Fola Daniel – We Are On Right Track to Increasing Insurance Density in Nigeria

Fola Daniel is the former Commissioner for insurance and currently the Managing Director FBS Reinsurance Company Limited. In this interview with Ebere Nwoji, he spoke on the insurance operators' effort to achieve the tall dream of transformation into trillion Naira market, the effects of COVID19 pandemic on insurance business, prospects of the industry in the face of foreign investors' interests among other issues, excerpts.

Your target of transforming the insurance Industry to trillion-naira market is still a dream yet to be fully achieved as total premium of the industry as at 2020 business year was still N500bn can you suggest new ways of achieving this your initial Target.

The trillion-naira goal remains achievable with the rapid fueling of the economy, focus on agriculture sector, the exploration of hitherto mineral resources and a growing population, the attainment of industry trillion naira will be a reality rather than a mirage.

We note that a lot has been done in the area of positive shift from N260bn where we were before the MDRI launch to present figure, but the trillion-naira Mark is yet to be achieved. What can be done to achieve this all-important mark?

I believe that the regulator and all the industry players are more determined than before to take the industry to the trillion-naira size and is doable if all the stakeholders play their expected roles diligently. The potentials of the Nigerian insurance market are phenomenal, if viewed from the demography, economic resources, and other measurable parameters. The fundamentals are strong to support sustainable growth of the industry.

Are you comfortable with the rate at which foreign investors are taking over indigenous investors' stake in insurance companies. Is the development good, don't you think it will encourage capital flight in the industry?

The entry of foreign entrepreneurs into the Nigerian insurance industry is probably the best that can happen at this time of our insurance development. Apart from capital inflow, a new culture of insurance business is being brought to bear on our local industry, affording the insuring public the benefit of insurance practice as obtainable in advanced economies. Other benefits include, new product development, specialist manpower and deployment of information technology to drive the business process. The ensuing competition between the new entrants and incumbent industry players confer on consumers better services.

How can Nigeria insurance sector shift from the present position of minimal contribution to the GDP to meaningful contribution?

The minimal contribution of the insurance industry to the nation's GDP at the moment, is a passing phase. With the reinvigoration of the industry through injection of foreign capital and expertise, financial inclusive products, environmentally sensitive and pocket friendly insurance covers, we are on the right track to increasing the insurance density in our clime. The biggest raw material for insurance growth is the middle class of the society. Our middle class is growing and so is their insurance needs. The Government focus on infrastructural development, Housing, small scale business empowerment, are veritable impetus to the growth of the insurance industry. It is envisaged that the growth will assume a geometrical progression.

The Covid 19, no doubt affected every business worldwide including insurance. This is the first year after the pandemic, how can you assess the insurance industry performance in the post covid era what has been your experience in terms of business underwriting?

The Covid 19 pandemic no doubt was the most impactful phenomenon worldwide in the recent times, whose negative effects remain with us to date. The year 2021 is the first full business year in most parts of the world, after its full-blown outbreak in the first quarter of 2020. It is assuming a new norm, and the emergence of a more deadlier Delta Variant at its heels. The insurance industry, as part of the global business took a direct hit. The pandemic distorted the basis of mortality rate in life insurance business and caused a significant reduction in non-life businesses owing to shutdowns, with the attendant reduction in insurable interests. It may be premature to talk about insurance in post covid era, as the pandemic remains with us, inspite of the development and application of vaccines worldwide. The insurance industry remains optimistic of a better future.

As an insurance expert, what lessons have you learnt from the Covid experience that will drive a change in your business model?

The covid-19 experience have taught us all that, the era of physical offices and mass movement of people may be over, rapidly being replaced by near new norm of virtual offices. The consequence of this disruption is a deployment of information technology (Insurtech) as a means of driving our business.

Insurance industry in Nigeria has come a long way in the scheme of things of financial services sector how do you view the industry at present.

The insurance industry is happily gaining popular ascendance and increasing acceptability by the public. The Nigerian insurance industry apart from meeting its obligations to the insured at the height of the pandemic was at the forefront of corporate social responsibility, emerging as one of the highest donors to the COVID relief funds launched by the Federal Government. The Insurance industry jettisons their individualistic outlook, rose as one body to make significant financial contribution to characteristic individual outlook. This gesture was not lost on President Muhammadu Buhari, who openly commended the insurance industry, for being a trailblazer in the committee of the financial services sector.

