What started like the most appropriate action to enable the insurance industry in Nigeria regain its respect and return to its role, confidently, as the safety net of the economy is quite likely to send it into a state of oblivion, or what may be called “Economic Siberia”, if care is not taken.
The requirements for recapitalization or new capital base announced for the conventional insurance sector by the Regulator, National Insurance Commission (NAICOM) in 2018, almost twelve years after the last one, was widely received as the right step to save the industry. However, it did not seem to receive the buy-in or understanding of the operators and has continued to be challenged, either by shareholders who had chosen to use the courts or operators using COVID-19 pandemic, the #EndSARS protests and any other technical grounds.
Many will recall that the process began then with NAICOM announcing the Three-Tier Solvency Margin Based (TSMB) recapitalization, a seemingly creative approach meant to reclassify insurers to operate within what their capital base allowed; no company was going to die. This was however novel and too much for the operators and their shareholders to comprehend, so they approached the court and got a decision that forced NAICOM to cancel the process.
Prior to the decision, I did say in one of my articles, that the Regulator would have to finish the process that was probably only understood by it.Undone and determined to have its way, NAICOM dusted off whatever was thrown at it after the unfavorable court decision to relaunch the recapitalization process, this time, adopting a familiar but tortuous approach. The significant difference being the non-admission of buildings and other illiquid assets as part of the capital. The first deadline of January 1, 2019 was therefore shifted to June 30, 2020 and subsequently, the two dates of first deadline of December 31, 2020 and final deadline of September 30, 2021.
COVID-19 pandemic, #EndSARS protests, violent destruction of public and private property, poor investment climate, US Elections and the second round of lockdown and much more than may come will not allow NAICOM and the re/insurance companies successfully negotiate the suitable deadline and take-off date for the regime of the new capital base. Should we expect an #EndRECAPITALIZATION protest?.
Recent news indicate that Insurance Chief Executives have appealed to the Regulator to consider moving the deadline to December 31, 2021, and though there has not been an official response from NAICOM, it will be most surprising if they budge.
Averting Crisis of Confidence
In my view, it is unfortunate that despite the expression of COVID-19 pandemic, protests and other issues as both crisis and opportunity, much attention seem to have been paid to the crisis, hence even as the recapitalization is viewed now, many industry players see it as crisis without all the advantages we saw in it.
Proceeding from here would require 2-3 weeks of intense work by NAICOM to make the players see, or indeed create the opportunities for them. First, it should meet the frontline shareholder groups to explain and probably justify the recapitalization with assurances that even if they lose now, much more gains await them in the next 3-5 years. Importantly, let the operators know that missing the deadline is not a death sentence. Worse case, you will become more suitable for the real serious investors that could not get a share of those that made it, and then, you have up till September 2021 to attain the target or even surpass those who managed to meet the December deadline. Furthermore, NAICOM would need to encourage more Nigerians to take up insurance policies and this can be done only by telling them what has been done about several long outstanding and unsettled claims. A preliminary update on the claims status with respect to the October Violent Protests will be a good starting point. Going back on the December 2020 deadline will be reasonable but untenable to some who have been waiting eagerly to take up insurance with the companies that have succeeded; simply because success has many fathers and mothers.To give confidence, I recommend that NAICOM either proceeds to announce the new fully capitalized insurance companies by midnight of December 31, 2020 or the cancellation of the process and in its place, adopt the Shareholders Funds as basis for determining the strength of the insurance companies while utilizing other measures to ensure only FIT operators are licensed to operate.
To do anything that will put the fledging administration at NAICOM to any crisis of confidence will be to place the insurance industry “on hold”, something some shareholders got from a court months ago as we learnt NAICOM through its lawyers committed not to proceed with any action until the case is heard.Or will the National Assembly come to its rescue by passing the new Insurance Bill that will make the issue of capital base part of the law?Now, the insurance industry is unable to play in the economic space with its full squad because of recapitalization, the “Banana Peel” of the industry, while the economic hawks go on to take up the space with the help of their regulators.Insurance waits! Not for any death sentence though but for these crises to go away.