Insurance, the bedrock of economic development in any nation
Alhaji Sabiu Bello Abubakar, the Acting Managing Director of Jaiz Takaful Insurance PLC, in this interview with DAILY POST’s, Adewale Akanni and Nwachukwu John Owen, highlighted the problems facing the Insurance sector in Nigeria.
He also gave insights on the differences between Takaful and the conventional insurance and also discussed the advantages of Takaful, which is a brand in Nigeria.
Excerpts:
For record purposes, we will like to meet you?
My name is Alhaji Sabiu Bello Abubakar, I am a Nigerian from Kano State and I have been in the industry for about 25 years working in the industry. I have been in many organizations like Nicon Insurance, IGI, Cornerstone, National Insurance Commission, Insurance Brokers. So, actually I have been in touch with almost all the aspects of insurance in brief.
What is your overview of the insurance sector in Nigeria?
Insurance is developing in Nigeria; not yet developed but developing. It is developing in the sense that there are lots of things that need to be done in order to actually grow the business of insurance in Nigeria. And issue of penetrations if you look at it compared with other countries we are developing. If you look at the challenges that are in the market, which are not common in the advanced countries, we are developing.
So, my view of insurance operations I have a mixed feeling views – (1) This is a market that has a large uninsured population, and the market that is grossly incapacitated in terms of finance and it is a market that is not as popular as other financial sectors like banking, stock exchange etc. It has a negative perception by its clients, the market where consumers and intermediaries dominate the market and even sometimes dictates the price of the insurance company or insurance operators.
A market that lacks innovative products and services, I can say a lot but despite that there is huge potentiality in the market that we can excel if things are put in right. You know insurance is the bedrock of economic development in any nation so it should be the same in Nigeria but because of certain constrains we have not achieved it but we are making very slow progress.
If you compare any developed nations and the development of their insurance industry, you can see there is a serious correlation, the fact is that, insurance and insurers are managers of the risks of a nation, they are risk managers in the sense that there is just economic disaster, economic wastages are addressed in insurance industries. So, where such kinds of functions are not well effective, it has an effect in the development of the economy.
Insurance sometimes you look at it has a humanitarian service given to the citizens of the country. Insurance is far more important than the banking in the sense that the functions and the role insurance contributes in an economy is far higher than that of banking. Take for example, banking they have key work of savings of money and investment but if you come to insurance you can find savings in their operations, you can find investment, you can find what is the most important, risk mitigation, risk management in insurance, you can also find financing of the economy and revival of the business because where there are lots of natural disasters, human errors and human disasters, it is only insurance that will address it even before it happens and after it has happened.
So, insurance has a serious role in the financial sector but unfortunately, in Nigeria, the reverse is the case, this is the service that is not even popular, this is a service that is not patronized by even some government agencies; so this is why our economy is not developed. When government is serious on insurance and develops that sector, there would be a positive impact in our economy.
Almost sixty per cent or seventy per cent of the blame should go to government. The government lacks the political will in the sense that practically you can see less involvement of Government in the insurance sector, while in the advanced country it is insurance that even develop other financial sectors like banking, but in Nigeria, the reverse is the situation.
What is the difference between Takaful and conventional insurance?
The key difference is that Takaful is initiated established and produced to address the problem of insurance. Insurance is the father, the initiator, is the original but Takaful came after insurance just to address certain issues on insurance. This is a key difference between Takaful and conventional or traditional insurance.
Insurance has been in operations for decades for years, centuries but there is one issue insurance could not address and then Takaful was created to address that issue. The number one issue is it does not focus on the clientele nature, clientele needs, and that is why there are low penetrations of insurance in so many places in the world.
If I am buying something from you, if you are really business-oriented you should design it a way that it would address my needs, but insurance practitioners look less on that. So the Takaful promoters concentrate on that and develop Takaful. The very key important things it should address my peculiar nature and belief, you know insurance is objected by many Muslims all over the world and so people who are inclined on ethical services.
Ethical services are services that look into the client’s belief, client’s culture, client’s orientations, that are the ethical things of it. So, Takaful look at the client’s beliefs, his nature, and his culture then design insurance policy that would address all that, so it’s like an innovative product developed by insurance practitioners. Maybe to further explain the difference between the Takaful insurance if you take it practically you can now say insurance and Takaful they have what is called principles of large number, the more the clients you have the more capacity to address their risks exposure.
So as insurance company also based on that principle, Takaful also based on that, that is a common pooling mechanism. So Takaful company pool the risk of large people and insurance pool the risk of large people and manage that pool until the end of the period of insurance, claims must have been settled, their expenses must have been taken from that common pool fund and if you have a large portfolio there could be surplus there could be remaining of that money which you pool, to insurance company that the money belongs to the owners, belongs to the operators, stakeholders while in Takaful that money belongs to the donators because in Takaful they call clientele participants, not policyholders not insured but they are participating in their common pool fund which is their money and at the end of the day that money is shared among those who did not have any claim, this is something that many people are clamoring and looking for.