In our objective view as journalists, you did a lot of groundwork for the growth and development of the insurance sector during your tenure as insurance commissioner using the medium-term plan MDRI. Can you draw a comparative analysis of where you left the industry and where it is now? In terms of growth and development? Are you comfortable with the speed of insurance penetration in the country can you set an agenda for operators on how to accelerate the penetration speed?

The Market Development and Restructuring Initiative (MDRI) was a pathway to bridging the insurance gaps in Nigeria. It was designed to bring those hitherto excluded from insurance mechanism to the fold. We saw the need to create awareness of laws designed to protect ordinary people from the effects of the absence of insurance cover. Some of these insurances were statutory in nature, providing the citizens remedy in the event of the occurrence of mishaps. For instance, the occupier's liability protects persons on properties from the effects of building collapse or fire outbreak. The motor third party insurance accords benefit beyond the supposed police check points pass. It secures unlimited financial compensation to victims of accidents/dependents caused by reckless drivers. The MDRI also served to enthrone financial inclusion through the creation of micro insurances for those in the lower rung of the society and takaful for our large Muslim populace. The expected end result of all these endeavors was the enhancement of access to insurance, and positioning the insurance industry as a significant contributor to the Nations GDP. I am happy to observe that the current regime in NAICOM is focused on developing the industry without shirking its primary responsibility of protecting the insuring public.

Recapitalization has always been a controversial issue in the industry, but you surmounted this problem during your time and was able to successfully complete the exercise. Since then, several attempts to effect a fresh round of recapitalization has not seen success what is your advice going forward regarding the purported capital increase. Your advice sir is needed because given the current low capital base of the industry and other arms of the financial services sector now mock some operators' opposition to capital increase insurance industry.

The recurring controversy surrounding recapitalization in the insurance industry, I would say is rather unfortunate and unnecessary. Every business needs a measure of capital for effective operations. There are two kinds of capitalization models in the insurance industry. The most pronounced in our clime is the statutory capital, requiring operators to have prescribed minimum to operate as insurers. This Capital requirements serves the twin purpose of enabling the operators to respond timely to claims settlement. On the other hand, it serves to attract only serious individual and corporate bodies to secure a license as insurers. Both are primarily aimed at protecting the insuring public against failures. In most other climes, risk-based capital are in vogue. This model is largely self-regulatory, compelling managers of insurance companies to inject capital on the scale of their risk appetite. The African environment is largely utilizing the prescriptive capital model. It is noteworthy however, that NAICOM is gearing towards risk-based capital, with the potential of downplaying the statutory capital, subject of misconception. The regulator is on the right path to enthroning international best practice to capitalization.

Emerging risks in form of cyber risks, natural disasters and civil unrest is now becoming more popular than before due to their frequent occurrence but Nigerian insurers and reinsurers have not seen it as an area to give attention to. The result is that the insuring public is depending on foreign insurers despite the local content law. Can we hear your view on this?

A number of relatively new risks in our environment are evolving at a significant rate. These risks include Cybercrime, Riots, Kidnapping and lately Terrorism. The Nigerian insurance industry in the last five years has progressively offered covers to these risks as part of innovation and demands. Twenty years ago, the incidence of kidnapping was an exception, but today it has sadly become near normal. Insurance is based on law of large numbers, to enable a scientific calculation of the probability of the risk manifesting. These large numbers of vices are tragically staring us in the face today. Terrorism is another insurance cover on our books, resulting from the occurrences in the last ten years, that fulfils the attributes of terrorism. All these insurance policies are in response to the exigencies of the moment.

Reinsurance business in Nigeria seems to be such that operators' kind of "eat from the crumbs that fall from the masters' table", when you look at how local underwriters cede business to local reinsurers. What is the main cause of this and how can we achieve improvement?

The role of reinsurers in the risk transfer mechanism chain is complementary, to aid a circle of risk spread through risk sharing.

Sometimes these risks are not just shared within a geographical location but across international boundaries, thus reducing the impact of losses on a particular location. Reinsurance serves as a cushion to possible shocks that an insurance company may face. It enables underwriters accept risks beyond their financial capacity. It is therefore inappropriate to ascribe master/servant relationship to their roles. They are necessarily complementary of one another.