Alhaji Mohammed Kari, a Chartered Insurer, has been on the saddle as the Chief Executive Officer of National Insurance Commission (NAICOM) a little bit over a year. The insurance maestro served as the Chief Executive Officer and Managing Director of Unity Kapital Assurance Plc. Kari started his working career with Royal Exchange Assurance Plc in 1979. He worked in Yankari Insurance Company Limited as Assistant General Manager (Technical) from 1984 to 1989. He joined Niger Insurance Plc in 1989 as Executive Director Technical for almost three years. He served as the Managing Director and Chief Executive Officer of Nigeria Reinsurance Corporation from January 1992 to March 1993. He served as the Managing Director and Chief Executive Officer of NICON Insurance Corporation from March 1993 to January 2000. He has been an arrowhead of many successful companies.
He was for two consecutive terms President and Chairman of Council of West Africa Insurance Companies and also Vice Chairman for two consecutive sessions of United Nation Committee on Trade and Development (UNCTAD). He is an insurance graduate of the Ahmadu Bello University, Zaria and an Associate of the Chartered Insurance Institute London. He holds a Master’s Degree in Business Administration (Information Management) from University of Central England Birmingham, UK and IT Management certified professional from Learning Tree Management Institute, London UK.
He spoke to Economic Confidential in Gombe on the sidelines of the just-concluded seminar for Insurance and Pension Correspondents and Business Editors on the emerging issues in the just released Codes of Financial Reporting, Micro-Insurance, Corporate Governance and sundry issues in the insurance sector. Our Managing Editor, Ewache Ajefu, anchored the interview. Excerpts:
EC: The Financial Reporting Council of Nigeria recently came out with Codes of Financial Reporting which will definitely rub off on your regulatory activities. What is your take on this?
Yes the Financial Reporting Council of Nigeria (FRC) codes came out some few weeks ago. And if it had come out earlier, I would have made it a full subject of discussion. But nonetheless, we need to engage them first of all, engage the market before we can have a position to convey. Towards the last week of October, the Underwriters met in their monthly meeting and have requested to have a meeting with the National Insurance Commission (NAICOM). They also planned to have a meeting with the FRC, and we on our own have gone ahead to set up an internal committee to review the codes as it is in relation to ours because the code says it is a minimum. So in our comparison, we want to see where we can up ours and where we have exceeded the minimum, we will see how we can review it downwards. We have not done these exercises yet. It is just about a month now since it was released. And you will appreciate that a 61-page document with so many legal clauses and full of ‘land-mines’, will need time and concentration to meander through. By the time we meet in Lagos, I promise you we will have a position to convey fully.
On Insurance Companies not being profitable
That question that Insurance companies are not profitable, I can categorically tell you that insurance companies are profitable like any other business. Insurance companies make losses like any other business. The amount of profit or loss any company makes is relative to what it does acceptability of its products, the efficiency in the service it provides and so on and so forth. The Financial Regulations that have been released of recent I think its attempting to standardize financial reporting in the country, so that you can compare irrespective of the sizes of the industry or organization, you will be able to compare and contrast financial reporting. I think this is our third year in submitting our accounts to the FRC. The level of compliance we have this years is higher than what we had in the previous years. And it has to do with so many factors. That now they are beginning to understand how to report, and also beginning to appreciate penalties, apart from doing it properly. And until those things are sorted out, we cannot tell you why this company is not profitable while others are, because it has to do a lot with the structure of the company, their operational methods, their costs, and their governance generally. But whoever asked you that question tell him or her no! Like any other company, some insurance companies make profit and some don’t. And that is the reality of life. But those that do not make profit, I think you should approach their management and ask them why they do not make profit. Majority of them are publicly quoted companies and so are obliged to give you information.
On Regulatory Orders
On Regulatory Orders, some of the owners of these companies think the regulatory authority is not doing the right thing. Well we have two types of interventions. There is direct intervention and the Regulatory Orders. On regulatory orders, we don’t involve ourselves in the management of the organization. And the nature of restrictions is spending limits. We expect that these companies will seek approval on certain limits before spending. And in most issues like claims, reinsurance and others are not part of issues they refer to us. So technically, a regulatory order should not be a reason why any company will say they have a problem with our regulations. Why some of these companies complain is that most of them have been found to have violated regulatory orders. Some have internal squabbles, infighting, violation of corporate governance issues; solvency issues, mergers and acquisition issues, and inability to pay claims are some reasons.
