The role of insurance is to mobilise and redistribute wealth, says Akinboye
Bode Akinboye is the Chief Executive Officer, Standard Alliance Insurance Plc. He is on his “second missionary journey” in the company, having returned two years ago to take on the responsibility of leading the company to the next level after overhauling the people, process and products. In this interview, he tells Clara Nwachukwu that every stakeholder – government, operators, and the public has a role to play in getting insurance to occupy its pride of place among the financial services sector.
The insurance industry has been struggling to gain its rightful place in the economy; and it’s taking them a while, why?
That’s a tough question but as a player in the industry, I have to find a way to do justice to it. I think it’s due to multiple problems and constraints. We have the problem due to us as the operators, we have the problems due to the government as the enabler of the operating environment, and then we have the problem shared by some members of the public due to apathy. The reason insurance is there is to protect wealth and to act as a means of savings mobilisation. Some members of the public do not really embrace the savings culture, so it has been ‘Oh there is no money, what are we going to save?’ How do you get out of poverty because poverty you know is like a vicious cycle, it’s only saving and investments that can take someone out of poverty. It’s a two way situation where you can say, ‘I don’t have money and I cannot save yet, we are surviving.’ It behoves on us from the little resources that we have, to find a way to save a small portion out of it. When we build that up over a long period of time with all commitment then we will be able to have a pool of investments which insurance is part and parcel of. These can then be used to finance projects, finance infrastructure and empower companies to employ and create more economic activities.
Going back to the specific roles the different stakeholders played in what insurance, and part of your function being protecting wealth; however the public seems to be so suspicious of operators’ ability to do this. Why do you think that apathy has continued to grow?
The truth is it’s more of a problem of perception rather than reality. The reality is that insurance companies do pay claims. For example, my company, Standard Alliance, I have paid N7.6billion in the last two years, five months. About N2 billion went into non-life portfolio and about N5.6billion into life. It was some customers that took those monies, so insurance companies do pay claims. If you speak to my other colleagues in the industry, you will realise that big and small companies have been paying claims. The truth is that we have been paying claims. What we want to manage is the time it takes us to pay the claims. The reason why we have delay is because of cash flow.
But is the public ready to pay the right price for the right product? Of course, there is need for us to improve as operators, to positively engage our customers to manage their expectations, to be able to build confidence into our staff and encourage them to do what is called relationship management. This is because if you have relationship management, you understand your clients and your clients understands you, then there will be no gap in knowing how they should process their claims and when their cheques will come in. The problem I see from the public perspectives is more of perception rather than reality. The truth is that this industry has paid significant claims in various sectors. In the manufacturing sector, there was a major claim we paid to a conglomerate, which was in excess of N2.5billion in the past two-three years. There was another major claim that we paid to a bottling plant, which was in excess of N5billion in the last few years. We have multinational oil companies insuring their staff, their equipment, their oil and gas, and we pay claims. But there is room for improvement.
I’m happy you said there is room for improvement, but for that improvement to happen, why does it seem that there is a disconnect between what government is saying and telling the operators to do and what the operators are doing?
The truth is that although we run a capitalist economy, we all know that the Federal Government is the biggest customer in any sector in Nigeria. Look at the banking sector, it’s the Federal Government that buy all the treasury bills and banks are smiling home and making very high returns with low risks because there is a single customer that is patronising them. But look at the insurance sector, the premium the Federal Government is supposed to be paying to the sector; they are not paid on time. The one for last year has not been paid as I’m talking to you, and the ones they pay are being paid in trickles. Government has a role to play as an enabler not just only for insurance but for every other sector of the economy.
