 Published
September 14th, 2008
1.General Overview:
The outcome of the consolidation and recapitalization
exercise in the Insurance sector led a drastic shrinkage of
Insurance Operators to a total of 49 approved Institutions
including two (2) Re-insurance Institutions (though this has
recently increased to 51 operators following the lifting of
suspension order on NAICON & Nigeria Re-Insurance).
Notwithstanding the reduction in the number of operators,
total capitalization of the Insurance Industry improved
remarkably from pre-consolidated level of =N=30 billion to a
present level of well over =N=200 billion.
The consolidation exercise also brought in its wake
increased Capital Market activities in the insurance sector
of the NSE, with many new companies coming on stream to the
capital market to raise funds, thereby deepening capital
market activities and further lending credence to the
Nigerian Capital market as one of the best performing
emerging markets outside Africa.
The inflows of funds into the sector has boosted the
liquidity position of the operators and further place them
in good stead to readily meet their obligations and claims
from clients – a hitherto worrisome situation in the recent
past. Without doubt, this development will also aid and
enhance public confidence in the Insurance sector thereby
influencing general economic growth of the nation.
With improved capitalization, the operators are now better
placed with greater potential to handle big-ticket
Insurance-based transactions and wide and varied financial
services with higher risk profile. Besides, the Insurance
operators now have access to much larger credit lines from
the banks and other financial institutions as a result of
their enhanced capacity and shareholders’ funds.
The recapitalization exercise has also led to a dilution of
ownership in most of the Insurance companies, which hitherto
was mostly concentrated in the hands of few individuals
along with family members; the effect of which will go a
long way in taming the monster of insider dealings and abuse
of corporate governance.
As with the banking sector, there has been a rising wave of
fund raising activities by Insurance companies through the
capital market, presumably to consolidate their position and
further gain competitive advantage based on the perception
of ‘safety in bigness’ by the general public. This
development will no doubt result in a wider regulatory
oversight by SEC and NSE, both of whom will join forces with
the apex regulatory authority in the Insurance Industry –
NAICOM, in ensuring accountability and stewardship to the
investing public. Quite apart, the development has
contributed in no small measure towards enhancing liquidity
of the capital market whilst equally facilitating a marked
improvement in the total market capitalization.
Suffice to mention that the strategy of ‘safety in bigness’
perception being employed by financial institutions
generally is bound to encourage clientele and investor
confidence in the emerging Insurance sector and this will
undoubtedly bring about additional benefits to the consuming
public via new and improved customer service delivery,
creative and innovative insurance packages and healthy
competition in the sector, to mention a few.
Similarly, the enhanced capacity of the operators will also
bring about economies of scale which are likely to be passed
on to benefit clients through reduced premium charges and
competitive offerings.
2.Challenges & Prospects for the Future
As expected, the new development is bound to pose serious
challenges for the operators, although it should be
recognised that whenever there are challenges, there will
always be opportunities. Notable amongst these challenges
are the following:
-
Issue of Corporate Governance – Institution of a robust and
improved level of transparency and accountability in terms
of stewardship by the management of the Insurance companies
in conjunction with NAICOM through the formulation &
issuance of a ‘Code of Corporate Governance for Insurance
Practitioners & Operators’.
-
Management:
- The importance of capable management to
business growth and success cannot be overstated since most
failed companies are adjudged to fail through managerial
incompetence in one form or another. Thus, a technically
sound management team, which keeps abreast of developments
in both the domestic and international markets, is key to
success in the next decade. In short, if you lack good and
capable management in any area, you must find it, develop
it, promote it and keep it, to stay in business.
-
Public Perception & Image Repair
- Given Nigeria’s present
low insurance penetration levels, conscious and deliberate
effort must be made by Insurance practitioners to positively
alter, influence and shape the negative perception of the
general public on Insurance generally; through public
enlightenment programmes, awareness creation and education
on accruing benefits derivable from Insurance activities.
-
Competition - Any industry with growth potentials is bound
to witness the usual challenge of competition, which if well
managed, should lead to overall improvement and resultant
gains to the industry in general. For avoidance of doubt,
healthy competition will stimulate improved services through
introduction of creative and innovative products & services;
promotional campaigns and concession offerings and reduced
charges through premium rationing, although adequate
measures must be put in place to forestall price war by the
operators.
