Scrapping Universal Banking Good for Insurance Industry

Livingstone Magorimbo, Group Managing Director (GMD), Cornerstone Insurance Plc, has hinted that foreign investors are eager to come and do business in the Nigerian insurance industry and that the plan to scrap universal banking in the country will be beneficial to the insurance industry. He spoke with our Senior Correspondent, Sola Alabadan.

Excerpts:

You were recently seconded to Cornerstone Insurance as GMD by TAHoldings of Zimbabwe, what kind of partnership exists between the two organisations?

We are looking at a partnership between TA Holdings and Cornerstone Insurance Plc. The partnership is not just looking at me coming as MD/CEO; it also involves a gentleman called Stanley Mazorodze, who is coming as head of underwriting and business development to support and beef up our technical unit. He is already at his desk having resumed in February. Secondly, there is also an agreement to get technical support from TA group not just in underwriting but on product development, actuarial point of view and on any other area of our business. These resources are available for us from any of the chain groups or countries where TA Holding has establishment including Zimbabwe, Botswana and Uganda. For instance, for actuarial service, we have an actuarial team in Zimbabwe that offers actuarial services to all insurance companies within the TA Group and that team is going to be available to support Cornerstone. You may be aware that from actuarial point of view, you will be talking about product development the way you structure your reinsurance treaties and agreements to ensure that you are able to take up the risks and be able to maximise the capital you have and be able to pay your claims when they arise. So, all these are available for Cornerstone besides my coming and the other gentleman in underwriting.

Thirdly, we are bringing our experience garnered from other markets in Zimbabwe, Botswana and Uganda where we have extensively developed life insurance business and that will allow us bring in such experiences into Cornerstone. One area we are going to put in our effort is in developing the retail market in such a way that we are able to reach the different segments of the market through an effective distribution channel. That is where we intend to deploy our experience; it may be on a smaller scale when you consider the population, but we believe that once we are able to create the model, we will bring it to Nigeria and scale it up. Maybe it was developed for a market of 10 branches; we shall scale it up to say 15 branches or 20 branches.

Having looked at Nigeria from other climes, how is our insurance market perceived over there?

Interestingly, I think the outside world perceives the opportunities in Nigeria to an extent which is probably over rated because in most cases, attention is usually on the population size. The simple calculation most operators do is to say I am operating in South Africa, I am operating in Botswana, I am operating in Zimbabwe where the total population is probably 60 million or less, I am looking at Nigeria which has a population of 140 million and arguably close to 180 million. The insurance penetration ratio is low and the larger population is uninsured, therefore the opportunity is huge. So, majority of people out there look at it from this perspective, but I think the correct thing to do is to come into the market, look at what the challenges are. Yes, ultimately, if you achieve a 2.5 per cent penetration ratio, then you definitely would have four or five times increase in insurance premium, but a lot of things need to be done for it to come true. But from outside, there has been a lot of appetite of investors to come into the market particularly from insurance players in Southern Africa.

Looking at the per capita income of the average Nigerian, what potential does the market have?

Issue of per capita income is not a big challenge on purchase of insurance depending on the retail model you want to roll out. If the country's earnings per capita is low, then you consider volume. Don't forget that insurance is a game of numbers, and the larger the number the better, because the more you are able to get market volume, the easier for you to meet your obligations.

So, instead of issuing polices of high sum insured value, you issue less expensive and a wide spread lower sum insured products and it will be a win-win situation. As I said earlier, the impression out there is that with this large population of 140 million people and insurance penetration still low, there is a large untapped market and the interest is on retail segment.

Aligning yourself to Cornerstone, what do you see as the company's strongest selling point?

Interestingly, I got to know of Cornerstone before I joined the company. Like I said, I have been in touch with the Nigerian insurance industry since its recapitalisation in 2007 relating with a number of practitioners. From TA Holdings, we have held a long-term interest in Nigerian market. If you look at Cornerstone brand, I think it is a very strong brand, the challenge we are facing was as result of our exposure in the capital market which put a strain on the brand in terms being able to deliver on a number of issues requiring funding because a huge capital was locked up in the market. And the challenge we are facing now is a question of, whether to invest more or divest.

Besides that, the company is very strong in underwriting and takes issue of prompt claims payment very seriously. One of the key drivers of Cornerstone brand is its pedigree in claims payment and going forward, we are going to ensure that this enduring quality is sustained for the brand.

Beyond issues of claims payment, what other areas are you looking at to solidify this brand?