If I have been patronizing you as an insurer pay premium for years and good manager of my risks I have no claim at least I should have a return, I should have something back to me to encourage me to continue but in insurance you cannot find that, but in Takaful surplus is shared for those who manage their risks very well. This is a motivation for the participants or clients so they can continue managing their own risks and having a very profitable insurance business. So this is the second advantage and difference between insurance and Takaful.
Then, another difference, you have heard a lot of issues, financial crisis, issues about claims that have not been settled, issues of insurance companies that went bankrupt, this rarely happens in Takaful operations because the Takaful operators separate their own fund and the fund of their clients, they do not mingle the funds and they are not even allowed to mingle the funds, that enable them to have separate fund for participants/clients so that whenever they have a claim there is fund available at any given time to be paid to them. But in the insurance company, since the funds are mingled as one fund, their shareholder’s fund whatever affects that company affects the fund, so if the company sinks financially your money is gone. If the company has a financial crisis there is a tendency to just use that policyholder’s money and then if you have claims you may not be settled. So that is removed in Takaful, so Takaful have a tendency of paying claims promptly, this is another advantage and difference between Takaful and conventional insurance.
Is Takaful religious bias?
One of the differences between Takaful and conventional insurance is ethical services. It originated from a religious perspective but at the end of the day it is inclusive services; one of the difference and advantages of Takaful is inclusive service. It is a service that accommodates all human beings irrespective of their religion, irrespective of their cultures, irrespective of their traditions. So it is not a religious product rather it is an inclusive service. Right now, we have Christians in our company, we have a large number of Christian consumers, we have many clients who are Christians, not Muslims that are patronizing us and the reason is simple, they have seen additional value and we did not treat them different we have never treated them different we treat all our clients the same and you know always an ethical service has a moral service, by our orientations not to do anything that will harm our clients. We are by the regulations differ from anything that is not fair. In fact, it is part of our cardinal principles. So fairness, transparency, making sure that you get the service is what we advocate and actually what we provide to our clients, it is completely non-religious services, actually, we visit the church, we sell Takaful product to them and actually assist them in risk management and so on.
Why should Nigerians embrace Takaful
You will tell them to embrace Takaful because of these reasons; (1) Takaful is not religious bias. Some Muslims are complaining conventional insurance is bias to one religion but this one is not biased to any religion. That means it provides service to everybody and (2) It has one solution which is not found in traditional insurance.
The solution is that it is difficult you have Takaful policy and you do not have benefits, it is difficult, you either get benefits from your claim or from the surplus that is at the end of the period if there is surplus from the money you contributed it will be shared to you and then (3) You can even participate in the profit of that organization because the money you gave to the Takaful company is invested and the return is shared to you, that is why we call out clients participants not insured, not policyholders, they are participating in our business, in our fortunes. This is enough for you to tell Nigerians that Takaful have additional values go for it you will maximize your benefits in insurance services.
What do you think is responsible for the low penetration of insurance in Nigeria?
Low penetration of insurance business in Nigeria are many actually but let me just give you some few of them which are key. As I mentioned before, political will by the Government. The Government is not helping matters. We have a regulator and that regulator is a representative of the Government, that regulator should be empowered to actually ensure development of insurance, remove all the constraints in insurance, address the issues of complain and consumers dissatisfaction but if you look at the law there are lots of constraints in that law of the regulator so much that a regulator as we are talking finds it difficult to impose the law given to them. For example, third party insurance (motor insurance) up till now many cars in Nigeria, the car owners are holding fake insurance some of them they do not even have insurance at all.
And for you to prosecute such defaulters is very difficult by the regulator, it is a cumbersome process so if Government would intervene and address such issues there would be penetration of insurance and the second reason why there is low penetration of insurance, the reason is awareness many Nigerians they do not know even insurance; when you ask them what is insurance they will interpret it differently, many they would even say they do not know what is insurance, so it is only when you know something you go for it and buy it.
So many Nigerians do not know there is something like that. Some they know, they do not know the application of it they do not know the benefits because you will go for it. So lack of awareness is another issue that is affecting insurance. And innovative services or product. If you keep on for years you have been saying motor, you have been saying fire and the same way with the bulky documents with so many things, actually, the people will not patronize you.
So, also the law is not modernized, the legislative enactment on insurance in Nigeria is as far back as 2003, there are lots of things that are modernized but it has not addressed it because it has not been reviewed. The government has not reviewed it, so a lot of things regulator wants to do but he cannot do because of the law or constraints he has.
So, that political will is very important, let the Government amend the law let them modify the law, you can see it is surprising to find a regulator struggling to enforce his law, sometimes even the regulated entities are stockpiling their actions so if they will get more power there would be the development of insurance. We have about six products which are compulsory in insurance in Nigeria but if you check you would find out the compliance of it is very low only few are taking it has compulsory and they are taking the insurance.
