Chairman, Mutual Benefits Assurance Plc, Dr. Akin Ogunbiyi has faulted the recent recapitalization exercise initiated by the National Insurance Commission (NAICOM), saying that the project will promote the growth of only few practitioners.
Ogunbiyi who spoke at the 5th edition of Businesstoday annual anniversary and awards, said while the industry is grabbling with the realities of the possible implementation of the risk-based supervision, here comes the Commission’s plan to introduce a new policy.
He said the Tier based capital requirement stipulates that a Tier 1 composite insurance company would require a solvency capital of N15 billion that is about $42 million, adding that it is against an average of $10 million in the African Insurance market.
“The new policy is backdated to the financial year end of 31st December 2017. That is, only companies that have that level of solvency capital as of 2017 year end take advantage to be able to participate in all available businesses in the country. Though very fatigued now, existing shareholders/investors are not given any opportunity to ‘safe’ their investments.
“Some pertinent questions here is that is it only capitalisation that can drive insurance development in Nigeria giving the experience of other African insurance markets? What has been the contributions and performance of the industry since the 2007 recapitalisation exercise?
“What level of returns (Return on Equity/Return on Investment) have accrued to the investors and shareholders of the industry ever since? Who are the target investors expected to shore up the new capital call even if there was time?
“Today in Nigeria, government (at all levels) pays the biggest premium whenever it decides to insure its assets. The NNPC account, for instance automatically makes whichever company gets the business the number one in the industry. So, making it exclusive to companies in Tier-1 will definitely promote the growth of a few practitioners. We would thereby by default create behemoths,” Enterprise Television had quoted him as saying.
Ogunbiyi said the Tier Based Recapitalization would create unhealthy competition, unethical way of doing business, popularly called rate-cutting, inadequate technical know-how, and lack of insurance penetration, leading to big road-blocks in the way of development and growth of the industry.
The chairman said the development could be counter-productive, anti-growth and disruptive, adding that the immediate implementation of the Tier based rating could lead to crisis of confidence for the entire insurance industry where only about seven of the 29 companies qualified under the new standard.
“It will lead to delisting of Insurance stocks from the Nigerian Stock market. Insurance stocks already classified as penny stock due to inability to support pricing by regular dividend payments, hostile take-overs for peanuts especially by foreign investors with short-term gains as a focus.
“It might be practically impossible to fully implement the provision of the Local Content law, the rebranding project of the insurance industry may suffer a major set- back as the public perception of some companies and the entire industry will be affected adversely and there will be significant job loss,” he added.
Ogunbiyi, however, advised that as an industry, there is a need to urgently adopt a value innovation strategy to enable operators to provide relevant affordable products for the Nigerian teeming population.
He said, “My advice is that as a priority, we must align insurance services with the unique lifestyles of our citizenry in all income groups. The pension industry which was the traditional business of insurance is a case under reference here. With extant laws introduced in 2004, technical capacity, good governance and best practices; pension assets is now over N7 trillion as against N70 billion for the several decades it remained with us.
“I believe today’s shrinking profit pool and the overall performance of our industry can only be checkmated by innovation, technical capacity, healthy competition, adoption best practices, governance structure and creating “blue oceans of untapped new markets”.
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