Time for insurers to innovate capacity for bigger risks – Standard Alliance boss
Mr. Bode Akinboye is the Group Managing Director of Standard Alliance Insurance Plc. In this interview with Financial Vanguard, he addressed the current restructuring going on in the company and other issues in the insurance industry.
By Rosemary Onuoha
SINCE your return to Standard Alliance two years ago, what have you been up to all this while?
I worked here in Standard Alliance Insurance Plc my first time for close to thirteen years and I left as the Group Managing Director at a time when I believed I had put in my best in the company and it was time for the company to have fresh ideas and I also needed to express myself in a different way.
So I resigned to go and set up my own financial consulting business and I was also doing some little investment here and there. So I did that for close to five years and part of my business plan was to also invest in financial institutions.
So I had some investment in mortgage banks, microfinance banks and five years down the line we re-strategized and felt it was time for us to also invest in an insurance company. So there was an opportunity in Standard Alliance for an investor.
Management and board control
So I put together a team that bought into the company and got a strategic stake that enabled us to have more management and board control rather than working as employees. So it was on that basis that I returned here because the club of investors insisted that I should return to manage the business, and that was how I returned on the 1st of January 2015.
When you returned, were there significant gaps that needed to be filled?
By the time I came back, there was need to transform the business. Organisations have cycles in their growth plan and at that time, the company was at a state where it needed to be transformed and restructured. Part of my mandate of coming back here is to make sure we restructure the company, refocus it to return it to the customer-friendly company that it used to be.
The mandate is also to restore it back to what an insurance company should be, which is, a company meeting its claims obligations to customers. Truly, there were lots of outstanding claims when I returned, but we were not afraid because we believe that the fundamentals of the business are right.
We have the customer base and the brand is a successful one. So what we needed was to re-jig our system, restructure our processes and get our staff to be more committed to give better service to customers. Also, at the leadership point, make sure that we institute a culture and ensure that the purpose why we are here is to pay claims and that percolates down to the system.
So for every kobo that comes into the company, the largest chunk of it goes into claims payment and to the glory of God we have paid about N7.6 billion claims in two years and five months that we came on board. About N5.6 billion is from life portfolio while N2 billion is from non-life portfolio. The bulk of this was inherited outstanding claims.
With all these successes, what position does SA occupy in the industry?
If you divide the industry into tiers, tier one is made up of the top five or six players. So SA is in tier two and aspiring to move into tier one from my own analysis of our financials with other peers. We were just on the brink of breaking into tier one before I left.
If we had sustained that drive then we would have been in tier one. So we believe that the positive things that we were doing well before, we should just go back to doing them and within a very short period of time we will return to being a tier one player in the market.
What really informed the merger of the life and non-life companies?
First, the two businesses are complimentary. So in the context of the operating environment in Nigeria, giving the complexity of our operating environment, all the approval that I talked about, the cost of running business, getting approval here and there, it is only expedient that the two businesses should be run as one. That is the model that is running very well in Nigeria today.
We have no business doing otherwise if we want to succeed. If you look at the top five companies in Nigeria, majority of them are composite. So we decided that coming together will create economy of scale, it will save cost, it will enable us to cross-sell our products, have a unified staff that market both life and non life products, providing more opportunity for our staff to succeed out there because they can now market all the products across the line. It will enable us to have only one board of directors, saving cost of executive management and related time for meetings and coordination, getting approval for accounts because it is now one account. So it is meant to unlock more values for our shareholders. And that is the reason why we have gone ahead to do the merger.
The insurance industry is transiting into a Risked Based Supervision sector, how prepared is SA for this?
The truth is that the risk based supervision has started long ago. I think what the regulator is trying to do is to reinforce some certain aspects. Right now, if you want to take any business from Shell or LNG, it will be based on the size of your balance sheet and you cannot take more than a certain percentage.
The best practice is five per cent maximum of your shareholders fund. But where NAICOM is going is that there could be other higher risks which are highly risky, hence, you need to do proper risk assessment more than ever before in an organised manner before accepting the risk.
The higher the totality of risk you are assuming, the more capital you also need to deploy because of solvency issue. All these must be considered at any point in time in taking on new risks. So as an institution we are prepared, we have complied with NAICOM guideline on the board structure and the composition of different committees particularly the enterprise risk committee that needs to look at every aspect of the risk inherent in our business because we are risk carriers. So we must pay attention to every aspect of risk that may affect our operation. As a company, we are very ready to comply with that procedure going forward.
NAICOM recently mandated insurers to exhaust local capacity before ceding any risk abroad. Are insurers complying with this directive?