Second Set of Companies
The second set of companies mentioned are what I may refer to as direct interventions. In this case the Commission will set up management committee to look at the problem of the firm and have a forensic diagnosis of the company. And in most cases it is found out those internal squabbles among directors, to the extent that some have even resigned their position. Some problems are so much that normal returns and inspection would not be able to identify the problems. There are some in the process of investigation; we discover that some of these shareholders are just by name and not real. Most of them acquire shares without paying for them. If you acquire shares without paying for them, you will be required to relinquish them and these sometimes result to calling the commission as not doing our jobs. In most cases we engage institutions like Securities and Exchange Commission (SEC) for interventions especially the so called shareholders who will acquire shares without paying for them and possibly refer these matters to relevant law enforcement agencies to ensure that the issues involved are properly addressed.
On Bail out Insurance Firms in Distress
As compared to the banking system where the Central Bank of Nigeria (CBN) bails out banks in times of distress, the Insurance Act setting up the regulatory body does not give us the power to do that. In any case any insurance company is expected to find a way of bailing itself out because stolen funds must be brought in. You can see that Assets Management Company of Nigeria (AMCON) is busy recovering fund. That is not supposed to be because Nigeria’s economy should not be used to fund financial recklessness.
Accounts and distribution channels
On the distribution channels, the process is ongoing. We are meeting with stakeholders and expose it to the market to get their input and when the necessary details are got, we will then inform the industry and put it in motion. In the next few months it will be ready. And for accounts and in transition of changing portfolio, out of the 58 insurance companies, 44 have been given approval, while nine insurance companies are yet to make their submissions. And for non-compliance with regulatory requirements, like minimum capital base and others, we have referred three companies to the Financial Reporting Council. They are NICON Insurance, Guinea Insurance and UNIC Insurance. They have failed to comply with the set minimum capital base; solvency margin and asset cover in line with business requirements of FRC. As you can see the compliance level is better than what prevailed in previous year because they are beginning to understand how they report, appreciate penalties and doing things properly.
Branches and relationship with state governments
In relationship with state governments, we have plans to open branches across the country. You know the peculiarities of the insurance law. We enforce and it is a federal law. And these can only apply in federal locations, which effectively is Abuja now. All state governments will have to domicile the laws locally, like Lagos State has already before we can enforce it. And now we are taking them through that motion and highlight to them on which areas they need to domesticate it. And when we recent visited the Deputy Governor of Gombe State, though the Governor was not in town, we made the same plea to the state government and he promised to convey the message to the Governor when he returns in order to key into domestication process. We are very hopeful that when we have locations directly in states, we can conveniently follow them up. One fundamental development in the opening of the branches, because of the recession, we had earlier budgeted to open twelve branches, but we have reduced it by 50 percent now because the year is running out. We will try to achieve this before the end of the year so that we can make up for more.
Insurance Industry reports for 2016 and outlook for 2017
On the situation report for 2016 insurance industry, we have mixed reports because these companies operate within the economy. The first quarter seems to be doing well and suddenly in the second quarter business actually slowed down. And Insurance premium is how well the consumers are doing. And still we have not gone in the enforcement of compulsory classes of insurance to the point where we will know whether there is recession or no recession, because those risks are permanent. Just because there is recession, most people will not sell their cars and they park it. They may change the cover from comprehensive to Third party and not necessarily sell it. We would be in a better position at least by the end of the year to give you an actual 2016 position. But as far as 2017 is concerned, and as you are aware we meet industry regulator every two months. And we have got the industry focus on certain things we have to do like the re-branding of the insurance sector, which is a fundamental big project, which we hope will change the fortunes of insurance in Nigeria. We have had extraneous issues coming in to delay, or sometimes frustrate projects we have anticipated. For example, the recently released codes by the Financial Reporting Council may affect the smooth operations of many companies beyond what we have planned in January 2017. So the effect of that would only be ascertained after we have finished these series of meetings as that code will affect the operations of these companies in the New Year.
We have already released the roadmap for risk-based supervision and that could also have its own effects in the operations of the companies. This is because there are components in the risk-based supervision that may require financial expenditure, or capital review, or structural reviews which will definitely affect the fortune of the companies. As long as it is still futuristic, we can only say we have a lot in store for us in 2017. Again a lot of things could even happen this year, because of some of the pronounce-ments from the code of governance of the FRC which you have rightly alluded to earlier in your question. On the cost of premium income this year, we are yet to ascertain that and when we get it we will pass it to you. We do not have precise figures at the moment.
