. We are asking these companies to attract foreign investors to strengthen their performance and boost the Nigerian economy.
What is the major challenge in the industry and what measure should be taken to check it?
I think the major problem is the cut-throat competition, to the extent that the adequate premiums are not paid because they are under-valued. You pay claims where you don’t have sufficient reserves. It is important to ensure that adequate rates are charged and anyone who is not doing so will be sanctioned.
Do you see any risk in using pools of pension funds to fund, say, infrastructure?
In other climes, pension funds are used to finance infrastructure. But you need technical experts to be at the helm to match what is collected today with what is needed at certain periods of time in the future. It is important to ensure that the money is available when needed. It could be invested, but ensure that contributors get their money when they need it. When you look at it through some technical expertise and itemise it, you can use the funds for infrastructure.
What do you want to be remembered for after being the chairman of the Governing Board of NAICOM?
As the chairman of the governing board NAICOM, I intend to instill discipline in the insurance industry by way of ensuring compliance with ethics. Two, I intend to ensure that the insurance industry competes favourably with other industries in the financial sector. Insurance has not maximised its potential in Nigeria because of so many factors. One of the reasons is the lack of strong regulations. In the past insurance companies were allowed to operate in such a way that they brought bad names to the industry. I intend to change that narrative.
I have the vision and mission to strengthen the industry so that its contribution to GDP will compare favourably with other nations like South Africa, where insurance contributes 10 per cent to the GDP. Insurance has a role in economic development. It gives impetus for other businesses to thrive. It helps in raising funds and creates employment. Unlike other industries, insurance has surplus funds which are supposed to be dedicated for investments. I will ensure that the insurance industry plays its own role in achieving this. My main purpose is to ensure it improves the economy.
Article first published on the Punch Website