However our problem is the problem of law and order because insurance has to do with law and compliance. We have all the laws; we have laws on compulsory insurance. I think if government can enforce those laws, which I believe as operators, we do not have capacity to enforce, or the right to enforce or arrest anybody for not having this kind of insurance. For example, if you want to bid for any business or contract today in oil and gas sector, they will tell you to go and bring pension compliance and so on, the insurance element is also there, and they can do more like that. They should empower the Police to do the right thing, to ensure that nobody puts a vehicle on Nigerian roads without insurance. I see the government playing more role if insurance is going to make more impact, because from my own little research, insurance companies are doing so well in the advanced countries, but the foundation of their doing well is based on compulsory insurance. From here they took a cue and then innovate and built new products, and they used that to build capacity because compulsory insurance is used to build mass savings mobilisation from members of the public. The companies can then leverage on this to improve their capacity and create products to support every aspect of the economy.
In comparing the Nigerians operations with those of the developed world, you are making it look like operators are doing their best but the public do not appreciate it. But do you really think that operators are doing their best? I’m asking because a lot of people are not aware of insurance products, they don’t know what kind of policies to take when they have a need. Are you educating them enough?
Truly, if I may recap very well I’m not blaming the public, and I’m not exonerating the industry. I’m only saying every stakeholder has a contribution to make, and we have to apportion blame round. Of course, being the operator, being the industry responsible for delivering the service, we have a lot of blames in terms of a lot of opportunities for us to evolve and improve insurance culture in Nigeria. Part of it is creating awareness, insurance education, and explaining our products in a simpler manner to the customers especially those micro insurance.
In fact, we should go to the next stage of having the insurance policies in the three major Nigerian languages so that people can read and explain to the likely buyers. You don’t want to go and meet a customer and go and start explaining technical jargons and so on. We should try and simplify our policy wordings, and we should get closer to the customers. We should build insurance ambassadors from the grassroots. From primary to secondary school, we should try and institute insurance in the study curriculum of those schools, so when the students become adults and become people who want to buy into insurance, they will now have a better appreciation of insurance.
But does Standard Alliance practice what it preaches, in terms of writing the policies in the various local languages?
Well, it’s an area we are looking at. You know it needs expertise, it needs experts that can help to interpret and take the policies and break it down. It is a project that is visible and we are looking at it. And I believe that we can be able to come up with ideas along that line very soon.
Before I come back to Standard Alliance again, let take a general look at the industry compared to how it is practiced in the developed countries. You find that in the developed world, insurance is the strongest link in the financial services sector, but it is our weakest link here. What are operators doing to strengthen it?
Well, I will still push it back to the nature and structure of our economy. Our economy is a cash giver. If you want to by a car, you use your money to buy it. If you want to build or buy a house, it’s your money that you use, but abroad, it’s the reverse. Majority of what you acquire abroad are available on credit, and you don’t have to struggle to get it on credit because they have your data and know your profile and know what you are capable of doing, and they will even make it available to you. Therefore, when you buy a car on credit the funder will put insurance on it. He will not allow you to take the car without putting insurance on it. When you take mortgage on your house, before you sign the final document to close the mortgage, the owner of the house will not allow you to move in; until you have put insurance, you will not close the transaction. If you lease household equipment, they will not allow you to take it out from the workshop unless insurance is already included in the pricing.
Consumer lending is completely absent or very weak in Nigeria, and this has a lot of negative impacts, on insurance that are tied around those products. Nigerian governments and banks must create the right environment to encourage leasing, to encourage credits to the economy. You see people living big abroad, not because they have the cash but because they are living ahead of their time, and the capacity to have things can be accessed. They are okay that in the next three to four years that you can have this, they start living big today. That is what we need and what our government really needs to look at.
The government needs to encourage the Central Bank to create a single digit economy. If you create a single digit economy, people will be willing to borrow and when you borrow, insurance is a mandatory part because no lender will lend their money out without ensuring that it is insured. In one way or the other, the fund must be insured; the item you are buying must be insured, including you that are borrowing. This is one element.
The other element is product innovation, which is the problem that falls on us as operators and we will continue to work on that. We need to be more innovative. We need to do more research and identify our customer needs and create products around their needs, and most especially, we need to understand our customers more. If you understand your customers more, you will be able to know what they require.
