As the global economy contends with the financial crisis, Nigerian insurers express optimism that the impact on the local market would be minimal, even as Ladipo Ajayi, managing director, LASACO Assurance plc, tells MODESTUS ANAESORONYE in this interview.
Financial crises and Nigerian insurance  Nigeria’s role in the international committee of insurers is still very minimal. You cannot grow internationally without developing your domestic market because your international recognition comes from the viability of your domestic market. Presently, we are not a major player in the international market to an extent that Nigeria can be so adversely affected by the global crisis. I don’t think the insurance industry in Nigeria has had any serious impact more than the average Nigerian sector. 
The crisis in the stock market about prices of insurance companies coming down is not a reflection of what is happening in the insurance companies themselves. It is a reflection of the forces of demand and supply that are operating in the marketplace. Financial experts have not been brought in to rate and evaluate them to know what their price is. They have only determined the price by how much people are willing to buy and sell. And if there is a glut in the market, ordinarily, the price will go down. Apart from that, I don’t see much impact of the global financial crisis on our insurance companies.
However, insurance companies, being very serious institutional investors, have been adversely affected by the crisis in the capital market because we have a lot of investments there. We have lost so much money due to the falling share prices.
Credit system and insurance growth Â
Access to credit promotes trade and definitely, once trade is promoted, insurance will thrive. Secondly, when there is a credit transaction, insurance becomes compulsory because the lender will not want to leave himself or herself unprotected, even if the borrower does not want to insure the asset which is the subject matter of the credit transaction. The lender will insist because once the asset acquired with the credit facilities is no longer in existence, there is little impetus on the part of the borrower to repay. The lender will now have to rely on the law to compel the borrower to repay. So, it is wise and easier for lenders to insist that they have the asset insured; thus helping to promote the culture of insurance. By this, those who would not ordinarily have had contact with insurance will see insurance at work and develop more confidence in it. Â
Conservatism and lending in Nigeria
The casualty rate is very high; people default a lot in Nigeria and the moral question is there. When somebody comes to you and says he wants to execute a project, before he starts the project, he will eat the profit element and even the capital, thus making it difficult to carry out the project he intends to carry. Right from the time I was in school, I knew that attempts by the government to promote agriculture failed because the farmers, when they took the loan, married additional wives rather than invest in their farms. Â
Most times in Nigeria, when government is involved in such things, they see it as sharing of the national cake. Because you don’t know the multiplier effect of all these things, people don’t take it seriously. Another thing is that we don’t have a database whereby the creditors can collate their record. If you have a mortgage or hire purchase with an organisation in developed economies, they are collated so that the credit history of the individual can be assessed. How credit worthy am I? If I come to you and happen to have spoilt my credit record, it will show. So people can build their credit record, starting from small things they can afford to pay back like household equipment, television and the rest. From there, they can take more credit to buy a vehicle, take a mortgage loan, and by the time you have been in employment for many years, you build your credit record. So, what is terribly wrong is that there must be a rethink of this moral question in Nigeria. How do we get people committed? The banks from their own sides are overreacting. When you go to them now, they will not lend you money except you have money. The banks are overexposed because without lending, they cannot make money. But even then, we have to appreciate the difficult environment in which the banks are operating.
Banks’ incursion into insurance
Those insurance companies, to be candid, are supposed to be run by professionals, and every insurance company has a limit of risk it can accept. There is a limit of risk you can retain for your own portfolio and there are other risk transfer methods open to an insurance company by which you can handle the excess risk in your portfolio. What it does for them is something I can call “captive market.†There are establishments in the world who feel so big that they set up captive insurance companies to do their own businesses alone or in addition to others. These insurance companies are not really captive insurance companies but they have a captive market for their bank. The only thing they need to do is to make sure they are not overexposed. And when the chips are down, they have problems. But once the insurance companies are professionally managed, I think they will continue to do well.
Lasaco post-consolidation
We have the Lasaco Group, we have the Lasaco properties, we are already doing some serious investments. We have the Lasaco life that is already making its mark in the insurance industry. In the life section of the market, we have had accounts that we have led; we have participated in almost all the major accounts. Lasaco Assurance plc, our flag shift, is still going strong. These are the promises that we have made and we are going very strong in that line. We have three companies in one now and we are still making efforts to invest in other areas so that we can become a real financial conglomerate. Lasaco House is going to spring to life in year 2009.
That is the biggest prospect that we have now which will show that Lasaco Assurance has really bounced back. We are going to complete it and there will be no greater evidence of making giant strides than that. We have almost completed negotiation with a company in Ghana. Once we sign the MOU and we get the approval of the National Insurance Commission and all other statutory approvals, we will make the plan known. For now, we haven’t signed the MOU but we are close to signing it.
Claims payment
That is the major focus of our operation, and I am very happy about the reputation we have built in that direction. We are not only paying claims promptly; we also try to be very flexible in the interpretation of policies. We don’t want to be regarded as a small print insurance company. We want to do something that will encourage the practice of insurance. In fact, I want to tell you that Lasaco is not working for itself alone but is working for the insurance practice in Nigeria. Prompt claims payment is a major requirement of our operational strategy.
Ownership of insurance by banks
A long time ago, when I was still in school, they told me that it is a function of underdevelopment in an economic system when the banks are controlling the economy. In a developed economy, banks have to take a secondary position to other financial institutions like insurance, mortgages, etc. But when you look around now, the banks provide the majority of the youth with jobs, sending them out to look for money. There is no professional banking.
They can take advantage of the moment and own insurance companies, but our own expectation is, following the normal trend, those insurance companies will become the prime owners of their establishment. They will be the sustaining power of the establishment and they are not part of the banking industry. The change we are talking about is at the ownership level, but a bank is a bank; an insurance company is an insurance company. Banks cannot snuff the growth of insurance because they are investing in insurance.