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Economy needs insurance to survive — Ladipo-Ajayi

By BusinessNews Staff on January 6, 2014

The Group Managing Director, LASACO Assurance Plc, Mr. Olusola Ladipo-Ajayi, speaks on why the government needs to support the growth of the insurance industry, in this interview with NIKE POPOOLA

What has been the response of the insurance customers to the ‘No premium no cover’ regime introduced last year?

It has always been in the law but NAICOM only enforced it last year. The NIA has made a pronouncement on that, which represents the industry view. Normally, we did not expect a smooth ride at the initial stage. It is very difficult to argue against it because it is in the law. NAICOM did not write the law. Second, it is the standard practice all over the world that premiums are paid ahead of the contract. Even if you go to London market, you don’t get cover unless you have paid. Sometimes, they even offer prompt payment discount because if you are not able to collect your premium, it reduces your capacity to meet your claims. The concept of insurance is not to use the shareholders’ funds to pay claims; every class of insurance, based on the actuarial computation of the premium, should pay for itself and even return a contingency reserve for the future where the projections fail. That is why insurance industry is the leading investment institution in any economy. But, in this case, where you collect your premium 24 months in arrears, and in some cases, you don’t even get paid unless there is a claim, this has affected our fortunes. But it is more realistic than writing billions on paper. We only have the psychological satisfaction that you are able to declare huge profits, which are ordinary paper profits. But now, whatever you have is whatever you declare. I am in total support of the law, and gradually our people will get used to it. My only appeal is that the Federal Government should help insurance industry to develop and sustain the growth of the industry. It is not when the renewal of the policy is due in January that you start begging people to take premium in November or December, as it happened in the case of the insurance of the Head of Service; it is not realistic. Premiums must be paid, and then you can hold insurance industry down to settlement of claims and there won’t be any argument.

What will happen to civilians and security officers who died when no premium was paid on their insurance policy?

The Federal Government has retained that risk; it was not transferred to insurers. That does not mean the government is not liable; it should pay them. But the Federal Government has never told anybody that it is not capable of paying. It is good for the government to show good example for law and order to prevail. When you make a law, you don’t violate it. The government needs to show good example to support the insurance industry for the betterment of the economy. If the insurance industry collapses, the economy will collapse. What will happen now is that people will now have to go to abroad to reinsure. One of the reasons we haven’t developed our insurance market is that people don’t have ready access to credit. No creditor will allow you to go uninsured. When you buy phone, camera and you are given insurance, you experience it. Most people have not experienced insurance that is why it is a hard thing. Insurance is on the exclusive legislative list of the Federal Government, I appeal to the Minister of Finance who is also coordinating the economy, to see to it that the government pays premium early in the New Year to support the industry.

How is LASACO bringing insurance to the average consumer?

We have been given the approval to sell some new products such as the health insurance which we agreed in partnership with Africa Reinsurance and a firm based in South Africa. It is a major area, and then, we intend to intensify our efforts in the area of personal life insurances which are untapped. Efforts have been concentrated on oil and gas, big industrial ventures and all that. We want to see how much of the market development and restructuring initiative of NAICOM we can sell in the personal lines this year. That is why we have entered into a contract with the Interswitch which makes it easy to transact business real time online. People can pay, get their policies, renew their policies anywhere in the world and get their certificates. We want to look at the man on the street; we want to encourage him to look at insurance. We want to consolidate our areas of strength.

What challenges did underwriters face in presenting their first International Financial Reporting Standard account last year?

It was very tough but it was a learning process. Many conventions had changed and the regulatory authorities insisted that all companies must comply with the new accounting system. There has been a very strict application of the rules; it is expected that it will probably be unsettling for the first year, but hopefully the next year’s experience will be better and faster.

There were challenges. Only one or two companies that had had the experience of the IFRS because of their relationship with the banking industry might have had easier experience. But all the others found it tougher. For me, I take it in my stride as a learning process and I expect that next year, it will be better. It is just that once we know all the rules, and new rules don’t emerge in the course of the game, it is going to be easy. But when you have started and new rules are coming up, it might not be easy. But just take it that last year was the first year and everybody is learning.

What was LASACO’s experience with the IFRS?

We were able to get approval for our account last year. From our experience, we intend to work faster on our 2013 account, so that we will be able to meet the requirement of not only the National Insurance Commission but also that of the Security and Exchange Commission. We are looking at being able to submit our account by the end of March this year, which is the stipulated time by SEC; for NAICOM, it is still June 30. But we will try to make sure that we comply with the first one.

How relevant is the IFRS in attracting foreign investment?

The purpose of the IFRS is to bring the reporting standard in every country to the same level. It is like making everybody to speak the same financial language all over the world. The foreign investors will be able to understand the insurance industry in Nigeria better; their opinion will be more informed, and therefore, they can make their decisions. Many changes are taking place at the same time in the industry and we have had to contend with a lot of regulatory issues in our financial reporting, such as the anti-money laundering, enterprise risk management, no premium no cover; there have been challenges. The environment has become a little more challenging and we just have to wait for a few years to see the real impact. There are certain things that we haven’t been doing that the regulators are insisting we do under the IFRS. There may be a little draw back in the results, but since we now understand it better, I am sure there won’t be much delay again.

What is the relevance of the anti-money laundering law in insurance business?

The anti-money laundering law is not a Nigerian initiative, it is an international design. I think it was derived from what exists in other parts of the world. The most important thing for me is that if you have nothing to hide, why don’t you declare it? Even if it is of no value, just declare it, at least, you will have the satisfaction that you declared it.

[Punch]

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