The country’s insurance industry has lately
been plagued with a myriad of challenges
ranging from low penetration, inadequate
training of staff to lack of actuaries.
Chairman/Consulting Actuary, TAF
Consulting Group, Mr. Debo Ajayi, in this
interview with ODIRI UCHENUNU, proffers
solutions to some of the challenges
confronting the insurance industry.
Why, in your view, don’t many Nigerians buy
insurance policies?
If people are not buying insurance, it is
because they are smart. This is because,
particularly in Nigeria, Nigerians can make
intuition assessment of the value preposition
of insurance and when they realise they are
not getting a good deal, they won’t buy. It is
not that they don’t value insurance, they do,
it is because the price they pay versus the
benefit they get doesn’t measure up.
When you look at the average lost ratio, the
ratio in Nigeria is 24.2 per cent and what
that really means is that out of every N100
of premium that the insurance industry
collects, only N24.2 is returned to the
insured population. To put this in
perspective, in Kenya, the loss ratio is 59
per cent. This means that out of every 100
shillings collected, the industry returns to
the population 59 Kenya shillings. In
Tanzania, the ratio varies between 50 to 60
per cent. In Uganda, it is 63 per cent, in
South Africa, it is 61 per cent. In Egypt, it is
73 per cent while in Nigeria it is 24.2
percent. So if you are in a transaction that
somebody collects N100 from you and gives
you N24, how sustainable is that transaction
on an on-going basis? Though Nigerians are
not actuaries, they are very smart intuitively.
They can make that judgement. From my
circle of friends, based on their own
insurance experiences, I can tell that when
they pay N100, they get N24. We have
worked for clients in Nigeria and we have
seen their loss ratio and we alerted the
management that this is too low and we
advised that they either cut down premium
or increase benefit for the same premium so
that the loss ratio can go up.
What can be done to avert the low
penetration in the insurance industry?
I told players in the industry that if Nigerians
are not buying insurance, it is not because
they don’t have the need or value for
insurance, but because the price is too high
and it is not sustainable. There is a high
correlation between loss ratio and
penetration of insurance. In Kenya for
example, the penetration rate grew in 2008
from 2.6 per cent to 3.3 per cent in 2013. In
Nigeria, penetration rate is 0.6 per cent. You
see the correlation? Taking you back, in
Kenya, the average loss ratio is 59 per cent.
In the United States, the average loss ratio is
95 per cent, meaning, from every $100
collected from the population, 95 is returned
to them. So the remaining 5 per cent covers
the insurance company’s expenses and
investment income to make up profit.
Another example is Ghana, they went from
0.9 per cent in 2008 to around 1.8 per cent
in 2013. Morocco from 2.9 per cent in 2008
to 3.2 per cent in 2013.
So, principally, I would say rather than spend
all these millions on so called insurance
awareness, improve your benefit offering,
improve your pricing. When people enjoy
insurance, they would buy. Rather than
running away from claims, engage in paying
claims because it is a form of customer
service. So when I said that Nigerians are
not buying insurance because they are
smart, that is what I mean.
The issue about price is a very big one. All
these issues affect penetration by the way.
The product, how it is packaged, how it is
presented, the price is also very important.
Talking about price, whether it is high or low,
of course the price is high because that was
what the loss ratio indicates, but why is the
price high? A lot of time, the insurance
industry in Nigeria does not have the
technical capacity to do right pricing. They
need actuaries whether in life or non-life.
The prices are not credible,they are not
reflecting. Different actuaries use different
assumptions and they have been using
these assumptions for decades and they
have not accumulated statistics to review
these assumptions. Also, the managements
of insurance companies are not asking
questions. So, of course the price is high
and there is no assessment of any price that
I can see happening in this market. So, all of
these together define the low penetration
that we have In Nigeria. If you want to do
proper product packaging for example, you
would need to have product developing
process, that is, you need to identify your
target population, you need to identify their
needs and then before you start talking
about pricing, packaging and all of that. This
is not happening in Nigeria. The woman on
the corner grocery knows the profit margin
of product items that she has in her store,
how many of our insurance companies in
Nigeria know the profit margin of the
product they are selling? They don’t.
Something that important. When they are
asked to develop new products, what they
care about is what are the risks? What are
the benefits? How profitable are these rates?
What are the risk elements in this product?
What are the capital implications of this
product? What is the vulnerability to me in
terms of this product? So when they are
selling education products, mortgage
protection products, annuity products, they
don’t have or know the profit margin for all
these products. Even at the product initiation
stage, that information is not in the product
menu. So I conclude that the insurance
companies are managing their businesses
using a rear view mirror to drive in the dark.
It is pathetic. I can talk to you like this
because of the technical know-how. The
average person on the street would probably
have a difficult time even appreciating what
I am saying. They just know that insurance
is a bad deal. If something has to change in
Nigeria, these things have to be addressed.
There is a need to also develop actuaries.
What can the regulators do to revive the
industry?