Some believe the weakness in the industry is tied to its poor level of capitalisation. If you look at the insurance industry, it has the lowest capital base in the financial service industry, and in the recent time, government has been talking about, boosting capitalisation in the industry. But it appears the operators are not taking up that challenge. I’m saying so because in other climes, you will see companies embracing mergers and acquisitions, but here, everyone wants to hold on to what they have because every operator wants to be a CEO. Why is that?
I will take it this way; I think it’s erroneous to think that capital is what is affecting the insurance industry in Nigeria. If I may say this, Nigeria has the most capitalised insurance industry in the world. When you talk of minimum capital economy, we have one of the highest capitalise industry in the world. So insurance is beyond capital, it is about capacity, and capacity for insurance is not just capital. It includes reinsurance, which is much more than capital and your expertise. Those are the things that determine your capacity. To isolate that’s its only capital that is affecting the insurance industry; I think I disagree with that for those who believe that it is the problem.
It’s a multiple problem and capital is just one of the elements. You don’t have to do oil and gas like the Commissioner for Insurance have stated you don’t have to be everywhere. I can have N500million and I want to service a customer in Lagos State or in a particular local government. So I do not support wholesome application of capitalisation on the industry. I think one of the major reasons why we have financial depression worldwide is that idea that all banks require capitalisation, insurance requires capitalisation, and people are looking for money that do not exist. People created bubble money and what followed it? Global depression. I think we should go with your comment about mergers and partnership. That is the way that I will prefer to strengthen insurance industry rather than say, use capitalisation to do it.
And why is it not happening here?
It is going to happen as long as we keep talking and the regulators are doing the right thing, and creating the right environment, it will happen. Of course I will prefer to be part of a bigger massive insurance company than to run a small insurance institution. We just did one, because we didn’t want to have two separate companies, so we just merged our companies both Standard Life and Standard Alliance into one company. Prior to that we acquired Perpetual Assurance Company; we also took over the assets and liabilities of former Amicable Assurance; we took over the assets and liability of the Kwara State Insurance Company. We are already like four or five companies in this institution today. We have started that journey, and we are looking out for the right partners to join hands with us in order to move towards your suggestion of mergers and acquisition. I believe personally that it is the way to grow the industry with very big institutions with wealth of experienced staff that are going to run it. It is one thing to put capital and it is another to have the human resources to drive the organisation.
Talking about capacity, and the role of government in helping the industry to grow, in 2010 the government signed the Local Content law, which permits insurance companies to underwrite at least 40 per cent of the oil and gas businesses. But seven years down the line the industry is not able to underwrite even up to 10 per cent. So where is the capacity?
Well local content is good but remember that he who pays the piper dictates the tune. The capacity to finance oil and gas in Nigeria is not here in Nigeria. Not even the biggest bank in Nigeria can finance a small oil well. So if the oil wells are being financed by foreign banks or foreign financial institutions, they will definitely find a way to influence where the insurance business is going to whether local content or no local content. We have a structure where we try to do 10 per cent, 20 per cent, or even 30 per cent, but the financiers who are the owners of the oil wells will still tell us that we must still find a way to place them abroad because our balance sheet size is not enough to carry them. These are mega multimillion dollar risks, so you end up saying you are doing 30 per cent of a business but about 15 per cent is still going back to the international market.
I think the government can do something more radical by creating capacity through the instrumentality of the Central Bank by creating a fund for oil and gas insurance, which can then be used to buy capacity abroad for the local market. I think that is what has been done elsewhere in other economies. If you expect insurance company to come and be doing polling, it’s not going to make much impact. If our government is really sincere about what it’s going to do about creating capacity, the Central Bank is there. The Central Bank has been used to create capacity for the aviation sector; it was used to create capacity for agricultural sector. They are disbursing money for the industrial sector. They can do the same thing for our oil and gas insurance by creating a special fund. Furthermore, we are ready to come up with suggestions for the government on that to document it. The objective is to use that fund to buy reinsurance capacity, because insurance is desired in financial business. You cannot localise everything here, if not, one major risk will affect the entire Nigerian economy. No matter what we want to do, we must place the business abroad but we can create a mechanism to enhance the local retention through the instrumentality of the monetary policy.
