By Ekerete Olawoye
Gam-Ikon, MNIM, CPP
The best of insurance has since become so challenged that it would seem the industry is at its tethers when viewed from the traditional sources of its income, underwriting and investment. However, what beckons is the urgent need for innovative thinking and actions!
Insurance, both as a product and business, is in a pole position to win big during and after this season of uncertainty and disruptive changes, which remains within the realm of human dominance. One difference announced by an insurance company in Nigeria today will set the path for a new beginning or rebirth for the industry and it needs to start from the hardest part.
However, gripped by the proverbial “fear of the unknown” caused largely by the screaming deadline or no deadline regarding the process of recapitalization whilst the COVID-19 pandemic sways into waves, many insurers have given up on the three pillars that differentiates the winners and losers after the end of every financial year namely investment income, claims and dividend payments.
Little Investments, High Returns
Treasury bills and other traditional and permissible channels of investment have become embarrassingly unviable and insurance companies seem worst hit after the usually boisterous last quarter of the year just passed. Little or no income were reported and the financial statements for 2020 would most likely reveal unprecedented losses. Unfortunately, there were no remedial actions on the part of the regulator to adjust the guidelines on investment to allow the insurers more room to consider other non-traditional investment instruments.
Who knows what would have been if the percentage of permissible investment in unquoted equities was expanded to enable insurers put funds in the development of tech solutions and health related infrastructure? Such relatively little investments in unfamiliar terrains often bring high returns in the years ahead and the insurance industry will continue to miss out because their appetite for such investment are low.
Hopefully, when the draft guidelines for the establishment of the regulatory sandbox is exposed to the industry by the regulator, National Insurance Commission (NAICOM), it will become clearer for insurers and other stakeholders to embrace innovation as a critical factor for surviving this period and thriving in future. It is not when the crises are over that we will start building innovative products and services that customers (policyholders) will buy.
Many insurance industry analysts expect to see creative and innovative solutions that will begin to improve the experiences of insurance policyholders and secure the acceptance of those who have never had any insurance policy.
Paying Claims from Nothing
Typically, insurers have maintained the model of investing the premium received from policyholders and from the income generated, reserves are made and out of them, genuine claims are paid promptly.
However, with the critical condition of the investment environment, less incomes have been available for reserves and claims payments. Some insurers, like other businesses, have been known to seek buyers for their properties in order to meet requirements for funds without success because not a few persons are ready to acquire such assets, often in dormant condition.
In the face of this daunting challenge, only a few insurers are able to meet their claims obligations to their policyholders from the reserves they may have had over the years and as required by the governing law.
Borrowed funds have been the saving grace for some that are really committed to paying their claims and giving their policyholders excellent insurance experiences, and this will be evident in their financials that will be released later in the year.
Knowing that claims payment has become even more of the determining factor for existing and potential policyholders have led many insurers to consider automating their claims processes. With the most recent payouts by insurers to the customers affected by the destructive protests of last October, confidence level of the policyholders will rise and encourage many more first-timers to insurance.
Claims remains the single most influential factor for any insurance decision in Nigeria now and beyond!
Will Dividends Wait Again?
Like policyholders, shareholders are most likely to face another waiting period before they can receive dividend payments from their investments in insurance companies.
Shareholders certainly feel the pain of their insurance companies, little wonder they are in court with NAICOM to attempt to delay the recapitalization process even if they cannot stop it.
Interestingly, with the issuance of operating licenses to new insurance entities, the volume of businesses available for the entire industry have been further stretched and we are more likely to see increasing number of weak companies, unless the older insurers can come through with the innovative actions that we have discussed.
Similarly, shareholders that have to wait should become more interested in the other statistics of the insurance industry in Nigeria. For example, there are over 13m registered vehicles in Nigeria, according to the National Bureau of Statistics (NBS) but only about 3m are GENUINELY INSURED, according to the Nigeria Insurers Association (NIA), the trade association of insurance companies comprising 65 licensed insurers offering Life, General, Reinsurance, Microinsurance and Takaful.
The conversations need to change and parties need to swap positions to get insurers back to winning ways, especially amongst the teeming youth population in Nigeria, where massive new opportunities exist for innovative products and services.
• Gam-Ikon is a consultant in Management~Strategy~Insurance