-
Innovation & Product Development: - Introduction of new
products and services and other innovative approaches are
essential ingredients towards achieving success. In order to
be perceived as a dynamic and forward-looking industry that
keeps abreast of the dictates of the market, customers
should be encouraged to choose from a wide range of
specially designed products and services; tailored to meet
the peculiar needs of select customer groups. It is expected
that the insurance practitioners are by now gearing up to
launch an array of new products designed to enthuse and
awaken the general public’s interest on Insurance of
buildings, in order to take advantage of the recent
initiative led by the Federal Government on the subject
matter.
-
Employment of the Marketing Concept:
- Establishment of a
strong Marketing & Business development team with the prime
responsibility of initiating and exploiting business
opportunities and following up on repeat business. It also
involves employment of bold and aggressive strategies to
achieve market growth and consolidation of the organisation’s profile in the sector. Conscious and
deliberate involvement of all departmental heads and other
senior officers in business development activities, since in
addition to their technical skills, such officers possess
the ability to communicate and win the confidence of
customers. Needless to mention the importance of active
involvement of the Board of Directors and other stakeholders
in the strategic area of marketing and business development
so as to complement the efforts of management.
-
Strategic Alliances - With the recent incursion of
commercial banks into the Insurance sector through the
establishment of full-fledged Insurance companies and
brokerage firms, many institutions now offer one-stop shops
for financial services to achieve cross-selling
opportunities. This strategy will further define and
differentiate the key operators from the fringe players in
the industry.
-
Branch Expansion
- Establishment of branch network will not
only create awareness of Insurance services generally but
also boost the image projection of the operators, albeit,
with resultant improvement in business production and
increased earnings. It should however, be noted that the
strategy of geographical expansion carries with it some
risks, notably decentralisation of authority; and adequate
measures must be put in place to ensure proper supervision
and monitoring of branch activities from time to time to
avoid engagement of undue and burdensome risks.
-
Information Technology
- Provision of a fully integrated electronic information
technology system capable of providing on-line, real time
and accurate management information, in today’s competitive
environment is of paramount importance towards achieving
success. It also facilitates improved product packaging &
efficient customer service delivery.
- Renewed Vision,
Mission & Core Values - Provision of
a clear direction on the aims of the business
along with a clear view of the desired corporate
culture and basic values, examples of which
include: Customer Satisfaction, Commitment to
Excellence Innovation, Integrity, Growth,
Dignity of Labour and Corporate Social
Responsibility.
- Service Quality
& Responsive Claims Payment – Today’s
business demands that the focus of management is
to be shifted to the provision and delivery of
qualitative and customer satisfying products and
services in order to confront the competition
posed by new entrants - notably the commercial
banks, who are at the retail end of financial
services, with enormous resources and existing
branch network. Hence, any forward-looking
operator must adopt a change in attitude in
terms of prompt and responsive payment of
claims.
- Broadening
Scope of Insurance Business in Nigeria
- Exploitation of new and increasing
opportunities to widen the scope of insurance
business based on a clear recognition that the
ability of any financial institution to
correctly define its basic business is critical
to business growth and success.
- Capacity
Building & Manpower Development –
Attraction/recruitment of highly skilled and
competent employees; retention of such employees
through adequate reward & welfare programme to
ensure loyalty and commitment coupled backed
with requisite investment in training and
capacity development of employees.
- Staffing and
Manpower development: - A critical
determinant of success in any financial
institution is the quality of people that
provide the services. Recruitment and retention
of skilled and competent employees. Attraction
of the right calibre of staff is highly
essential Retention of the continued commitment
of the employees through lucrative and
competitive packages and incentive schemes; and
the provision of an environment, which
encourages growth of fresh ideas and
initiatives. It is instructive to mention that a
highly skilled, committed and imaginative staff
would earn the respect of his competitors and
the confidence of his customers.
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3. Conclusion
For any organisation to remain viable, its management must
provide periodic review of its objectives, resources and
opportunities. It must constantly re-examine its basic
business & focus, target audience and select customer
groups, differential advantages, channels of communication
and messages; against the backdrop of new developments,
trends and market needs.
The determination of strategies laid out above is designed
to ensure that the Insurance industry is properly placed in
the business environment, by providing the best combination
of long-term improvement in growth, stability and perhaps,
profitability. While opportunities remain abundant in any
growth industries, they may nevertheless, be lurking in
unexpected places in our highly competitive financial
services sector. Hence, our preoccupation lies in the
recognition that ‘whenever there are challenges, there
will always be opportunities’.
Indeed, opportunities are springing up all around us, and it
only requires our flexibility to take full advantage of
them.
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