In order words, are you saying that the risk based supervision and capitalisation that NAICOM is pushing for wouldn’t help?
To create capacity, I don’t see how that would happen. But of course in a way, some companies will rush to the market and raise money but to do what? How long will it take to build? I think in order words what to do is to have a major shift because government is the one that has the muscle that can create that initial buffer to trade the capacity for the local market for the oil and gas and those special risks. The other is in our hands. We to be innovative, we have to reach out to customers; we have to build numbers because insurance is a game of large numbers. An average big bank in Nigeria has an average of five million customers; I see no reason why a big insurance company should not have two million to three million customers too. How do we do that? We need to break down our customers; we need to have the right technology and the right distribution channels to get the customers and to provide the services.
Talking about technology, everything is going digital, including insurance. In some developed countries, even claims are now being paid online. But we are not doing much of online insurance marketing here, and I know that the telecom industry is trying to come in to help insurance operators. How do you think that this synergy can work out especially in an environment like Nigeria where a large number of the people still don’t have access to the internet?
I cannot but thank you for this very important question. The truth is that research has been done that any company that fails to go digital in the next five years may not likely survive. So, for the insurance industry not to be left behind, we have no option but to join the digital waves out there. There are about 100 million telephone subscribers in Nigeria that is a very big market, everybody is carrying handset that is what will communicate to the customers not to come and be knocking at your door. The average age which are the younger ones are the ones that have the mobile phones, and they are the ones that in the next three to four years will mature to be buying insurance. We must find a way to engage them through the social media and other digital media. We have envisaged that as a company, and one of the first things we did when we came in here was to engage world class consultants to help us evolve a roadmap that we would follow in order to get the company to that stage of being a true digital leader when it comes to insurance market. That’s our vision. We want to be a digital leader in insurance space and we have identified the steps that we are going to take to do that.
To buttress that, the new product we just introduced is totally digital, and is on the website. It’s being sold through the mobile phones and payment is online, the policy is online. We are not using paper policy on buyers of this product because the buyers of this product are skilled and enlightened people. We don’t need to be sending policy documents by mail, and we also want to reduce the operating cost in that product. We are taking steps and we have taken affirmative actions that they are aware of the product, which we call ‘Salary Protection Insurance Scheme, which we just introduced.
Again, we need a concerted effort, the regulator needs to have a framework like we have stated, to look at how you support underwriters to distribute their products on mobile phones. Such frameworks are not in the insurance law. How do you support insurance operators to sign an agreement with FINTECH Company? Such frameworks are not in the Insurance Act. All the Insurance Act understands is that there is agent, there is broker. Anything you do outside that is illegal. This kind of law is out-dated. We need partnership; we need alliances to take insurance thinking to the grassroots. We do not have the capital to start building software, building solutions when there is already FINTECH company that can handle connections, handle payments and handle settlements, and all we need is a hand shake and the framework to share revenue. The insurance law must recognise that there will be business acquisition, costs, and the underwriter must be empowered to share revenue.
If you say you cannot share revenue that you can only take commissions, then we are not ready to go into that space or business models. If you want to do business with mobile network operators (MNOs) they have their model. They take a percentage to help you, and they give you the number. The reason they take a heavy percentage is because they are creating a large customer base for you but the insurance law does not allow that. We need to come together with our regulator, the regulator needs to train their team but most especially, amend their guideline to be able to recognise that we need FINTECH. We need technology providers as partners not just to acquire them because we don’t have the money to buy those kinds of solutions, but we can agree on a framework to collaborate and take insurance to the space where it’s supposed to be.
Talking about market leadership, how much of the market share does Standard Alliance control right now?
Well just like two to three per cent of the market.
What are you doing to push it up?
