Mr Fola Daniel, Commissioner for Insurance, takes Vanguard's Editor, Northern Operations, Jide Ajani, and Favour Nnabugwu, through the present state of the nation's insurance industry, the sector's preparedness for IFRS March 2011 deadline, the potentials insurance companies are tapping into, NNPC insurance accounts and the subjection of companies to bidding fees by government agencies.
Excerpts:
With the transition from N350 million to N5 billion in setting up an insurance company, there were challenges and even doubts in some quarters as to what was really going on, especially with the verification that was carried out.
That is speculation. Before the bubble burst in the banks, people were still in doubt of the N25bn capital base, but when the bubble burst, it became apparent that they did meet it and even exceeded the threshold of N25bn.
They had other problems that came as a result of the inability to manage the big fund at their disposal but the question of any bank not having the N25bn was no longer an issue. Some insurance companies have the required minimum capital base whilst a few others have exceeded it.
Most insurance companies purporting to have raised N3bn for general business or N5bn for composite did not really have it and that led the government to set up a verification committee to verify if indeed, the companies have the amount they claimed to have, N2bn for life, N3bn for general, N5bn for composite and N10bn for reinsurers and the findings of that committee is that virtually all of them had what they claimed they had.
Don't ask me how they made it. Most of them attained it but few companies didn't make it and some of the few companies are big companies and they are shying away from the fact that they didn't have it. The National Insurance Commission (NAICOM) and the government were nearly scandalised. They were made a laughing stock that they were too big not to have what they claimed they had, but we went through a judicial process where it became apparent that the commission was right and the other party was wrong.
Do you foresee the scandal of insurance companies having problems like the banks?
Even before the Soludo crisis became public knowledge, we had the feeling that things were not okay with the banks, but we decided to mind our own business. One of the things we did in the commission without being forced to do so was a forensic investigation on insurance companies' accounts. You must have read in the newspapers that NAICOM was delaying passage of accounts that it was taking eternity for the commission to approve an account and all that.
What we did was to meticulously x-ray the books of every insurance company to ensure that what they claimed to have is indeed, what they have. And, l can proudly say that any published accounts of an insurance company represent nothing but the truth. We have gone the extra mile to assess that the accounts of insurance companies represent the true figure they claim. In the published accounts of insurance companies between last August and December, you find out that some big companies had holes in their books.
About three of them had as much as N5bn and I know that some of those companies are going out now to raise funds. It is not indicative of what can happen tomorrow.
Four insurance companies were not given approval last year, hence they could not conduct their 2009 annual general meeting. What is their fate now?
The fact that they failed to hold an AGM is not conclusive that they are troubled. One company, for instance, submitted their 2009 accounts on December 30, by 4p.m. in this office whilst two others submitted on the 31st; so it was not possible for us to clear the accounts on the 27th even for those who submitted on the 30th and 31st of December.
One would have thought that even with the benefit of all the time they had, they would have tidied up their books to the satisfaction of the regulator but we still had to raise queries on the accounts. We had issues with the accounts and, until they are satisfactorily resolved, we cannot approve them and, if we don't approve, they cannot go to do an AGM.
I am not saying that the four companies are necessarily troubled, but, as regulators, we are worried if a company which is meant to submit its report in June and the company submitted late, we should be worried. One of the companies belongs to a group of companies and they have tentacles outside Nigeria. One of the reasons they gave was that they needed to consolidate their balance sheets.
Of course, if you want to consolidate a balance sheet, particularly the one that is domiciled in French, there is a challenge. That is not to say that I'm defending but just giving you information. We had a problem still trying to clear the accounts.
The International Financial Reporting Standards (IFRS), March 2011 deadline is near. How prepared are the insurance companies?
Everybody within the financial service sector in this country has challenges meeting that standard. What we will try to do in the insurance sector is to bring the industry to the pedestal of transparency and openness but the IFRS demands more than that, it is an upgrade. It is taken that your disclosure will encompass transparency and accountability, but what we try to do in the last two years is to bring the insurance industry to that realm. We recognise that the insurance industry has some challenges complying with IFRS.
That is why we decided to start ahead of others. We had an outing on January to highlight what the issues and challenges are and to also proffer possible remedies in order to leverage on experience from elsewhere.
Why is the Independent National Electoral Commission (INEC), holding back insurance premium?
I read in the newspapers that INEC is insuring all the property they are going to use for the elections. To me, it was cheering news, but whether the insurance companies have been paid or not, I cannot say. I think l have a high degree of confidence in the leadership of INEC and, if the management of INEC decided to insure, I believe they are going to pay.
You must also remember that INEC has some financial challenges. You can see that they have gone to the National Assembly in the last few months to request for supplementary budget. If INEC has taken those policies indeed, l am sure they are going to pay insurance companies.
Insurance companies and brokers were forced to pay bidding fees by INEC. What is NAICOM doing about it?
We are in a democratic era and government agencies and departments advertise for bidding process and all insurance companies could have said 'no, we are not going to pay any bidding fee; and the commission would have supported them because when parastatals and agencies want to put money in the various banks, they do not advertise or ask them to pay bidding fees. In 2008, one of the government parastatals asked insurance companies to bid.
The bidding fees ranged between N100,000 and N800,000 depending on the class of business a company wished to engage in. About two or three insurance companies drew my attention to it and l left my office and drove straight to the parastatal and told them,'you can't do this,' and I gave them some analogies: 'Do you give your money to banks? Do you engage lawyers? Do you patronise hospitals?' They said yes. Then, I asked why they were subjecting insurance companies to bidding fees.
The DG of that parastatals was on the defensive as she was a bit apologetic until the legal adviser came to her rescue and said, 'Madam, are we discussing the future bids or the present bids?' I didn't know where the legal adviser was heading to.
The legal adviser said before I got to their office about 48 insurance companies out of 51 had complied and had paid the bidding fees. And, he said, 'perhaps the insurance commissioner is here to talk about future bidding fees so that we can be so guided in the future but if he came for this particular exercise, 48 insurance companies had already paid.'
I was in the company of the then chairman of the Nigerian Insurers Association (NIA), Mr Wole Oshin. We were embarrassed. If my constituent could rush to pay for bidding process within two weeks for an exercise that had six weeks grace, if they did not have any problem paying the fees, why were they complaining? I seriously believe that insurance companies should not be made to go through paying for bidding process.
What is you advice to the layman on the street about insurance?
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Insurance with a small payment called premium is worth the trouble if anything should happen to even your children's bicycles that are not less than N100,000. For five per cent of N100,000, you can get the bicycles secured against theft, accident; so insurance remains the cheapest way of managing risks. Insurance is not only for the elite but also for the average man.
A man that has 10 cars will not lose a sleep if anything should happen to one of the cars but for a man who managed to save and bought a Tokunbo car, he may never be able to buy another car; so, why not set aside a small amount of money to secure the car.
What is the delay in NNPC 2011 insurance about?
I know that NNPC incepted a process that will lead to their insurances being renewed and l know that part of the thing NNPC does on yearly basis is to ask the old insurers to hold covers until the renewal is concluded and usually there will be no gap. NNPC is too organised to allow for gap. They cannot do that.
