The recent revelation that our local insurance companies are losing about 90 per cent of big risk portfolios to their foreign counterparts is largely reflective of their weak foundations and capacities. This is not surprising, considering the limited vision and poor governance structure of some firms in that subsector of the economy. Our insurance companies seem to lack the right attitude to business and risks, which is fundamental to their operations.
What is insurance without risk-taking? The reality is that our local insurers need to increase their capacity to bear risks. This is what they need to do to win the confidence of big businesses. There are also many uninsured people and businesses which the insurance companies need to work very hard to capture.
Ordinarily, the state of the insurance sector reflects the advancement of the economy. From the data available, local insurance firms can do much more than they are doing now. Some of their fundamentals are wrong. The first point to note in this regard is the ownership structure of a number of these companies, which is mostly conservative and static, whereas, the modern business environment calls for dynamism and creative thinking. A number of these insurance companies have weak capital base. They do not have the financial strength to take on big risks. What this means is that insurance businesses in the aviation, oil and gas, maritime and much of the manufacturing sector are undertaken by foreign firms which have the capacity to take them on. A lot of jobs and much needed foreign exchange are lost in this process. For a struggling economy like ours, this is very bad news.
What the local insurance firms can do to correct this unhealthy state of affairs is to go into mergers and strategic acquisitions to boost their capacity and reputation. This can be done with the right attitude and strategy. After all, the local insurance sector was on the ascendancy in the 80s and early 90s, maybe riding on the boom in the oil sector and the general economy. But, the reversals soon set in based on their weak corporate governance structures and dubious acquisitions.
The insurance companies also never fully won the confidence of the insuring public which is their most important asset. Many Nigerians believe that the insurance companies are mostly interested in collecting premiums, without serving the interest of insured entities. This is inimical to the growth of insurance business in the country and should be corrected. There is need for honesty and integrity in insurance operations, if the capacity of the firms is to increase.
The fall of the global American finance giant, Lehman Brothers, and the problems of American Insurance Group (AIG), show that risks must be qualified, but insurance companies are nothing without the capacity to take these risks. Experts have talked about the three fundamentals of policies, liabilities and confidence-winning. These are the areas our local industries have to pay more attention to, apart from the ownership structure. How are the policies formulated to optimise the insurance capabilities of the country? Why are there so many people out there who believe that insurance is a waste of precious resources and so do not want anything to do with it?
It only goes to show that there is a communication and perception gap between the insurance firms and their potential clients. It also means that there are too many things wrong with the way they transact their businesses. They are quick to take premiums, but slow and reluctant to pay claims, when they become due. That may well be the old insurance companies, but the perception of many members of the public has not changed. It is necessary to change this impression to win the confidence of the people and enjoy their patronage if there is to be any hope for the growth and competitiveness of the local insurance industry.