The Nigerian Content Development and Monitoring Board (NCDMB) was established when President Goodluck Jonathan signed into law the Nigerian Content Act on April 22, 2010.
The benefits envisaged include increased indigenous participation not only in the oil and gas industry but also across other sectors of the economy.
It was intended to also build local capacity and competence and create linkages to other sectors to boost Gross Domestic Product (GDP).
In this interview with the Assistant Business Editor, KELECHI MGBOJI, the Managing Director and Chief Executive Officer of Multiple Bond Trust Insurance Brokers Limited, Abiodun Durodola, explains why the policy has failed.
Durodola, an insurance, finance and accounting professional with about 30 years of practice, also lectures in insurance and pension at the Chartered Institute of Personnel Management (CIPM), Lagos.
Factors responsible for stagnant insurance growth
I decided to take up a Master’s degree in banking and finance because I have been concerned about the financial intermediation role of insurance rather than the security aspect which people tend to focus on.
Up to the present day, the insurance industry has been a very modest one where people collect premium and expect claims. The feeling is that because claim crystallises tomorrow, we don’t have to gamble with the money. But it is not so with the banking sector and all other financial services industry where they go into the syndication of funds for many years.
The perception of insurance industry players is that the business is only where you invest in a short term and pull out your resources because risk can crystallise at any time. And because we have not been able to take such risks as banks do, the industry has remained on one spot. There are a couple of banks in the country which were created with insurance funds.
I remember that in 1992 and 1993 when I was working for an international insurance broking firm called JH Mineth, we were number two or three at the time. It belonged to the Ibru Group. I know their contribution to the floating of a certain bank. I also know the contribution of Royal Exchange Assurance (REA) to the floating of some banks in Nigeria.
There were old companies then which had so much money which could float a bank then when the capital requirement was about N3 million. Insurance companies in those days would prefer to keep that N3 million with a bank.
Banks understand the risk of financial intermediation. And they would plough the money into a business with the understanding that they could do business with the money and turn it over and then return it to the owner. So, most times we don’t see premium as end until the risk has turned round full circle and crystallised.
Because of this, people do not see us as enterprising. That is not the case with banks.
Also, in those days, the focus of insurance companies was to build confidence with the insuring public so that at any time anything happened they could respond. But this has its own disadvantage because never in the history of this country has any insurance company had recourse to its statutory capital with the Central Bank of Nigeria (CBN) to pay claims, no matter how big the claim.
Insurance companies have tried to ensure that they paid claims from their earnings. I have never seen any case where the government had to intervene and said this insurance company cannot pay claims, therefore go and fall back on its statutory deposit with the CBN and pay. That is not so with the banks.
You can see that the risk banks take has also affected the economy. Banks’ failure has occurred three to four times in this country and nothing happened. Of recent, we know how much the CBN injected into the banking sector to rescue some banks so that they would not go under. This has never happened in the insurance industry, which of course, is the gain of our modesty.
At the same time, a little bit of risk could have positioned the industry in a better stead which could have made people realise its pride of place. This is partly the reason why the market is not deep.
Impact of local content policy
The oldest insurance company in the country is the Royal Exchange Assurance. It came as the agency arm to oversee the insurance needs of the Royal Niger Trading Company. They didn’t intend to establish an insurance company. Insurance itself was seen as a new vista. It’s a risky business.
The issue of banks you can say metamorphosed from the local contribution we are doing. But in insurance, if you tell someone to keep money here if a risk occurs, you indemnify him, he will say ‘but if it does not, I lose my contribution’. He will look at it as gambling.
You really need to work hard on them to realise that if risk crystallises he will get something reasonable. That is his benefit. You insure your life first with this paltry amount and you get so much, as in the definition of insurance, in exchange for the little you contribute; ‘I am guaranteeing that for the little contribution you make, I will compensate or indemnify you with this much’.
An average Nigerian wants to pay and get value for money immediately because ours is a cash and carry economy.
Coming to the local content issue, most companies the local content policy is supposed to impact directly are aviation industry players, the oil and gas industry, and the telecommunications industry. Virtually all of them are not local industries. Most of them are offshoots of companies that are operating globally.
All of them will tell you, ‘yes I know there is local content here but we have a global insurance policy based in the United Kingdom, United States, or Qatar, which already covers our operations. The local insurance we need is just to fulfil the local requirements’.