To a large extent all dollar-denominated businesses apart from multinationals are subject to NAICOM approval in principle, especially aviation and oil and gas risks. Insurers must go to NAICOM to get it approved. But what NAICOM is trying to do is to ensure that the bulk of the risks insurable in Nigeria are kept in Nigeria.
However, some companies may choose not to take some certain risks that they are not comfortable with. If you have X cover for example and you are trying to place it locally and only four or five companies say they want to take it, whatever that is left, you will have no option than to go and present your case to NAICOM and secure approval to place it abroad. You can’t force other companies to take the risks, even as much as NAICOM is trying to encourage local content.
There are some risks that some companies should not go into. I think that is one of the elements of risk-based supervision that NAICOM is talking about. Even at that, I believe that this industry is ripe on innovation in terms of creating capacity especially on oil and gas because with what we are doing today, we claim to be participating in oil and gas but the bulk of it still goes abroad because for the average premium for every oil and gas risk you take, the reinsurance premium is about 50 per cent.
If I make one million dollar revenue in oil and gas, half of it is used to pay reinsurance and I am still carrying the risk and my retention is such that I still pay most of the claims. So it is not really working the way NAICOM intended but we all need to join hands with NAICOM and come up with innovation on how to create capacity. It is time for us to innovate, so that the real capacity can begin to be created locally.
Is the ‘no premium, no cover’ policy working?
It is working and it is in the interest of the industry that we do ‘no premium, no cover’. Prior to now, you see companies carrying humongous outstanding premium in their books. You see 50 to 60 per cent being carried as outstanding premium, it doesn’t make sense. And we must commend the initiative of NAICOM for insisting that aspect of the insurance law must be strictly complied with. NAICOM is enforcing and monitoring it, and I think the industry is better off and stronger.
But we need to do much more because there are a lot of malpractices and indiscipline in the market, particularly when it comes to compulsory insurance. There is a reason why government decides to make some policies compulsory. It is not just because they want people to buy the insurance.
One of the reasons why government has instituted compulsory insurance is preservation of national assets as well as personal assets because they are meant to be protected. Also, for protection of liability, people can cause damage to one another; there should be a mechanism to restore people back to where they were before injuries occur.
But most importantly, compulsory insurance was instituted to encourage long term savings. And any economy that is not encouraging long term savings will never survive. It will find it difficult to mobilise long term fund and to have first class infrastructure.
Everybody needs good road, hospitals, good educational system, and all these are not going to happen by word of mouth. We have to take some deliberate steps to create liquidity which can be leveraged on to create more funding for infrastructure development and compulsory insurance is one of those elements.
So if as practitioners, we are now granting those insurance at one per cent or two per cent of the regulated price, then you will see that there is a problem in the industry. That is an area I believe the regulator is looking at and they should do it on time. They should instil discipline in the market.
But compulsory insurance should be sold at the price instituted by government and it should be strictly monitored. If we do that, we will generate quite a lot of revenue in investment fund for the industry and the economy generally. See what has happened to pension fund. If the government did not specify the percentage for pension fund and pension fund companies have to go and be negotiating what percentage to charge, they are not going to have the kind of asset under management that they have now. Let’s do the same thing for insurance. So we are looking at our regulator and the industry to come together to champion and reverse that negative trend.
What plans do you have for stakeholders of the company?
If our customers are not happy, then there will be nothing for our shareholders. We believe we are in business for the customer and the reason why a customer leaves is because that customer is not happy.
A customer may suffer mishap or sudden loss and needs to be compensated, but such compensation is not forthcoming, so the customer leaves. So we are working on our system to make sure we achieve that objective for the customer because if the customer objective is achieved then all other stakeholder objective will be achieved.
It is only then that we can achieve employee, shareholder and regulatory objectives. We had an institution, prior to January 2015 that needed to amend its ways with customers and make right long outstanding claims. We have engaged with some of our key customers but we have not finished with them. We have done substantial part of it by paying N7.6 billion. We have refocused the company. We have restored that confidence back that we are here to do insurance business.
What we expect from customers is more flexibility. They have tried for us because if the customer decides to take a run, the business will go down. We also have investment-linked fund, so we need some understanding and more flexibility because we have committed the bulk of our resources in clearing the outstanding claims making sure that the company is focused on the customer. So there are better days ahead for the customers.
We are coming out with more customer friendly products, we are improving our service engagement, contact with the customers, and we are rebuilding the competence and confidence of our staff to go out there and delight the customer.
So if we consistently do that, the only way forward is for our income to grow and if we continue to run our cost within a manageable way, because we have tried to shed unnecessary cost, we have run a very lean cost structure and we are instituting technology to drive our operations that also ensure that we get the job done faster and in more agile manner.
So combining all these should draw reasonable profit. The future for the company is very bright and that means that investors will very soon begin to reap the fruits of their investments
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