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The Crisis of Confidence in Insurance: What Fola Daniel Did Not Say

The Crisis of Confidence in Insurance: What Fola Daniel Did Not Say
Monday, 23 July 2012 / Ekerete Gam Ikon MNIM, CPP [olagamola@gmail.com] / Third Party Media

The Insurance Industry in Nigeria has not enjoyed the required public confidence needed to fulfil its potentials since the takeover of foreign insurance companies by Nigerians about 50 years ago. Mostly, non-insurance professionals, those Nigerians have been providing employment for insurance professionals and helping to grow the insurance industry in ways that continue to earn them socio-economic status while it remains a huge unending struggle for the insurance professionals, operators and, indeed, the regulator partly on account of the public trust and confidence deficit. Unfortunately, the regulator who should invoke powers to reset the direction and inject confidence into the psyche of policyholders and the entire industry appears institutionally weak and lacks the legal covering ordinarily required for taking critical change-enabling actions, including announcing names of insurance companies that are insolvent and operating below acceptable standards. Two reasons readily come to mind for this rather disturbing situation. Firstly, it could be adduced to the fact that the laws and regulations guiding the operation of insurance in Nigeria was produced and subsequently amended based on inputs driven by insurance professionals - operators who would naturally focus on how to protect their turf. Secondly, the regulator lacks such absolute powers like others in our clime to exercise the terms of the laws that established it i.e. considering the chain of command it must abide by. Unlike others, the insurance regulator cannot pronounce and seal up a company that does not have a Group Life policy for example; whereas the Federal Inland Revenue Services can take such action against a tax defaulter! Fola Daniel, the current Commissioner for Insurance and Head of National Insurance Commission (NAICOM) may have shown greater understanding of the circumstances of his office than his predecessors by such grandstanding as he did before the House of Representatives last week. However, what he has missed is that place in the history of insurance in Nigeria which would have recorded him as the man that CHANGED the insurance industry in Nigeria. How and why? Too many times during his tenure (now in his second term), Fola Daniel has played within the box created by the law thereby failing to score significant milestone even when the opportunity appears quite evident. It will serve well to be reminded of the saying that Winners think and function outside the box to make history! It is therefore not surprising to have the Commissioner beg the issue which evidently requires his hammer after these firms had been confirmed to be operating below acceptable standards! Considering the banking industry reforms which started with Chukwuma Soludo and got boosted by Sanusi Lamido Sanusi, many would wonder why similar drastic measures were not taken in the insurance industry without appreciating the differences in

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The Crisis of Confidence in Insurance: What Fola Daniel Did Not Say

regulatory latitude. Luckily, the Commissioner for Insurance has been around since Soludos era to relate with his efforts until Sanusi came and deepened it. Sadly, with Fola Daniel, it has remained a rather lukewarm period for insurance regulation, without the desired bite and the needed kill. He probably knows that if he must withdraw the operating licence of any insurance company like the ten (10) he has told us are operating below acceptable standards, he can only recommend; and once it comes to the knowledge of the owners of the company, he knows his job is up for grabs. To announce the names as the insuring public requires appears a task outside his job description. What Fola Daniel did not say to the House of Representatives was that he had no legal protection to name those ten (10) insurance companies and go back to work the next day. What was however instructive in his address to the members of the green chamber was in what was unspoken the attempt to cry out for help and the manner in which it was done has opened up the industry for a fresh crisis of confidence and possible confusion/de-marketing. Many companies will now have to go the extra-mile to convince their clients that they are not on that list of 10. Given the cut-throat competition in the industry, should it surprise anyone if anytime from now, scooped versions of the list of 10 be enter into circulation to push sales in favour of a few relatively strong entities? The Question of Numbers!!! Fola Daniel, apparently giving his scorecard to the Nigerian public through the address, announced that 38 insurance companies were penalised for failing to submit evidence of their reinsurance arrangement. Given that there are 48 insurance companies currently operating in Nigeria, would that mean only 10 were qualified to start the year? And would such penalty mean they lost premium earned from unsuspecting policyholders and insurance buyers between January and June this year? The Commissioner told the Honourable Members that 19 insurance companies were penalised for breach of oil and gas insurance policy guidelines BUT did not say whether the 10 he announced as operating below acceptable standards were amongst these 19. Should the oil and gas operators not know whether their insurance policies are still intact and that such insurance companies will be in a position to honour their claims and other obligations? In a situation where ALL insurance companies with operating licence and in full compliance with the guidelines from NAICOM can participate in oil and gas insurance, it might be necessary to clarify whether the penalty on the 19 debarred or suspended them from future opportunities, in view of the juicy and irresistible dollar-denominated premiums at stake. While Commissioner Fola Daniel also reported that some insurance companies were dealt with for infractions relating to submission of annual accounts and financial statements, he did not tell the insuring and investing public through the address to the peoples parliament that those companies, by failing to meet the submission deadline of June 30, had placed NAICOM in an embarrassing position when, and inevitably, the SEC and NSE bring stiffer penalties upon the listed concerns. Most observers fail to understand why NAICOM allows the period up to June 30 for submission of audited accounts to lapse, especially given the negative perception the insurance industry gets every time such occurs. The question is asked by concerned watchers should the position of the NAICOM Act in this respect not be brought out as part of the financial guidelines to ensure alignment with the stipulations of SEC? This is

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The Crisis of Confidence in Insurance: What Fola Daniel Did Not Say

probably the only point where NAICOM addresses the issues of investors and it ought to be handled in a better manner, one would imagine. Currently there are one or two insurance companies embroiled in private placement infractions which continue to impact the trust perception of the industry. The NAICOM boss had further disclosed that the Commission issued several guidelines to give effect to the provisions of the law but did not say that the delay of the National Assembly to legislate on and pass the amendments to both the NAICOM Act and the Insurance Act had made his job effectiveness-challenged and laborious; acting to impede the realization of the potential of the insurance industry in Nigeria. It would seem the regulator relies more on the guidelines than the law! Closing Thoughts Given the bigger challenge of transforming the insurance industry in Nigeria to align with the significant growth and transformation that has happened in the banking industry, it is important to arrest the crisis of confidence in the insurance industry by ensuring that any amendment to the NAICOM Act and Insurance Act gives reasonable level of autonomy to NAICOM even as the regulation of the industry must be kept above the operational level. As seeming outsiders have been brought in to sanitize many regulatory agencies of government in Nigeria including NSE, SEC and FIRS, insurance deserves such a move if it must be transformed and strengthened to meet up with the extent of work others have done to catch up and achieve the progress in Nigerias financial sector. It is a good time for the voices of the Nigerian people in the House of Representatives to compel the Commissioner for Insurance to publicly name the 10 insurance companies operating below acceptable standards as a first step to addressing the malaise in that sector. The unsuspecting members of the public should not be kept in the dark while the affected insurance companies should equally not be allowed to enjoy any new patronage from individuals, brokers, private organizations and governments. Sounds punitive yet offers the building blocks upon which the trust deficit and confidence crisis can be contained. The insurance industry in Nigeria is on its knees today and might remain there if urgent steps are not taken to reposition the regulatory body (as a change catalyst) and possibly give room for more experienced financial experts to contribute to the growth and development of insurance in Nigeria.

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