The government and stakeholders need to
develop actuaries. I have written proposals
on the need to train actuaries but to no avail.
We have a fully equipped classroom in this
place for video conferencing and all of that,
getting actuaries outside Nigeria to teach
Nigerians, entirely based on our own
investment, no single support from
government or any industry association. We
are putting these things in place because we
believe that the insurance industry cannot
develop without that technical capacity. It is
just not possible.
The insurance industry having 0.6 per cent
penetration is a testimony that there are
problems there, you don’t need to be a super
actuaries to know that and here we are. I
chase them instead of them chasing me. I
really don’t understand why Nigerians don’t
want to be developed. As a Nigerian, I am
committed to developing Nigerians to the
extent of becoming world class actuaries
and I know I would be remembered one day.
I hold two classes of stakeholders
responsible for the state of Nigeria’s
insurance industry, the regulator and the
shareholders. There is no way as a
shareholder I would invest capital in an
organisation and not care about sound
management of that company. The level of
oversight that I display with my company
would drive the quality of management and I
would get answers for the right questions.
So, something must be wrong somewhere. I
don’t know what is it but I have an opinion
that something is wrong with the
shareholding structure of insurance
companies in Nigeria. If that is dealt with
and the regulator improves on its capacity
and its independence, then Nigeria’s
insurance industry would start to see some
progress.
As an actuary, what have you contributed to
the industry?
Actuaries need to get involved in the
industry. We have been chasing the
regulators but to no avail, we have not
stopped. The social insurance trust fund that
covers workers’ compensation throughout
Nigeria requires actuaries and a lot of data
gathering. This is an insurance fund that
covers people against injury, death and
occupational hazard in this market and it is
mandatory by legislation. How are they
doing? They collect billions every month and
they don’t have a single qualified actuary.
We have offered them to help train actuaries
further, still no response.
How can being an actuary help solve the
unemployment rate in Nigeria?
As I speak to you now, being an actuary is
the number one job in the United States and
yet we have huge graduate unemployment in
Nigeria. You can imagine a graduate going
to teach in a kindergarten. If these graduates
can subscribe to the training we have in
Nigeria within 12 to 16 months, they can
begin to apply for jobs in the US, but they
are completely unaware. Youth
unemployment, the insurance industry with
low penetration, social insurance industry
and the pension industry that is sitting on a
time bomb when pensioners are going to
out-live their retirement assets, all need
actuaries to help reform.
Beyond that, there is what we called
enterprise risk management that is a vast
field covering all industries that actuaries are
the only professionals that are best suited
for enterprise risk management.
been plagued with a myriad of challenges
ranging from low penetration, inadequate
training of staff to lack of actuaries.
Chairman/Consulting Actuary, TAF
Consulting Group, Mr. Debo Ajayi, in this
interview with ODIRI UCHENUNU, proffers
solutions to some of the challenges
confronting the insurance industry.
Why, in your view, don’t many Nigerians buy
insurance policies?
If people are not buying insurance, it is
because they are smart. This is because,
particularly in Nigeria, Nigerians can make
intuition assessment of the value preposition
of insurance and when they realise they are
not getting a good deal, they won’t buy. It is
not that they don’t value insurance, they do,
it is because the price they pay versus the
benefit they get doesn’t measure up.
When you look at the average lost ratio, the
ratio in Nigeria is 24.2 per cent and what
that really means is that out of every N100
of premium that the insurance industry
collects, only N24.2 is returned to the
insured population. To put this in
perspective, in Kenya, the loss ratio is 59
per cent. This means that out of every 100
shillings collected, the industry returns to
the population 59 Kenya shillings. In
Tanzania, the ratio varies between 50 to 60
per cent. In Uganda, it is 63 per cent, in
South Africa, it is 61 per cent. In Egypt, it is
73 per cent while in Nigeria it is 24.2
percent. So if you are in a transaction that
somebody collects N100 from you and gives
you N24, how sustainable is that transaction
on an on-going basis? Though Nigerians are
not actuaries, they are very smart intuitively.
They can make that judgement. From my
circle of friends, based on their own
insurance experiences, I can tell that when
they pay N100, they get N24. We have
worked for clients in Nigeria and we have
seen their loss ratio and we alerted the
management that this is too low and we
advised that they either cut down premium
or increase benefit for the same premium so
that the loss ratio can go up.
What can be done to avert the low
penetration in the insurance industry?
I told players in the industry that if Nigerians
are not buying insurance, it is not because
they don’t have the need or value for
insurance, but because the price is too high
and it is not sustainable. There is a high
correlation between loss ratio and
penetration of insurance. In Kenya for
example, the penetration rate grew in 2008
from 2.6 per cent to 3.3 per cent in 2013. In
Nigeria, penetration rate is 0.6 per cent. You
see the correlation? Taking you back, in
Kenya, the average loss ratio is 59 per cent.
In the United States, the average loss ratio is
95 per cent, meaning, from every $100
collected from the population, 95 is returned
to them. So the remaining 5 per cent covers
the insurance company’s expenses and
investment income to make up profit.