So, insurance firms have not actually been able to draw from that policy. The NNPC (Nigerian National Petroleum Corporation), because of the joint venture issue, has been able to give some things to us. It is because of the oil venture thing that exists, the Corporation could decide to let Nigerians get something here. Otherwise it might go the same way of foreign entities.
Look at LNG, they will question the capacity of the local player as to whether they can get 3 per cent or 5 per cent. Why are they not getting up to that percentage and when will they be able to get up to that level?
And the government is shying away from addressing the issue. Of course there is a limit to which you can push the government to help you to get things.
That is why I am of the opinion that we can also go into the financial intermediation role which we play. Let us use the money we generate to also do business so that we can have our stand on it as brokers. If I have N20 million with a bank, it doesn’t make sense to me. Why can’t I pool my N20 million with other small brokers so that we can have about N100 million. If we have N100 million, let’s own a bank. Let us also invest in telecommunications company and go in and do different businesses.
But most of our people have not opened their eyes to this financial intermediation role. They just feel complacent with whatever they make as underwriters, brokers or agents. They feel as if to say ‘I don’t want my money into any other business so that if there are claims I will be able to pay’.
But companies operating the holding system are doing very well because they don’t limit themselves to the normal insurance brokerage and claims. They are expanding gradually and can now be involved in other businesses. They can now create assets; they can also create wealth which they are running after.
Instead of going to the poultry farmer and asking him to take my insurance cover, why can’t I start a poultry farm myself if I have the money? I am also creating a market. Another person can insure it for me or I can insure it by myself. We need to create a market for ourselves, not just collecting money and putting it in our pocket or in the bank.
So for the local content policy to work, we still need to fight. Most multinational companies, even those that are not multinational; some Indian companies; will tell you that they have a global policy that insures their staff worldwide. But to fulfil a local content requirement, let us do this. This is all in a bid to repatriate their money easily.
Any time they attempt to do something with you at all, they will look for a way to cut the money. They are interested in taking their money back home.
If you want the local content policy to work, it is not only insurance that we need to work on, we have to work on all facets so that our people will be the owners and the managers of businesses, not just mere workers in establishments they have no control. Our people will know that these are our countrymen, and we have to work with them.
Look at some of the Indian companies that come to the country to build a marginal field; they bring in Indians as accountants, system managers, and others to occupy key positions. They want to make sure that the money circulates among Indians.
They will probably engage one or two Nigerians as drivers. You as a Nigerian service provider, you don’t have access. If they want to buy cars, they go to KIA, Hyundai, or Tata.
So, what the government wants to localise is not actually localised, because, at the end of the day, Kia, Tata or Hyundai will sell and repatriate the money back to India. It is not ANAMCO, Innoson, Peugeot, or even Volkswagen of Nigeria. We need to work on these things very well.
Why is government saying 5 per cent? It should rather specify 25 per cent. It won’t kill them. Make sure their reinsurance is good. Of course, reinsurance doesn’t bother. They can do it anywhere in the world.
When you provide for only 5 per cent over five to six years and they are still crawling, they will not grow to any level.
How underwriters can explore risk management in agric sector
If they say the federal government has disbursed N100 billion as agric loan in one year, then you ask yourself who the farmers that collected the loan are. Has it impacted on them?
The same farmers that we know ever since we were born carrying machetes and hoes are still carrying those crude farm implements. So who collected the loan and what did they do with it? You cannot put out money without following it up. If you want to give loans to farmers, you have to identify who the actual farmers are. It is not the responsibility of those of us in offices.
I embarked on an enlightenment drive some time ago in Oyo North, where farming is going on very well, in order to talk to them about how they can secure their food stuff in transit.
Vehicles conveying farm produce crash or break down on the Lagos-Ibadan expressway; they have no insurance cover for the produce. People bring their foodstuff from far North, about 12 or 15 hours’ drive; no insurance. Before they get to Ibafo, near Lagos, the vehicle breaks down and the produce is damaged. That is the end of it.
They need education. They don’t know about NAIC (National Insurance Commission). I don’t really know how much NAIC is doing about educating the farmers but I do not think they are doing enough if at all they are doing anything. The education is not there. We all need to join hands and enlighten our people. We need to bring insurance into all aspects of what we are doing. That way, we can help the industry to grow.
