‘People, lack of corporate governance make companies fail’

Sunday Olorundare Thomas is the Commissioner for Insurance and Chief Executive Officer of the National Insurance Commission. In this interview with FEMI ADEKOYA, he speaks on various issues affecting the insurance industry.

The National Insurance Commission recently increased the premium on third party motor insurance from N5,000 to N15,000. What informed that decision?
People talk about an increase in the premium, but it is really not an increase. When it was put at N5,000 over 20 years ago, what did it cover? It only covered liability to a third party. At that time, how much were parts of vehicles being sold? How much were cars being sold? If you want to adequately cover a person, the person must pay an adequate premium. When the premium was N5,000, the liability covered was just N1million but because we are conscious of our environment, we have increased the liability to N3 million. Not only that, before we reviewed the premium, there was a protocol signed by President Muhammadu Buhari, I think in 2021, with respect to movement of people, men and material within the West African coast (ECOWAS), which mandates everyone who moves within the sub-region to have an insurance policy. What happened before now was that if anyone was going from Nigeria to Togo, before crossing the border, the person would need to buy the ECOWAS brown card. So, at every point, this brown card must be obtained. If anyone was moving from Nigeria to Togo five times in a month, the person would have to buy the brown card five times. But now, that has changed. With third party motor insurance, any motorist moving from Nigeria to any part of ECOWAS does not need any brown card. The N15,000 third party insurance covers the policyholder for one whole year. So, if you put all of these together, you will find out that the policy is adding more value to the policyholder.

How are you handling the issue of compulsory insurance?
With respect to compulsory insurance, we have done a lot trying to sensitise the states. We realise that as a government institution, we may not be able to do so much sitting in Lagos or Abuja. We need the instrumentality of the states to be able to enforce some of the insurance policies. I am talking about the Motor Insurance third party; buildings under construction, public buildings, professional indemnity and all other compulsory insurance policies. We know that if we don’t partner the states, it might be difficult for us to be able to maximise the benefit of our enforcement. Consequently, we have to a large extent brought to the fore, the issue of financial inclusion, having in mind the structure of our population that is predominantly at the lower end of the pyramid in terms of income parity. Therefore, we have encouraged our operators to develop products like micro insurance that will financially include all. Our responsibility is to license institutions and give them authority to go there and sell. We have licensed some institutions and we realised that looking at the size of Nigeria, we need to spread ourselves wider. That is why a few years ago, we licensed five additional companies. Until five years ago, the last insurance company that was licensed was about 32 years ago. We realised that we need to license more companies that will assist our economy. One re-insurance company was also licensed. Four direct companies were established. Before then, the last direct company that was established was 10 years ago. I am happy to say that these companies are doing quite well. From the numbers that we have seen so far, some of them were in the top 20 out of more than 50 of them within the first two years of operations. That means we have made the right decision.

What are you doing in terms of regulation and sanitisation of the industry with a view to getting operators to comply with rules and guidelines?
Let me make this clear. Regulation or distress management in the financial sector is different from what you have in the other sectors because of the volatility. For example, the origin of AMCON was to absorb non-performing loans created by the operators. That means that these volatilities exist despite the big stick wielded by the Central Bank of Nigeria. Regulation does not stop those who want to deliberately commit acts that are not consistent with good practice. But there are consequences. Today, there are trillions in terms of the assets of the banking sector. But if you try to discount the total assets of the banking sector, with the liabilities that were transferred to AMCON, it will give you the net value of the assets of the banking sector, because without those liabilities, there will be no need for AMCON.
I will tell you the steps that we have taken. In the insurance sector, we have put some companies under regulatory order. We can’t announce it to avoid panic. In the banking sector, what you put in is what you get. That is not so in the insurance sector. In this sector we pay a premium that you may never be a beneficiary of. You might have been insuring your car for five years but nothing happens and you continue to pay a premium on a yearly basis. But you are contributing to settle what has happened to others so that if it happens to you, some other people are going to contribute to meet your own needs. There are things we are doing that we may not necessarily need to advertise. It is only when it is becoming too dangerous to the system that it then becomes obvious to the public.
Also, we have put some shock absorbers to ensure that it does not smear on the industry. You are aware that we have canceled some licences since I came in. It was because we have given them opportunities to re-invent themselves but they were not able. When that was not forthcoming, we had no choice than to do the needful. So, we have institutions that the moment you are not able to meet your liability to the public, it becomes a concern. They have taken over some companies, appointed receiver managers, liquidated the companies; are able to recover all the assets to pay all the liabilities. Apart from that, you know that in June 2021, we released our corporate governance guidelines. Companies don’t fail, people kill companies. We are conscious of that and that is why we are trying to be heavy in the area of corporate governance. If you are the chairman, remain as the chairman. You can’t be the executive and non-executive at the same time. And so much responsibility has been put on the shoulders of compliance officers. Each company is expected to have compliance officers who are trained from time to time. We released a circular recently with respect to motor insurance. It is to avoid a situation where undercutting leaves a policyholder in a dangerous situation. We did our valuation and we discovered that if you take a comprehensive cover at five per cent and premium are duly paid, you will be adequately paid.