Another example is Ghana, they went from
0.9 per cent in 2008 to around 1.8 per cent
in 2013. Morocco from 2.9 per cent in 2008
to 3.2 per cent in 2013.
So, principally, I would say rather than spend
all these millions on so called insurance
awareness, improve your benefit offering,
improve your pricing. When people enjoy
insurance, they would buy. Rather than
running away from claims, engage in paying
claims because it is a form of customer
service. So when I said that Nigerians are
not buying insurance because they are
smart, that is what I mean.
The issue about price is a very big one. All
these issues affect penetration by the way.
The product, how it is packaged, how it is
presented, the price is also very important.
Talking about price, whether it is high or low,
of course the price is high because that was
what the loss ratio indicates, but why is the
price high? A lot of time, the insurance
industry in Nigeria does not have the
technical capacity to do right pricing. They
need actuaries whether in life or non-life.
The prices are not credible,they are not
reflecting. Different actuaries use different
assumptions and they have been using
these assumptions for decades and they
have not accumulated statistics to review
these assumptions. Also, the managements
of insurance companies are not asking
questions. So, of course the price is high
and there is no assessment of any price that
I can see happening in this market. So, all of
these together define the low penetration
that we have In Nigeria. If you want to do
proper product packaging for example, you
would need to have product developing
process, that is, you need to identify your
target population, you need to identify their
needs and then before you start talking
about pricing, packaging and all of that. This
is not happening in Nigeria. The woman on
the corner grocery knows the profit margin
of product items that she has in her store,
how many of our insurance companies in
Nigeria know the profit margin of the
product they are selling? They don’t.
Something that important. When they are
asked to develop new products, what they
care about is what are the risks? What are
the benefits? How profitable are these rates?
What are the risk elements in this product?
What are the capital implications of this
product? What is the vulnerability to me in
terms of this product? So when they are
selling education products, mortgage
protection products, annuity products, they
don’t have or know the profit margin for all
these products. Even at the product initiation
stage, that information is not in the product
menu. So I conclude that the insurance
companies are managing their businesses
using a rear view mirror to drive in the dark.
It is pathetic. I can talk to you like this
because of the technical know-how. The
average person on the street would probably
have a difficult time even appreciating what
I am saying. They just know that insurance
is a bad deal. If something has to change in
Nigeria, these things have to be addressed.
There is a need to also develop actuaries.
What can the regulators do to revive the
industry?
The government and stakeholders need to
develop actuaries. I have written proposals
on the need to train actuaries but to no avail.
We have a fully equipped classroom in this
place for video conferencing and all of that,
getting actuaries outside Nigeria to teach
Nigerians, entirely based on our own
investment, no single support from
government or any industry association. We
are putting these things in place because we
believe that the insurance industry cannot
develop without that technical capacity. It is
just not possible.
The insurance industry having 0.6 per cent
penetration is a testimony that there are
problems there, you don’t need to be a super
actuaries to know that and here we are. I
chase them instead of them chasing me. I
really don’t understand why Nigerians don’t
want to be developed. As a Nigerian, I am
committed to developing Nigerians to the
extent of becoming world class actuaries
and I know I would be remembered one day.
I hold two classes of stakeholders
responsible for the state of Nigeria’s
insurance industry, the regulator and the
shareholders. There is no way as a
shareholder I would invest capital in an
organisation and not care about sound
management of that company. The level of
oversight that I display with my company
would drive the quality of management and I
would get answers for the right questions.
So, something must be wrong somewhere. I
don’t know what is it but I have an opinion
that something is wrong with the
shareholding structure of insurance
companies in Nigeria. If that is dealt with
and the regulator improves on its capacity
and its independence, then Nigeria’s
insurance industry would start to see some
progress.
As an actuary, what have you contributed to
the industry?
Actuaries need to get involved in the
industry. We have been chasing the
regulators but to no avail, we have not
stopped. The social insurance trust fund that
covers workers’ compensation throughout
Nigeria requires actuaries and a lot of data
gathering. This is an insurance fund that
covers people against injury, death and
occupational hazard in this market and it is
mandatory by legislation. How are they
doing? They collect billions every month and
they don’t have a single qualified actuary.
We have offered them to help train actuaries
further, still no response.
How can being an actuary help solve the
unemployment rate in Nigeria?
As I speak to you now, being an actuary is
the number one job in the United States and
yet we have huge graduate unemployment in
Nigeria. You can imagine a graduate going
to teach in a kindergarten. If these graduates
can subscribe to the training we have in
Nigeria within 12 to 16 months, they can
begin to apply for jobs in the US, but they
are completely unaware. Youth
unemployment, the insurance industry with
low penetration, social insurance industry
and the pension industry that is sitting on a
time bomb when pensioners are going to
out-live their retirement assets, all need
actuaries to help reform.
Beyond that, there is what we called
enterprise risk management that is a vast
field covering all industries that actuaries are
the only professionals that are best suited
for enterprise risk management.
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