We have marine, cargo, if you are importing goods you must make sure that it is insured by Nigeria Insurance Company. You must have insurance against any disaster that may happen. If you go round you will see many contractors are building without insurance, if you ask them they will say they do not know it is compulsory.
We have many public buildings in Nigeria and there is no insurance to protect people going into the buildings for transactions and other things. Even motor, as I said we have a lot of motorists they do not have insurance, some they have fake, some they have what is called “Police let me go”. So this is a key issue that is depriving insurance company penetrating the market and the same thing with Takaful, but Takaful is operating in the same business environment, whatever affects insurance company affects Takaful, so we are struggling to see that we have done our bit but the challenges are there.
Your type of insurance is new to Nigerians, what are you doing to ensure that majority of Nigerians have insurance cover?
Awareness, we are trying to increase awareness of Takaful that what they have been craving to see or to achieve from the insurance sector is now available. We have three Takaful and actually we embark on awareness but we want to do it massively but because of finance we are just doing the awareness gradually but we hope to develop the awareness, we hope to finance a lot on the awareness whereby we embark on advertising in the media. So we are serious on awareness.
In awareness, we tell the clientele or potential insurance public that we have a different service which has additional values, the values I mentioned earlier and wherever we go people patronize us. We launched our service in Kano and if you see the teeming population that gathered there and Kano is one of our best branches that are producing Takaful as far as we are concerned, actually, apart from Lagos, Kano is another one, just because of awareness we went there we engaged people we had a seminar, we met the business tycoon there, the Emir, others and even the Government. So we are trying to meet all the stakeholders so that they know that this service is now available.
The third aspect of what we do, we are trying to see that our product is a very simple and packaged in such a way that it addresses clients’ needs, not like the traditional insurance product, we always modify, repackage our insurance policies making it simpler and easier. We plan to have technology that it selling Takaful like mobile insurance and all other technical technological ways of selling Takaful because with that we will simplify the accessibility of our service. Another way we are doing to ensure that we penetrate the market is making our self available, currently we have five branches; Kano, Kaduna, Abuja, Lagos, and Port-Harcourt. So we want to expand and touch all the States of the Federation, everywhere, but you know that is capital intensive so we are doing it gradually and hopefully this year we hope to make forty percent of that then maybe by next year we will achieve hundred percent. We want to grow fast so that is our intention because insurance public in Nigeria needs us.
How was your 2018 financial year?
It was good, but what do you expect of a new company just coming on board, traditionally it is difficult for such a company to make a profit. So in 2016, we did not make profit we had huge expenses or expenditure that outweighs the income, we are new so the business we were able to get were very few, so the subsequent year 2017 we were also not adequate so we could not make any significant profit but we had a surplus engineering and general accident, other classes because we had huge claims we could not have surplus but on these two classes we had surplus that means we have profits, we have profit in the sense that some money from what they contributed remained after paying all the claims. We wanted to distribute the money to those who did not have any claim but because the money is not big enough we decided to roll it over to the year 2018. So we are working on our financial account for 2018 and we hope to have a higher surplus from 2018 financial account.
What should we expect in 2019?
2019 is profits, we will expect profit and surplus, big surplus and reasonable profits and some of our plans in achieving this is that we want to be in all the States or half of the States of the Federation. Been accessible to clients’ means by getting more business so that is our strategy for 2019, we want to be more accessible and technology wise also so that people can access us online on all the platforms that are available online.
Another way we plan to achieve that is to reduce our cost, you can say this is a mixed plan, you want to expand and at the same time reduce cost, and it is not easy. So our strategy on that we are going to expand strategically on the areas that the results are almost certain, yes you can go to some States and you won’t get business because they are not commercial States but for example if you expand your branches in Kano, Lagos, Port-Harcourt I can assure you that definitely, you are going to get money, so you spent but you are getting money but in other States we do it slowly so that we do not expand without getting income. So we are doing it strategically in such a way that our expenditure does not overshoot the income that is our strategy and all things been equal from the profit we are going to get something.
Another strategic way is getting an advocate, we are trying to get advocates and the media could be our advocate because it is something that would help society and we will do ours to assist the society. So you have heard we have additional profits additional benefits and I believe they could come from the media, the print media etc. So once the awareness from the media increase there is a possibility that we increase our portfolio and our business will increase. Then other dignitaries and people for example, if you go to a State Governor and we are able to enlighten him on our service most likely apart from the State patronizing you, also the State has a lot of Ministries, Departments etc. They can tell them to take cover from us. Because what we noticed is that many State Governments do not have insurance, they only have motor, other risks are not covered so they are highly exposed, so we intend to reach them, sensitize them and we hope to get business from them. In a nutshell, these are our plans and God’s willing we are going to succeed.
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