We are working on what I call “People, Process and Product” the three Ps. One of the first things we did was look at our staff base on quality, experience, and their mentality and that we are still working on, and I can tell that we are trying to rebuild our team to render professional services to the customers. On Processes, we have streamlined our underwriting, our plan processes, we have reviewed all the claims that we met on the line. When I told you I just paid N7.6billion. The bulk of that were claims that were outstanding when we resumed here January 2015. We have refocused the company as a claims payment company. We still have some few gaps to cover up but that is our current drive and culture in the system. Everybody knows that the reason why we are in business in Standard Alliance is to pay claims. Though we may have some gaps in terms of some outstanding claims but we have taken bold steps to pay off most of these claims and will continue to do that.
N7.6billion claim is not an easy thing to come by especially in a recessed economy as we are in right now. How would you say Standard Alliance has fared under the current dispensation?
It’s a very challenging environment and I will say that we have kept afloat as an institution. We are stronger and better than we used to be, and we see a very bright future for the company given the level of the foundation that we have laid for the company in the last two years and five months that we returned here. We are rebuilding our system, we are rebuilding our people, and we are rebuilding our products. We’ve started rolling out new products. We will soon follow with our Agriculture and health insurance products, and we will still follow with some other great products that are online which I would not want to disclose now. The customers should be rest assured that this company, if you check our track record, I’m talking about up to Year 2000, we were a leader in the industry in terms of innovative products, and we are back to there. We have done our own work and awaiting all regulatory approval. So our customers are getting many products from us any moment from now.
Rolling out products takes me back to the general issue of rate cutting. The NIA has been at it forever but rather than diminishing, it is increasing. Why is it so, is it that operators do not want to play by the rules?
It’s a very unfortunate problem that whereas cost of operation is going up, diesel price has gone up, roads are bad, water is not available, claims are also going up yet rates are falling. It’s not right. And if the industry continues in that pace it’s going to engage in self-destruction. There is no doubt about that. I believe the members of NIA are aware of that and the regulators are also aware of that, and I think that of recent that NAICOM insisted that every underwriter must submit their rates.
What I expect is that NAICOM will apply sanctions. First NAICOM will review those rates working with reputable firms on actuaries; review the rates whether they are adequate or not because if you don’t charge adequate rates, you can’t give good service. If people are paying the price for Volkswagen and you want to have a ride on Lexus, it can’t happen. The regulators will now follow up by not only giving approval to those rates but by also monitoring it to make sure if those rate which have been approved are what the underwriters are applying. Like you know, Nigeria is one of the few markets in the world where you get the cheapest form of insurance. If you get the cheapest form of insurance, you will get the poorest form of service. If you want the insurance institutions to align with their responsibilities, the operators and the customers must reach a consensus, where fare charge will be charged and the operator will be charged with fare service delivery to the customers.
I agree with you that as operators we must change our ways. The customers too, they keep asking for discounts, and some companies due to competition keep granting. We are backing off from some of those things and that is the truth and I do hope that other companies will follow too. Look at the third-party motor insurance for instance that is supposed to be N5,000, you might do your investigation that most companies are selling it for N1,000 to N1,500 but I don’t do that. I sell my third-party at N5,000 and I don’t go below the price. When you talk of comprehensive motor insurance it’s about your risk assessment but there should be a minimum to expand and that has to be reviewed and subjected to regulatory approval. That is an area that we expect NAICOM to strengthen their supervisory framework and to deal with companies who are charging below what is a sustainable price.
Now rising cost and devaluation of the Naira, are weakening the liquidity in the system in the sector. How is Standard Alliance coping with these challenges?
Well it is true that liquidity is low. I just spoke about government who has not even paid in full its premium for last year. We have to adjust our activities. We are also concerned that we don’t want to throw our experience into the unemployment market yet we have to operate with them with the ambit of cash flow that we have. What we have done is to find a way to moderate our expenses to rare size and to let our staff to put part of their revenue, part of their salaries to performance so that it’s from the money that we make that we are able to pay our customers and pay our ways through. This we have used to stay afloat and at the same time to push our performance up even in the midst of these challenges.