One key area, which is very dear to us in this transformation is service delivery. We are in the process of upgrading our IT infrastructure and that will go a long way to ensure that our service delivery is enhanced. Certainly, we are going to look at products, come up with innovative products that are unique not only in terms of packaging, but in terms of value to consumers. In Cornerstone, what we are going to do is to make sure we balance the business we get from brokers, the large corporate and the retail segment that would focus on individual as the insured. We believe that the retail market is growth potential of the market and we intend to cash on it through value creation.

Oil and gas is a major business of the industry and with the new law on local content, how do you intend to position Cornerstone for the juicy business?

I think oil and gas business is a huge opportunity in Nigeria for two reasons. Firstly, this is a huge sector in the economy and secondly there is a lot of regulation being put in place to retain a huge portion of the business from that sector in Nigeria. That makes the sector a big opportunity for local players including insurers. You will recall that the market is expected to retain about 70 per cent of the businesses in the oil and gas sector under the law, but what is happening currently is that this has not been possible because of capacity issue. There is yet not enough reinsurance treaty and capital, so the 70 per cent may come to the local industry but again find its way back to the London market through reinsurance placement.

But, we in Cornerstone are looking at it in two ways. TA Holding has a partnership with American Insurance Group (AIG), and as result has utilised the arrangement to drive businesses in Zimbabwe, Botswana and Uganda. What we are going to do going forward, is to ensure we key into that expertise to support our development initiatives in the oil and gas. You know that oil and gas is a technical area particularly when it comes to insurance placement, so that is one initiative.

The second initiative is putting together an energy board, which is specific to Cornerstone. We are bringing together responsible stakeholders from the reinsurance perspective, placement perspective looking at Lloyd's market, technical perspective and devise certain initiatives to drive the oil and gas business. To generate the business, there would be a structure called profit sharing arrangement and we are confident this will deliver our objective.

What is there for the insurance industry in the new CBN's plan to scrap universal banking?

In my personal opinion, I think when the banks recapitalised a few years back, they ventured into some insurance activities because of the capital they had, whether or not they had the skills to deliver on such functions. What I foresee happening now is the banks being asked to concentrate on their core functions and that may lead to more consolidation in the insurance industry, where some of the insurance companies owned by banks may merge or be acquired by other insurance companies, and companies like Cornerstone that have no relationship with banks may have openings for acquisition or mergers. What would emerge from the process is a stronger insurance industry with better capital and being able to use the consolidated fund to come up with innovative products and improved service delivery. It would at the end of the day, create the kind of insurance companies that would do things professionally and use the distribution channels of the banks through bancassurance to deliver world class service.

What is your take on insurance companies still running life and general portfolios together?

My personal view in terms of combining life and general business is how you separate the two businesses. I think it is not right to say investors or shareholders should either put money in life business or general business because there are a lot of synergies that could arise from running life, general and even health insurance together. A typical example is a company called Discovery in South Africa which is a major company. It started with health insurance, later moved to life insurance and they are using the information they have from the mother company to offer life polices at very cheap price. As a result of the information from the health scheme, medical test and all that does not come in providing clients life insurance. So, there are a lot of synergies that can come from allowing companies run life operation, health operation and generation operation together.

However, what is to be clear is to ensure that they are separate entities in terms of the capital structure, so that there is no movement or unnecessary movement of capital either from a life company to a general company that could end up compromising the portfolio of one over another. This is important because if you are not clear of separation, and one operation is in trouble in a particular group, money could be used from other operations to put in the troubled company and that is unprofessional.

From a regulator perspective, my view is that composite companies should be allowed to exist not necessarily because Cornerstone is into general and life, but ensure there is adequate regulation on how to administer capital under the life operation and the general business and then reporting done properly so that there is no mix up in what is happening in one entity and another.

There is a huge outstanding premium in the Nigerian insurance market up till today, are you not surprised with this development?

It is not a surprise to me like I told you; I have been in this market for a while. The main reason why you find a lot of this outstanding premium is mostly because it is generated through brokers. It is so because the insurance companies were yet to have the check process to know whether the customer has paid or not. Again, another reason is because there is no automatic renewal for business and most a times brokers probably do not get the commitment of the customer before placing the risk or renew it and this often are discovered during reconciliation. What you find is that part of the premium you are claiming to be outstanding in your books is premium that has been paid to someone who got the business.

In case you have the forum to address the entire customers of Cornerstone, what would be your message to them?

I think the key message that I will be sending out is one. We have put in place a process that will ensure that we improve on our service delivery. We are in the process of coming out with products that are innovative by taking into account what they are out to achieve for consumers. We now invest in product development cycle where we would be listening to the voice of the customers. Once we hear that voice, we therefore use that voice to develop the product that would meet their expectation. Again, they should look out for more timeliness in settlement of claims beyond their imagination and on their side, we need their commitment which is basically to pay their premiums on time. This will enable us build the capacity to serve them better.