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Tuesday, 8 March 2016

Many Hurdles Of MDRI, Takaful Insurance

The Market Development and Restructuring Initiative (MDRI) is an evergreen package meant to prop Nigeria’s insurance sector, but so far the implementation has stalled the brilliant initiative, writes CHIKA IZUORA 
Chief Yemi Soladoye is the managing director of Riskguard-Africa Nigeria Limited, and one of the few operators in the Nigerian insurance sector that has contributed immensely to the development of insurance in the country.
He is the brain behind the MDRI concept and consulted for the National Insurance Commission (NAICOM) bringing into the industry initiatives and advises that if well implemented will certainly change the face of insurance in Nigeria.
But he told the LEADERSHIP at the weekend that he is not impressed with the outcome of the implementation process and regretted that one of the key impediment to the full blown execution of the project is the legislative restriction of the NAICOM in exercising some responsibilities.
After Soladoye and his team perfected the document, the NAICOM, under Fola Daniel, embraced it and even carried out a review of its operational guidelines with the desire to enhance the industry’s growth. The MDRI, was structured to raise the value of insurance contracts to about N1 trillion ($6.4 billion) from N300 billion by the year 2017 and also contribute about 3 per cent to the gross domestic product (GDP), boosting penetration increase to 22.5 per cent from 10 per cent. The MDRI projects to achieve N1 trillion premium income and has a four-year strategic plan and all of these were missed due to failure in the commencement of implementation.
Even though the NAICOM considered a review of its guideline, Soladoye is yet to come to terms with its implementation strategy and expresses concerns because the initiative has failed to achieve some of its projections in the first phase where a target of N1 trillion premium income could not be achieved.
He is canvassing that there should be a shift in the deliverables to make-up for the difference between the time of the strategy crafting and implementation. He, however, blamed operators for the seeming slow industry recovery which the initiative would have turned around.
“I will not blame the regulator because if you look at the law setting up the NAICOM, it is about regulation and supervision, and not market development. The NAICOM, in this case, feels that it has given the operators the strategy to develop and grow, but operators are neck deep in running businesses the old style; they are faced with the challenge of meeting the board’s and shareholders’ expectation and this makes it difficult for them to invest in future market developments like micro insurance and Takaful, and wiping out fake insurance institutions. They have not come together for united market development and whether we like it or not retail insurance is key,” he said.
He said that the MDRI expresses micro insurance as a key growth strategy and hoped that now that more distribution channels for commercial and micro insurance have been identified, the initiative is expected to bring some level of growth and development.
The initiative is remarkable in the history of the industry and it is also an evergreen thing and cannot be wished away as it has brought about many developments. It was envisaged that under the strategy, compulsory motor-vehicle insurance, which makes up most contracts, would remain at about 10 per cent by 2017, while life insurance would constitute 7 per cent, general business insurance 3 per cent and petroleum companies insurance 2.5 per cent.

Corporate Governance   Code Implementation, Takaful To The Rescue?
At a recent meeting of the newly constituted Insurance Committee, the NAICOM gave the indication that it will enforce the implementation of the Corporate Governance Code. The enforcement is to bring unification into its implementation in April. The implementation is coming 7 years after it was introduced which points to the fact that the industry is not disciplined when it comes to policy management. Since the introduction of the code, the NAICOM has not been firm on it, but has said that its enforcement would begin on April 1, 2016.
However, operators has said that the implementation had been ongoing but at various levels of compliance by individual companies. The director-general (DG) of the Nigeria Insurers Association (NIA), Sunday Thomas, told LEADERSHIP that its implementation will further bring sanity in the industry.
“I am aware that a committee is working with the regulator and if there is an agreement, then full implementation will start, but I can tell you that companies are observing the code just that the NAICOM is coming up with a strategy to ensure compliance,” he said.
The implementation decision follows the NAICOM’s announcement that underwriting firms in the insurance industry will no longer have a uniform capital base, just as it directed operators to recapitalise according to the risks they undertake.
On his part, Soladoye explained that the decision to ensure full industry compliance to the Corporate Governance Code will help to protect policyholders’ interest.
“When the implementation commences, we will have a Unified Corporate Governance Code in the country, else we have a ‘Kabiyesi’ sort of management,” Soladoye stated.
On the failure of the Takaful insurance to take root in the industry, Thomas expressed worry that misconception and the inability of operators to embark on an industry-wide enlightenment exercise has brought about its snail pace development. As part of the NAICOM’s ongoing pursuit to increase insurance penetration in Nigeria and increase the contribution of insurance to the national GDP, the need for Takaful Insurance was identified following a detailed research.
Takaful Insurance, according to the NIA DG, is a form of insurance which incorporates elements of mutuality and ethical finance considerations and is open to all people regardless of faith and background. Already the regulator has issued guidelines to provide regulatory guidance for Takaful Insurance in the industry with the desire of enhancing financial inclusion in Nigeria and to ensure Takaful Insurance providers are not disadvantaged. The guidelines for Takaful Insurance provide guidance on elements that are specific to the operations of a Takaful Insurance operator; they outline and clarify the framework within which Takaful Insurance operators are to carry out the Takaful Insurance business. However, these guidelines, which took effect from March 2013, have not prompted the operators to embrace the initiative.
Soladoye, however, expressed optimism that soon operators will take serious steps to develop strategies and begin the marketing of the product.
LEADERSHIP reports that Takaful Insurance is a form of insurance that is compatible with the principles of the Shari’ah (Islamic Law) and market survey undertaken by the NAICOM indicates a significant religious-based objection to conventional insurance.  A number of financial principles inspired by Shari’ah are shared by other Abrahamic faith. The Takaful Insurance is in consonance with elements of mutual insurance and also ethical financial management and is accountable to all insuring public regardless of faith.
The Takaful Insurance is based on two principles, Tabarru (donation/contribution), which is a donation covenant where all participants agree to mutually support each other and is the basis of participants’ contributions into the Takaful Insurance Fund. It also dwells on the Ta’awun principle (co-operation) which is the established Islamic concept of mutual assistance and is the basis on which participants willingly agree for the Takaful Insurance Fund to be used for the mutual benefit of all participants to meet eligible claims.

The key elements of the Takaful Insurance scheme include mutual guarantee which means that all policyholders agree for the pooled funds to be used for assistance in specified circumstances of loss, ownership of the fund which entails that the participants are the main owners of the Takaful Insurance Fund.

(Leadership / 07 March 2016)
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