POLITICAL RISKS ARE A MAJOR CHALLENGE FOR INSURERS - OJUMAH
By ROSEMARY ONUOHA
As Boko Haram continues to unleash mayhem in the Northern part of the country, Managing Director of FBN Life Assurance Ltd, Mr. Val Ojumah, revealed that that the real challenge for the insurance industry in providing cover for terrorism is buying reinsurance for it. In this interview, he said that most international investors coming into this economy do require political risk insurance but it is not available locally. Excerpts
Challenges as a new company
What I am not particularly proud of is the absence of corporate governance in many insurance companies. Over the years both the Nigerian Insurance Association, NIA, and the regulator have tried to address this issue to ensure that our business being a business of trust earns the respect of all stakeholders.
At FBN insurance, corporate governance is a key success factor for us. Our board is made up of people of proven integrity and it is chaired by Mrs. Ibukun Awosika. FBN Life is the only green licence that has been issued in the market in over ten years in Nigeria and with that came its challenges.
Perhaps you have seen publications out there asking for people to apply to be appointed as underwriters. What happens is that when you see those publications, they always say they want companies with three years financials.
At this moment we have only one year financial. As at last year we had no financial. What did that mean? It meant that we were automatically disqualified from those bids. If you take that into cognizance recognizing that we are bringing something new into the market which was not there, we always said to them that they were missing.
Almost every large corporation, upstream companies and large public companies always insisted that they wanted to see three year financials. That limited our penetration into the market. Also practically all the large insurance brokers out there insist on your being in business for at least three years before they can do business with you.
We have often made the argument that yes the company may be new; however, operators are not new in any way, sence or manner. We have won some hearts with that argument but we still have a long way to go. Some of the largest risks in this market as far as group life is concerned are still not ours for that singular reason.
They are not saying that they are afraid of our reputation or they are afraid that we may not meet our claims liability; they are simply saying that they want us to be in the business much longer before they can deal with us.
Very weak argument, but as a company we have to live with it. We are perhaps the most liquid company in this market today. We don't have investments in questionable circumstances.
There are a few companies in the market that can boast of cash of over N3billion. I mean cash, not property. There are very few companies that can boast of this kind of situation. So sometimes we may be blowing our trumpet, we intend to do that because of the limitations, the circumstances we find ourselves.
It's been sweet, it's been also bitter. We believe we have a lot more to do for this market.
Crisis in the north and premium rates
On the crisis in the North, you know that it is a political situation. Should it increase premium rates? We didn't design our programme just for a select group of people. So I don't think that it will increase rate or reduce rate because of that experience alone.
You have to look at your whole portfolio at the end of the period and then determine whether a particular product requires any change in its structure which will include the rating. You can even decide to withdraw a particular product entirely from the market.
So I will not say that whatever is going on in Northern Nigeria will lead to increase in our rates. But what I do know is that definitely it will lead to increase in claims because many people have been killed in those circumstances. What I cannot say for sure is whether or not those people have life insurance policies.
Political risk is actually exclusion, but companies will have to make a judgment there whether or not they can accommodate such claims. Personally for FBN Life, we are looking at ways to accommodate such claims. We have not received any claim in that regard but we are looking at accommodating political risks in our policies.
The real challenge is buying reinsurance for it. Political risks are a major challenge for insurance companies. Most international investors coming into this economy, they do require political risk insurance but it is not available locally but we have had circumstances where we have to buy that risk from international insurance market.
Investment of policyholders' funds
For investment, today the emphasis is that most people are going into the money market because long terms deals are not quite clear but what is being clear to everybody is that the bond market is getting more and more attractive.
So we as a company being this new, we have more of our money in the money market, we are also looking at the bond market and other alternatives. You know there are provisions governing investment of policyholders' funds. At FBN Life, corporate governance rules and regulations must be followed.
We are following the rules and regulations as far as investment of policyholders' funds is concerned from the regulator. Ultimately going forward, today we may be making more money from the investment market than in the underwriting market but that is because of the reserving.
It is not that we are not making money. The figure I quoted of approximately N1.3 billion is actually premium income. It has nothing to do with investment income. So when you add investment income it is going to be much more than that.
We can't declare profit in the short term of a life insurance company because of the reserving conditions which is also regulated. But we remain one of the few insurance companies that are employing full time in-house actuaries that supervise our rating procedures, our quotations to the market and do valuations internally to know where we should go and give us direction as far as investment is concerned.
It is extremely important that investment of policyholders fund be regulated because you all know what has happened in the market with some insurance companies actually diverting the fund of policyholders to areas they should not be and losing it in the process.
I believe in regulation as far as that is concerned. For shareholders fund, of course shareholders will tell you where to put their money but regulator has the responsibility to protect policy holders first before shareholders. The regulation is there and we are following it.
Going into general insurance business
Typically let me tell you our long term plan. Today, we are a specialist life company. We believe that we have resources that we can use to go beyond life insurance. So this is our plan; before the end of the year, we hope to acquire a general insurance license.
Before the end of the year, we hope to start annuity business, this is for 2012. A typical insurance company should use the resources it has to create income for the stakeholders and that is essentially what we will do. When we were licensed by NAICOM, we were licensed to be a life insurance company only.
Please bear it in mind we will be going back to NAICOM to say we want a general insurance license. We have the business plan that says we can start with life business, progress into general and other areas of insurance.
One of the benefits of FBN Life which is peculiar to us is the distribution network of First Bank. First Bank has over 600 branches scattered all over the country. So that is our number one edge and we use those network branches to distribute our retail products.
We also send agents into those branches nationwide. Like I said earlier, we have just started. We are only in Lagos, Port Harcourt and Abuja right now. We still have a long way to go. We use those branches where we can, we also allow our agents to go to several other places outside First Bank branches.
Personal line insurance is a term that is used for individual insurance and it includes life insurance, motor vehicle insurance, house holders etc. We are selling individual life policies today in the market. And we have five different types of policies in the market as we speak.
But we have more than 100 agents now in Lagos and we are opening a new location in Ikeja, Lagos. So we are not just limited to First Bank branches, this is the point I want you to take note of, we are using those branches, we are also going to other locations outside those branches.
It was important that we prepared very well before we entered the business. That is why we didn't start individual life products from day one because the preparation is enormous in terms of designing a policy. If you have seen our proposal forms; it is different from what you are used to in this market.
Our proposal forms always carries almost all the terms and conditions of the policy. And when you complete our proposal form, we keep it and leave you with a duplicate. And once we are set, all we issue to you is a letter of acceptance.
You don't need another policy document after completing our proposal form. So a truly innovation, we have to prepare for all of these, we have to do printing, we have to design the product, we have
to localise the product.
That is why we waited till April before started. You could recall that we started from level zero; we didn't have any staff, until September 1, last year. So getting the staff, putting things together, had its own challenges. So it wasn't something that we didn't plan for.