Daily Independent Online.
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Wednesday, August 11, 2004.
And 14 insurance firms died
By Bethel Obioma
May
we gleefully mourn the demise of some others soon, one might add. The amen to
this wish is not far-fetched. For the same recepitalisation bugs that stung
these firms to death are spoiling for another onslaught. Before long, insurance
business in Nigeria would be out of the reach of family-owned, undercapitalised
and zero-claim paying insurance companies.
It
is so unfortunate that after decades of operation in Nigeria, the insurance
industry still paraded firms transacting business with N20 million before the
recapitalisation order came last year. This is rather absurd in an age where
globalisation has changed the face of doing business, where economic barriers
are falling like a pack of cards.
Insurance
business started with so much promise in Nigeria, until it was hijacked by
fringe players, who were only motivated by greed, unethical practices and
filial empires. These firms lacked the capacity to carry the risks they
underwrote. Only insurers could understand insurance contracts, while
settlement of claims was a pipe drain for clients. And the insuring public
tuned off. The mere mention of the word insurance drew jeers and secreted bile
in victims’ mouths. But these same Nigerians would travel abroad and have
no qualms with buying insurance covers. This is exactly why the closure, last
Monday, of 14 insurance firms who failed to recapitalise within the stipulate
period was greeted with cheers from both surviving firms and the public.
“For once, we are seeing a situation where lobbying and business as usual
maneuvers failed to work. It is a clear message that weak insurance companies
have to shape in or shape out,” enthused Mr. Tony Aletor, managing
director, Capital Express Assurance Company Limited.
In
November 2000, some 38 insurance companies were shut for failure to
recapitalise in compliance to the Insurance Decree of 1997. This was despite
the fact that there was an extension in the compliance date of the law from May
15 1999 to March 31, 2000. And how much are we talking about here? A paltry N20
million for life insurers and N90 million composite insurers. The affected
operators probably gambled on the fact that the March 26, 2004 deadline for the
last recapitalisation exercise would be extended. They now know better.
While
bankers are chewing the cud on the new N25 billion capital base, another
increase is imminent for insurers. This is coming on the heels of the recent
recapitalisation that ended in March. Under the Insurance Act 2003 introduced
in May 2003, insurers were given nine months to jerk up their capital from
between N20-N90 million to N150-N350 million. A commendable move, indeed,
considering that it raised the industry’s total capitalisation from some
N11 billion to N30 billion. However, this capital is still laughable compared
to that of smaller African nations. Perhaps that’s why the National
Insurance Commission (NAICOM), insurance’ regulatory body insists its not
yet uhuru.
Commissioner
for Insurance, Dr. Oladipo Bailey said: “We are going to introduce a new
set of capital requirement for all classes of insurance soon. This wind of
change will blow away fringe players, and leave behind strong companies that
can survive the realities of today’s local and global insurance markets.”
Thankfully,
the commission is empowered by law to review the industry’s capital base
from time to time as market forces and insurers’ capacity increase.
However, the situation where only a fraction of the surviving 104 insurance
firms are involved in ongoing recapitalisation efforts betrays the thinking of
most insurance operators. And indeed that of our financial services industry as
a whole. Why must bank and insurance operators wait for the prompting of their
regulators before injecting fresh capital to consolidate and grow their
businesses?
Insurance
operators now have all the time in the world to start planning recapitalisation
strategies before NAICOM gives then marching orders.
Proactive
and forward-looking boards should now be seeking fresh funds through Rights
issue and public offers. And of course, mergers and acquisitions. Now, that
sure hit a raw nerve. Nigerians just hate the idea of mergers and acquisitions.
This is one part of the world where corporate entities with potential are
stifled because a “founder” prefers the appellations of chairman
and chief executive officer, waving aside possible alliances that could
strengthen such organisations.
There
is probably no other process that can effectively address the issue of
undercapitalisation in the insurance industry more than mergers. Successful
mergers would greatly improve insurers’ retention capacity, market
penetration, research/development, and service delivery.
Also,
the resultant huge capital base that accompany mergers and acquisitions, would
improve the image of the industry, increase its business retention capacity and
enhance its competitive edge in global insurance markets. Take oil and gas for
instance. Mergers and other strategic alliances would change the fortunes of
the industry even where only one per cent of the local content policy is
utilised.
According
to Bashorun Jaiyeola Randle, president, Institute of Chartered Accountants of
Nigeria ICAN, “These benefits of cooperation point to the synergistic
equation of 2 + 2 = 5, implying that the ultimate outcome of mergers and
acquisitions is greater that the sum of its parts.” One couldn’t
agree more.
But
what should be the new minimum paid-up capital for insures be? NAICOM,
unwilling to let the cat out of the bag, could only promise that it would not
be an astronomical increase like that of banks.
Chief
Samuel Adegbite, Chairman, Oasis Insurance Company Limited, approves N2 billion
for composite insurers, and Alhaji Mohammed Kari, former managing director,
NICON Insurance Corporation concurs. They maintain that insurers have to
develop strong financial muscles to drive the enormous opportunities occasioned
by increasing patronage and enabling legislation.
Whatever
the amount NAICOM comes up with, insurers must not forget that capital adequacy
is just one of the factors needed for profitability.