Meeting with Insurance Ad-hoc Committee of the House of Representatives
On the meeting with the Insurance ad hoc committee of the House of Representatives, we are like any other agency of government subject to their oversight functions and coincidentally the committee is investigating the activities of the insurance industry based on the complaints received from stakeholders who lost out in some businesses. That is how it started. Our members too complained because they thought they have been played out in some business. The information so far received actually showed that there is concern. The chairman of the committee was interviewed in a national television recently and I would have given the same answer if I was on that seat. He was asked whether it was a failure of regulation that government agencies are doing what they are doing. He said no, the regulator is not in a position to monitor what they do and he was aware the regulator was doing something about it. You are aware that we pushed out a guideline early this year to conform to procedures on the purchase and management of government insurance assets and they resisted it. And we got the support of government and they compelled them to give us the necessary documents and information we require. Because the idea was to provide some guidance and we are working hand-in hand with the office of the Secretary to the Government of the Federation and the Office of the Head of Service as we have a committee composed of these components. For whatever reason, the information we have been expecting are not forthcoming. But these may be the reasons. And just like a divine intervention that committee was created and they requested for similar information. And they found out something fantastic. Though ours was not an investigation request but to create a database and provide guidance. So we might be getting to the same point through different road. And we have responded to their request. At the end of that investigation the regulator will definitely be helped in streamlining some of these government insurance assets. I hope at the end of the investigation many things will improve. We attend to all government agencies who asked for help especially in the management of insurance assets.
On website and portal
Yes, having drawn out a lot of plans for the goal of the portal, we found out that we left out some issues. And those issues had to be addressed. We did that in such a way that it will not compromised. What we did not realize was co-location. We want that data to be replicated in another site such that when the original site is down we can have a fallback position.
On Micro Insurance and their guidelines
On micro insurance especially Takaful, since the release of the guidelines, some of the companies have opted for the window opportunities. We have since got applications for dedicated Takaful companies. We have already issued two Takaful licenses, and we just approve for one to commence final inspection before they commence their operations. They have submitted their products proposal and a meeting have been arranged for the technical advisory committee to look at them for the purpose of approving them. So we believe with the coming of the two, we have to consider how long we will allow the window to continue operating before we close the windows. The market has actually been discussing what they would do with micro-insurance. In the last two insurance committee meetings, the prudential committee has come out with a proposal on developing micro-insurance and more. But we still not have accepted which one. What we have internally is to review the guidelines already released to try and make micro-insurance more micro. It will be more ideal if the insurer and the insured is proximately located so that the purpose will not be defeated like the conventional insurance companies. For example, you cannot have a good micro-insurance when the head office of a company is located in Ikoyi, Lagos selling a micro-insurance to somebody in Maiduguri. This is because the claims processes are going to be as cumbersome as the conventional. It will definitely defeat the aim. We are considering increasing the levels which we believe will soon end especially the guidelines. We might also consider in the same vein conventional dedicated insurance companies as windows, the market even proposed whether we should consider the Indian approach. India does not issue separate license on micro-insurance companies. They compel every company to do a minimum of 20 percent.
On non-executive directors and chairmen who stole company funds
You also mentioned about the Non-Executive Directors (NED) who have left the company and who also dipped their hands in the firm’s treasury to help themselves. I can confirm to you that one Chairman returned N66 million (Sixty-six million Naira). These are information we don’t go out brandishing. And we have identified quite a few cases like that. We always stood our ground for refund because these are shareholders money being pilfered. We also did a lot on companies under regulatory Orders or under intervention. We have found out that some directors acquired shares without paying for them and we have taken them to the Economic and Financial Crimes Commission (EFCC). We also believe that what they have done is criminal. We are trying to get them to cough out what they have taken illegally. And those refunds we believe will go a long way in easing the financial constraints of these companies. The development is a confidence booster because some of these people believe there is no control at all. The insurance industry is the only growth area left in the financial sector and this is a fact. And while the companies are re-branding themselves, we are watching how they behave, because if they clean the ‘frontage’ and the ‘back office’ is left dirty, that will not be good. If you see a company complaining, know definitely that somebody is squeezing them. And we have never them complaining as they are doing now.