Managing the pressure from investors in insurance

By Ekerete Olawoye

Gam-Ikon, MNIM, CPP

Our conversation had been on for about two hours and we were satisfied that the mention of a few innovative steps would certainly bring about the attractiveness of the insurance industry in Nigeria. However, one of the discussants opined, in her exact words, “Unfortunately, the pressure from our investors to generate premium and profit would not allow any of these to happen.”

Then, quite interestingly, some heads were nodding in agreement with her and I thought we had probably misused our time deliberating on the wrong problems or challenges.

“Could it be that bad?” I thought, quietly, before requesting that we take a break and return to discuss how investors in insurance perceive the industry, steer their expectations that create pressure and the ways to manage them. Therefore, I have decided to share the concerns and conclusions from the conversations we had.

Why the pressure seems uniquely overwhelming

Investors behave alike wherever they go; they expect to make measurable returns and constantly compare the contents of their portfolios to ensure nothing is underutilized and undervalued.

Typically, they listen to the pitches from Start-uppers, Operators and Practitioners and decide, based on their appetite and the potential for sustainability of the proposed opportunities.

Unlike other sectors, what has commonly happened in the insurance sector, over the years, and caused the increasing pressure, is the reason for which the investors are called, needed or required. It has been for the singular reason of meeting a regulatory-induced capital base!

So, the investors bring in their hard-earned funds to enable the operators meet regulatory targets and keep their operational licences. Does anyone then expect them to wait? No, they would not and should not.

While the operators see the licence as authority to demand for patronage from the public or ticket to have access to the show, the investors know that the licence merely gives comparative advantage that needs to be extracted and not served. Most of the time, rather than resolve such basic differences, both parties continue to give one another the assurances that they will play their respective roles, until the year ends with one party holding the short end of the stick; and you know who.

The pressure would usually have begun when the documents for the funding were signed but intensified when the financial reports show that the budgets for Management Expenses were met (even surpassed), yet those of the bottom lines were either unmet or grew marginally, thereby leaving the invested funds in deficit or struggling.

Interestingly, there are more pressures in banking but the key difference is the basis of measuring performance and the understanding of the expectations of the investors and how they are met.

Re-balancing the basis of performance

Investors, understandably, being Shareholders, know that their returns on investment come when the operations record profits, reasonably good profits.

Thus, the basis of saying an investment in insurance has performed would be the level of profit recorded. Unfortunately, the operators and practitioners have repeatedly sold the Gross Written Premium as the basis for performance thus focusing less on investors and shareholders.

I have sat in too many strategic planning and financial budgeting meetings of many insurance companies until recently to know that if the basis of performance remain Gross Written Premium (GWP) and not Profit Before Tax (PBT), then the pressure will continue and negate any efforts at innovatively engaging the potentials of the market.

The point is, in many other sectors, especially banking, the basis of performance is set by the shareholders. They request for the dividend mark that they want achieved and the Executive Management goes on to determine the level of PBT needed to meet their Shareholders’ requests.

From there, the discussion would shift to the volume of Turnover, Transactions and Account Holders needed to achieve the targets of PBT and Dividend.

A few insurance companies have already started working from the standpoint of the dividend with their Shareholders and Investors, and the climate in their environments has begun to show some balance. There is hope, therefore, that the insurance industry will begin to comfortably respond to enquiries like the number of policyholders under certain categories and also have operators become more committed to the overall growth and development of the sector.

The New Shift

With operators and practitioners coming to terms with what investors in insurance desire and considering the advantage that the entire insurance industry in Nigeria stands to gain, a shift in the focus from GWP to PBT will mean that more attention can be paid to creating environments that support innovation. Put differently, we will begin to meet more members of Executive Management of Insurance Companies with responsibilities for research and strategy, product innovation, digital transformation, business intelligence, data analysis, new partnerships and certainly, less of Heads of Fire, Marine, General Accident, Motor, Bond and Engineering, Life and even Agriculture, which are best understood by those within the insurance sector.

It is my hope that the few insurance companies that have put their Shareholders in better focus will succeed repeatedly and attract others to embrace their approaches and models.

Though it is globally acknowledged that the insurance sector is much slower with the adoption of technology, the story in Nigeria and Africa continues to baffle analysts who expect technology to enable the reduction of the gap but the same seems to be widening despite increasing digital connections occasioned by the effect of COVID-19. Closing this gap will require more than funds from investors but knowledge of technology, innovation and branding amongst operators and practitioners, which will attract and keep attracting more Nigerians to migrate from the informal insurance to formal insurance.

We have seen how mere announcements of the PBT of some banks in Nigeria have elicited comments, questions and analyses from both investors and the media, and hope the insurance industry can afford to share the limelight sooner. Doubtless, there remains a lot of work to do in this regard, but a better management of the expectations of the investors, including having some insurance professionals become investors and vice versa, would certainly cause the positive dent that we have long waited to see in the insurance industry in Nigeria.

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• Ekerete Ola Gam-Ikon is a consultant on insurance and entrepreneurship and can be reached via WhatsApp on +234-802-585-0344