Insurance of Public Buildings: 'Stakeholders Need to Cooperate'
The Insurance Act 2003 made it mandatory for all public buildings to have at least a third party cover. Managing Director of Union Assurance Company Limited, Mr. Theo Eke, in an interview with Nnamdi Duru calls for cooperation among all the stakeholders involved for the successful implementation of the law.
The Insurance Act, 2003 made Insurance of third party liability of public buildings compulsory, do you think it is workable?
The workability of the law which makes the insurance of public building today compulsory I must say is an uphill task for the industry and going by the industry experience so far, parastatals or government agencies that have ever taken insurance for their office and private buildings have not been able to pay for the insurance. We are aware that billions of Naira is being owed by government. That is one aspect of it, which really boarders all of us that you go out spend all the time, energy, money prospecting for business and you think you have done a good one, you think you have got the business and at the end of the day you don't collect a dime. The other aspect is actually getting government agencies to comply. We need to do a lot as in creating awareness among people who are running these agencies to make them appreciate the need to have insurances. We have had a couple of disasters, notwithstanding, these disasters have not been able to drive home the consciousness of the place of insurance in our day to day operations, the insurance industry and insurance practitioners need to do more. A lot depends on them to create awareness and carry this message across to consumers and buyers of insurance.
Given the Nigerian factor, how do you see the enforcement of this provision?
Well the building which are being referred to as public buildings like the ones being used by schools, hospitals, etc. We have to draw a line between those privately owned and those that belong to either States, Local or Federal Government. Each tier of government has a responsibility as corporate bodies.
Some tenancy agreements insist on adequate insurance protection for buildings, where it is owned by an individual it is quite easier to get that done because whoever is going to rent the property would ask for that. The landlord as owner of the property and not the tenant can insure the property. If it is compulsory that an individual who is letting his property to the government or for use by the public must insure it, that course can be done anyway.
It can be enforced, it will still lie on the ability of government agencies to go round and verify the papers to be sure that if some body claims that he has insured a building, that it is properly insured.
As far as public buildings owned by government are concerned, it has been very difficult for insurance companies to tap into. It is not by marketing alone but also by getting government officials budget for premium payment. They don't have any budget provision for insurance and whatever you do notwithstanding, the premium cost or premium paid it must be properly handled. People thought of a way to get outstanding premium at source and we in the insurance industry even tried to woo the finance ministry to deduct insurance premium from the monetary allocations to these parastatals to no avail.
What is your advice if this provision were to be successfully implemented?
What is needed is cooperation with all bodies concerned, the National Insurance Commission (NAICOM), Nigerian Insurers' Association (NIA) and various ministries that rent or occupy these properties they have to cooperate.
What is your organisation doing to create public awareness for this class of business?
The insurance industry since this law came out last year tried to organise various workshops to see how these modalities can be worked out. I think we need a collective effort instead of saying let individual companies go it alone. The industry has to take the responsibility while we should be able to canvass support for it by creating the awareness we just mentioned. So we need to really cooperate but the initiative will have to come from the insurance industry.
What is the industry doing about Pension Reform Act, 2004?
So far what they have tried to do is to organise seminars, creating awareness. Although it is not very clear cut on what the government has in mind, whether insurance company registered to write life business under the present law can also do pension business without having to re-register. We are also aware that the capital requirement for the two businesses are different, that is for the life insurance and the pension administrators, they are quite different but predominately, what the insurance industry is saying is that life insurance and pension administration falls within the same category.
There are other operations in the pension system including, custodians and trustees, they are involved but due to the fact that government has interest in what happens to workers by the time they retire. Insurance companies were affected because in the past, pension schemes failed because they were not insured. That is the position of insurance companies and the best option is to have pension funds insured.
We have specialist life insurers that can set up separate pension fund management outfits and these companies would, because they have their portfolio quite large and they also have a good knowledge of the market. The companies that operate life aside from the general business should analyse the market as far as pension business is concerned, because of the interest of both the client and also for their investment.
The recent hike in banks' capital, do you think it will instigate another hike in capital of insurance companies.
We just finished one round of capitalisation, you know that for insurance companies only by the end of February this year that were able to determine those companies that successfully met the new requirement. It will be too early in the day to suggest that there should be a review, but we must all agree that, yes with what is happening in the banks, it is expected that insurance will receive some attention regarding their capital base. NAICOM as provided under the Insurance Act, 2003 has the authority to, at any point in time they feel that given the volume of business, strengthen insurance companies' capitalisation. Definitely that will happen and I think in the next one year probably they will come up with a new requirement for insurance companies as far as capital base is concerned. People are speculating and I am looking at N1 billion which, may not be too much any way.
What is your company's capital presently?
We are now capitalised at N350 million, we are not making any move yet, we must look at the volume of business we are writing because the issue of share capital rising to N1 billion or any other amount does not guarantee adequate returns on investment. There are shareholders and we must be able to win their confidence to be able to ask for more money. One must be able to justify the existing trading capital before you say you need more money. The insurance industry, we are not into trading, it is a long term business and growth is gradual, very few companies in the market can write premium income of N1 billion so I will say that presently the share capital of insurance companies is adequate.
We also have to take into cognisance how insurance operates, there is no insurance company that has got reinsurance backing. If an insurance company has not got adequate provision, they can write bigger volume of business and an insurance company does not have to write 100 percent of every risk coming to it. All you do is take your own share and allow others to take theirs. So that really gives the company a lot of room to maneuver as against capital base.
Now what does the claims profile of Union Assurance look like?
Last year's experience was worse than the previous year for our company On the increase there is no doubt about it in our report you will see that premium income was over N50.2 million and claims was over N23 million. This year is even worse and like I have here, a result showing that the claims we paid within six month of the year far exceeded the claims we paid for the whole of last year.
But then apart from the responsibility of underwriters, they should be able to pay claim when they arise.
So what do you think are the contemporary issues in the industry today?
There have been lots of bad losses in the industry. Fire especially, was very ridiculous but I must say that last year was not too good for insurance companies and real insurance companies really felt the pinch.
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