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How small-sized insurers may lose big contracts by December

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Despite the extension of the deadline for insurance industry recapitalisation to September 2021, brokers/marketers are sceptical about some operators’ ability to scale through the hurdles.
 
Recall that industry regulator, the National Insurance Commission (NAICOM), had pushed the deadline from December 31st, 2020, to September 30, 2021, in a phased exercise.

Under the new terms, insurance companies will have to meet at least 50 per cent of their paid-up share capital year-end, while completing the remaining stake by the end of the third quarter, next year.

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However, investigation shows that brokers are scouting for operators who must have fully recapitalised by year-end to place the juicy insurance contracts for 2021 in their possession to them.
 
With most big players expected to have fully recapitalised by December, this means that the lower capitalised firms may lose out from the deals.
 
From brokers perspectives, the big players would be able to pay claims as and when due post-recapitalisation, unlike the illiquid underwriters, who might not scale through the recapitalisation hurdle.
 
A source said: “Brokers are saying, they will only reckon with underwriting firms that have fully capitalised by December 2020, to do business with. This will invariably mean that smaller firms, who may not have fully recapitlised by then, will not be allowed to underwrite risk businesses that come through the broking arm of the industry. Most of these businesses are renewals and if any operator loses such an account now based on this development, it may be difficult to gain it back.”
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About N150 billion insurance premiums came through the brokers’ channel in the last financial year.
 
But speaking on the development, the Executive Secretary, Nigerian Council of Registered Insurance Brokers (NCRIB), Fatai Adegbenro, urged low capitalised operators who might be nursing this fear to remain positive.
 
He insisted that there is no unified agreement among brokers on this development, but that individual broker will always do what will give him or her, best result.
 
To him, “People should focus on the moment and stop bothering themselves on what will happen in 2021. Live for the moment and do the right thing, because we don’t have absolute power on what will happen tomorrow.
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“Nobody predicted the coronavirus pandemic in 2020, yet we are battling with it now. Prior to now, most liquid firms have always been the one writing most of the juicy accounts. Companies should concentrate more on how to recapitalise before the deadline, which is the primary focus, and stop bothering on matters they have no control over. Nobody would deny any company business because it has not fully recapitalised by December 2020, there is no written document to that effect.”
 
He, therefore, charged operators to remain positive in whatever circumstances they find themselves, instead of always seeing the negatives in every situation.
 
In a chat with The Guardian, the Chairman/Chief Executive Officer, Achor Actuarial Services Limited, Dr. Pius Apere, said placing of insurance business with a particular insurer is subject to market forces, integrity in claims payment, among others.

He noted that the big underwriters have always taken the larger chunk of risks in the insurance industry, adding that, “Insurance companies that failed to satisfy the required minimum paid-up capital by the end of December 31st, 2020, maybe restricted on the scope of business they will transact.”

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The recent guidelines on phased recapitalisation introduced by NAICOM on June 3rd, have implications for the small-size insurance companies, which Apere suspect may lead to a selection process, whereby the insuring public and brokers might shun those with the lower capital base during the next business renewal cycle.

He said: “This is because the insuring public would prefer to do business with insurers that have already met the Phase 1 of the segmented recapitalization requirement (50% of required minimum paid-up capital for insurers), or already fully recapitalized in the run-up to the business renewal period. The fear of an insurer being restricted to write a class of business in the near future would make the insuring public to be cautious in dealing with small size insurance companies.”
 
Noting that not all companies (particularly the small-sized) will be able to meet the December 31st, Phase 1 deadline, Apere stressed the need for NAICOM to introduce a mandatory default for mergers and acquisition, as Plan B, for such insurers, who may not already have such a plan in place by the year-end.
 
This is to forestall last minute disqualifications by September 30th, 2021, that would affect a smooth transition process.
 
“It should be the responsibility of the affected insurers to have the mergers/acquisition plan in place to secure the confidence and trust of the insuring public. The so-called restriction of the scope of business that such companies will transact, to be imposed by the regulator, may not be far-reaching enough to build the insuring public’s confidence not to select against them,” he emphasised.

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