How is this illiquidity affecting your reinsurance backup because of the devaluation?
First and foremost, you are talking about the foreign reinsurance, it’s a challenge but what we have done is also to hedge, because we have dollar revenue in some of our policies, so if I have to pay dollar reinsurance, instead of me going to the market to start buying I will use that to pay. I merged my dollar with my dollar expenses to a large extent and that’s how I have reduced my exposure to foreign exchange risk. But in relationship to local reinsurance, it is run with the risk we take on which we have collected money for that we are going to place with them because of the low premium low cover. We try to merge that with the actual cash collected, once we collect it we split it, what is due to reinsurance, we place it with them and then for foreign one, we have to make sure that we hedge dollar income with dollar expenses.
Let’s look at your financials. What is the height for Standard Alliance?
There is no limit for us. Our objective is to evolve as the leader in the industry, so we don’t see any limit. All we need is proper clearing and proper operation and that is what we are doing. In the midst of that we are growing our businesses, we are opening new branches, we are introducing new products, and we are recruiting new staff, we are creating alliances to distribute our products. We see no limits because the market for now is massive. If you are just doing less than three per cent of the market, then anybody can be the leader if the right strategy is in place, and the right people are in place. If the capital is there any company can become number one in Nigerian market today because the entire industry is not even doing up to five per cent of what is what is available. Nobody can clearly claim that they will retain that position in the next five years, and you can see the market is changing, the industry is changing and the leaders of yesterday are no longer leaders of today so we believe that we are positioning our asset to become the champion in the industry and we believe that we will get there shortly.
Would you say that your shareholders and stakeholders are happy with where you are right now considering you’re not paying dividend?
No. they are not happy. They cannot be happy for a company that has not paid dividend in how many years, but they know that before the crop of this management when he was here paid dividend non-stop for about 13 years in this company. So what we are telling them is that we are back to reinvent the system and restructure the system back to that culture, and what will take us there is what we are doing. You need to prepare your people, your processes, and your products and get the customer and the income, lower your expenses; get profit and pay dividend to shareholders and that is the route we are taking now. I think they trust us, they believe we have done it before and by the Grace of God we can repeat or surpass that record. What has challenged us a bit was the operating environment but we see improvement and our position is to rise up once that environment is getting better.
Are you going to approach the capital market to raise capital either by way of IPO or rights issues?
Yes. We will do that because one of the steps we are also taking is to reform the company. We have reformed the board; we have a more professional board, and independent board made up of professionals and independent investors in the market. We have reformed the management and it’s still on-going and we will continue to reform the management. Now, we have done merger of the two companies that we have. Now we are doing balance sheet. We want to make sure that all the lapses that the company has in its records are cleaned up to pave the way so that once we start making profits we can have room to pay dividends to shareholders. Immediately we finish with this balance sheet restructuring, the next is to do fresh capital restructuring which will happen within the next 12 to 18 months. Everything depends on regulatory approval. Take for example, it took us two years and five months to do merger of the two companies, and these are related companies because the regulators must do their job but if there is coordination, some of the repetition we are having will not happen. There should be coordination among the regulatory bodies so that approvals could be given in a faster and more coordinated manner so that we can save sometime.
What are the future prospects for the company, for the shareholders and for the public?
Firstly, I will like to talk about the future prospects of the industry. For us, we see the insurance industry coming out strongly and being a major force in the financial services sector. If we can address the issue of law and order that is able to provide a strong foundation in the industry and that is the government’s role. We see the insurance company becoming more capitalised, coming together more through mergers and acquisition, and strengthening the operators and their people to be able to rollout innovative products. We need to build technology innovation through FINTECH and SURETECH companies to be able to reach customers in a faster and agile manner, collaborating with telecom companies to reach a large number of retail clients. So the insurance industry is going to become very big very soon. As a major player and driver, driving this, we expect that if that happens, our company will benefit.