The recent flooding showed lapses in agriculture insurance. What are you doing in this aspect to promote food security?
Before now, we had only the Nigerian Agriculture Insurance Company operating as underwriter for agriculture, but today, we have over 10 because capacity has been built. Some companies paid a premium on the flooding that happened last year and they were indemnified. But it still boils down to sensitisation. The farmers must be ready to insure. No matter how good your policy is, it can only cover a willing person that has come forward for it. In this part of the world, we are always looking for help from the government, even on things we should manage on our own. That is why we keep encouraging the government that taxpayers money that is used to support certain individuals can be better handled by commercial concerns, for example, those whose primary duty is to protect risks that are emerging from some of those transactions including agriculture. In some other jurisdictions, there is partnership between insurance and government in providing insurance cover for those sectors. That is one thing we are working on to see how we can partner twith government to cover some of these risks. No insurance company will go and take risks that will sink it. You can imagine what has happened to farms in the flooding of last year where people could not cross over to Lokoja.

How has the insurance industry fared since your assumption of office?
I retired from the commission as a director in 2009 after serving 17 years. I joined the Nigeria Insurance Association as Director General, where I served for seven years. And through the benevolence of President Muhammadu Buhari, I was appointed back to NAICOM as a deputy commissioner. At that time, the market production was about N320 billion. I was deputy commissioner until around August 2019. When I was appointed Acting commissioner, the market production in terms of premium was about N400 to N520 billion. But by 2022, the market recorded more than N730 billion. I am still not satisfied yet, because my target before I finish my first term in office is N1 trillion. The total assets moved from about N1.3 trillion in 2018 to about N2.5 trillion in 2022. We are making progress but looking at our economy, these, to me, are small numbers. I will also say that our methodology is also changing. Inspection used to be compliance-based with a checklist. But now, the world has moved to risk-based supervision. We started that last year. Some companies have tasted what it means to have a risk-based supervision environment. It has been quite revealing about the operations of these institutions. We are taking it to a new level, risk-based capital. If you know the history of capital in this country, it has been an issue and we want to remove that. You can trade, for instance, as a motor third party insurance company, based on your capital. Then, if you want to trade in the highly volatile business environment of oil and gas, you also must provide the needed capital to be able to run at that level. That is where we are going now. The one cap fits all, will no longer be the case. This year, we will be closing on that and before I finish the first tenure, it will be operational. We are in partnership with the multilateral institutions in our quest to evolve this risk-based capital. Our staff members have gone through a lot of training in this area and it has been quite helpful.

What are the initiatives put in place to ensure the growth of the insurance industry?
A lot of initiatives have been put in place. We try as much as possible to create a conducive environment for the operators to do their business. We know that insurance is a knowledge-based industry. There are certain professionals that are scarce globally and the insurance industry has its own share of the scarcity. For example there is a scarcity of actuaries and it is compulsory for insurance companies to have actuaries. For instance, the IFRS 17 says for an insurance company to be able to carry out capital adequacy ratio, it must get actuaries.
Apart from that, we know that valuations are changing, just as annuity is becoming more significant in the portfolio of the industry. Before the 2004 Act, annuity was not a product. But with the 2004 Act, as amended by the 2014 Act, it has become more critical and insurance, to a large extent, has become a major beneficiary of that Act.
Annuity has become very significant with respect to life operations and in totality it has become very significant in the portfolio of insurance practice in Nigeria. Annuity cannot be less than 30 percent of the portfolio of the insurance sector. But with respect to life and businesses, it will be between 30 to 60 percent. It requires daily monitoring and it is in the place of actuaries to be able to do that. That is why as a regulator, we are saying if you want to go into the business of annuity, you must have in-house actuaries or you must make plans to get one because it requires daily monitoring which a consulting actuary or an appointed actuary may not be able to handle.
There must be asset liability matching on a daily basis. It is so volatile that if you don’t have that in place the bubble can burst and we cannot sit down and watch that happen. That is with respect to some of our activities.
In addition to that, as a way of backward integration in trying to cultivate human capital, we have gone into education financing and there is no geo-political zone that has not benefited from our assistance to tertiary institutions. We support and sponsor insurance initiatives either by infrastructure or other areas. We sponsored the building of office spaces, furniture and training of lecturers. We have continued to support the college of Insurance and Financial Management. As part of our statutory responsibility, we support the West African Insurance Institute in Gambia and the Chartered Institute of Insurance in Nigeria. All these are to ensure that insurance education is promoted at all levels and we are happy with the kind of jobs they are doing at these levels.