Insurance penetration in Nigeria still under 1.0% — Ojumah

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Mr. Val Ojumah is the Managing Director of FBN Life Assurance Limited, a member of First Bank Group. In this interview, he reiterates that companies that want to gain market share should lay less emphasis on government business.

By Rosemary Onuoha

WE are in the second half of the year, how did the insurance sector fare in the first half and what are the expectations for the second half?

From our perspective, we have had an excellent result from our first half result. We expect better performance for the second half of the year.
The economy is not good but it is getting better. For those who know where to trade, they will continue to gain market share. If you are trading around government business, there will be more challenges because government revenue had not hit their target. That does not mean that the entire economy is doing badly.

Val Ojumah So, it depends on where the particular company is laying the emphasis. For us we take the opportunities available in the economy and we know for sure that certain aspects of the economy have very little uptake of insurance and that is where we are putting our efforts.

Gross premium income

There is growth in the economy, maybe not the type of growth you would expect, but according to the data that I have seen, yes some companies have lost market share others have gained. Overall, we expect that by end of 2017, there will be growth in gross premium income. I do not think that there will be a depression in that area.

With less focus on government business, how have you been able to break through?
It is a lot of work with lots of challenges out there. You need to put in a lot of resources and lot of time. I have a team that is really excited about the possibilities out there.

If you take into consideration that insurance penetration in Nigeria is still under one per cent, we see that from the point of view of the various opportunities and we are prepared to go with the challenges.

What can be done to get out of this one per cent insurance penetration?
Everybody is coming to recognize that with a large population such as ours, focusing mainly on government businesses is not exactly the best way to go.
When people see the result of some companies like ours, I believe that many of them are now re-strategizing.
But the First Bank brand, to an extent, gives you an edge, does it not?
We have a great brand, the number one brand in Nigeria. But I can also tell you that if you don’t know what to do with the brand, you will also not be able to do what we are doing. Several banks, until recent times, had insurance subsidiaries, where are they today?

So having a great brand is fantastic, but if you don’t know what to do with the brand, it will lie there fallow.

How are insurers complying with the directive from the National Insurance Commission, NAICOM, to exhaust local capacity for big risks before ceding the rest abroad? We are complying and it is good thing for the economy. We have over 50 insurance companies, all of them with tiny, tiny capacities.
So if you allow a free for all reinsurance flow out into the international community, what will happen to Nigerian companies?
Our reputation in that line of business is not great. It is also what the government has done about Nigerian content law. What that means is to reserve those opportunities that Nigerians can cope with and until you can exhaust those opportunities for Nigerians, you shouldn’t be sending it abroad. We have severe unemployment problem in Nigeria particularly amongst young people.
Where are these young people going to work if you allow reinsurances to be placed directly abroad without any form of control?
Besides, it is a major leakage on our limited foreign currency. In high risk areas, you can say we have limited capacity but it is not a question of no capacity. Prior to this time, for the oil companies in particular, it was just convenient for them to insure everything in their home countries.
If there is an attraction for them to take it to their home countries, why should there be no attraction for us to keep it in our own country? Do we believe in Nigeria at all? I cannot see any sense in anybody complaining about that regulation. Should we all be looking for work abroad?
They didn’t say, ‘you should not reinsure abroad,’ they only say ‘go abroad once you have demonstrated that you have cleared out the capacity available locally.’
Every company should have a risk appetite. The fact that the regulator says ‘exhaust local capacity,’ does not mean any insurance company should accept any risk stupidly.
When you employ your capital, you decide where to deploy that capital into, what kind of risk you want to accept, what level of risk you want to accept and that is a decision that is left to the company to make knowingly with clear mandate from their board. So there is nothing wrong with saying no to a particular type of risk.
Do you subscribe to mergers and acquisition in the insurance sector?
It makes a lot of sense. The size of your balance sheet dictates your capacity to absorb risks. I am not an advocate of marginal players; I think that there are too many operators with just tiny balance sheets and tiny abilities to absorb risks. Some of them are actually operating more like brokers than underwriters.
Balance sheet
So for that reason and for the sake of the country also, the size of your balance sheet connotes strength. And if all the companies are tiny little players as it looks like right now, you don’t really earn respect. You cannot develop the capacity to grow the business, the resources to grow the business rapidly will be limited.
That is why a lot of them are just there in paper, they are not actually doing well as they should. So if you look at the trading activities at the Nigerian Stock Exchange, insurance stocks are not doing very well. That is an indication that they are just too marginal to make any major difference in the economy and industry as well.
The CEO of the Nigerian Stock Exchange, Oscar Onyema, had a meeting with underwriters,
Despite the directive, some companies still reject taking on some risks, why is that so?

Every company should have a risk appetite. The fact that the regulator says ‘exhaust local capacity,’ does not mean any insurance company should accept any risk stupidly.
When you employ your capital, you decide where to deploy that capital into, what kind of risk you want to accept, what level of risk you want to accept and that is a decision that is left to the company to make knowingly with clear mandate from their board. So there is nothing wrong with saying no to a particular type of risk.
Do you subscribe to mergers and acquisition in the insurance sector?
It makes a lot of sense. The size of your balance sheet dictates your capacity to absorb risks. I am not an advocate of marginal players; I think that there are too many operators with just tiny balance sheets and tiny abilities to absorb risks. Some of them are actually operating more like brokers than underwriters.
The CEO of the Nigerian Stock Exchange, Oscar Onyema, had a meeting with underwriters, what were the highlights of the meeting?
He hammered on issues that some of us were aware of and he brought it out in very simple language and everybody appreciated his frankness. He talked about the need to have an analyst for the insurance sector.
The analyst is from an investor’s perspective. Training an analyst that understands insurance business very well and will project and provide information to the investing public in an appropriate manner.
That is not being done at this time, so he offered to provide training, so that there could be specialist insurance analyst that will be presenting the industry in an appropriate manner, providing information in appropriate format. I think it is a very good thing.
Late submission of accounts has been an ongoing issue in the industry, what is the cause of this?
I think the affected companies have internal management issues.
They have limited capabilities. Again it comes down to this idea of small players. The amount of resources they are putting into their internal operations is so limited that their record keeping is not very good, compliance is not very good, risk placement is not very good, and auditing is not very good.
At it came out from the meeting with stock exchange DG, the timing provided to submit financial statement is ok.
Even if they extend the timing to December, some companies still will not meet it. So it was clear that the issue is with the operators, their readiness to do things properly, rather than the timing provided to them.

However, it also came out that some of them require support and the regulator committed to providing further support in standardization so that they could meet the timelines than they did in the past.

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