Pillar: Adaptation and Resilience

Activities and developments in both local and global business environment made insurers to see 2023 as positive business year with emerging challenges, writes Ebere Nwoji

As the global business community closes its annual transaction books for the year 2022 and opened an entirely new book for 2023, insurance operators said they were marching into the new year with positive thinking that the year would be a vibrant one though with a lot of challenges to contend with.

For Nigerian insurers, this expectation is anchored on the fact that early passage of the year’s budget would accelerate operations because of new contracts that will be awarded and paid for as well as yields from the huge investments they made in technology as a result of COVID-19 outbreak.

Also the approval of N9.24 billion by federal government for payment of group life insurance of its workers will, if timely released, boost the insurers’ operations.

With these, Nigerian insurers see the year as that of upward and forward movement rather than year of stagnation and marking time.

Signs of this belief among the insurers   is glaring at the expressing of the insurance Commissioner, Mr Sunday Olorundare Thomas, when in the last quarter of 2022, he declared that the insurance sector was moving to a new landscape and that the industry would in 2023 be more prepared to achieve insurance inclusiveness in Nigeria.

The commissioner, with this positive thought and belief in the new year, penultimate week approved 200 percent increase in motor insurance premium effect from January 1,2023. There are also indications that more upward review of other policy premium rates was on the pipeline, a situation, which will boost operators’ premium generations during the year.

Challenge as Opportunity

Similarly, the new chairman, Nigeria Insurers Association, Olusegun Omosehin, looking towards the year with optimism said the operators would turn every challenging situation in the industry to opportunity.

Listing out developments that will herald positive business outing for the insurers during the year, Thomas said the commission would  continue its execution of various regulatory and market development initiatives to uplift the insurance sector to a global standard.

“This will be achieved through a 12-point laid down initiatives that will focus on engaging stakeholders, including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states; driving the Market Development and Restructuring Initiative to promote compulsory insurance products; feasibility assessment for Index Based Risk Transfer Solution in the agricultural sector; financial inclusion drive via focused insurance awareness campaign for the financially excluded,” the commissioner stated.

Insurance Market Development

He highlighted other areas as  “launch of the Insurtech Accelerator platforms under the Insurance Market Development programme i.e Bimalab Programme in conjunction with FSD Africa; ongoing synergy with FSD Africa on developing a Risk Based Capital Model for the Nigerian insurance industry; promoting the development of products and business models that meet the needs of the financially excluded group; automation of the commission’s processes; actuarial capacity development programme; risk based supervision regime; regional integration and setting up of the insurance sector committee on African Continental Free Trade Area among others.”

On their part, global insurers are of the view that  the last few years, most insurance carriers have demonstrated remarkable flexibility and resilience in overcoming a host of obstacles, especially the impact of the pandemic and the economic fallout from the Russia-Ukraine conflict. Systems and capabilities were improved, while agile talent and technology strategies paid off.

For the New Year, stakeholders have raised the question on whether the industry is ready for emerging challenges heading into 2023 and beyond.

Deloitte in its outlook for insurance industry in 2023 observed that the  road ahead was  dotted with multiple hurdles—rising inflation, interest rates, and loss costs; the looming threats of recession, climate change, and geopolitical upheaval; and competition from InsurTechs and even noninsurance entities such as e-tailers and manufacturers, to name a few. It therefore concluded that year 2023 was not a time for insurance carriers to be satisfied with the adaptations they’ve had to make.

“Insurers should be pivoting to longer-term reinvention, inflation challenging nonlife insurer profitability even while boosting prices, top-line growth, life carrier transformation as  key to sustainable growth, Group insurers getting  innovative amid shifting dynamics . In terms of human capital outlook, it said insurers should reinvent workplace strategies and culture as talent war intensifies in the area of tchnology, recommending a movement from infrastructure investment to value realisation.

Setting sights beyond compliance

Deloitte therefor advised that for sustainability sake, insurers should set sights beyond compliance, make ESG a competitive differentiator. It viewed that activities in the industry will be slowing from uncertain economy adding that financial wise, new accounting rules will put public insurers in the spotlight.

Deloitte further observed that insurers are most likely going to face   a host of macroeconomic and geopolitical challenges likely to inhibit growth and profitability including the looming threat of global recession, continuing fallout from Russia’s invasion of Ukraine, and lingering COVID-19 concerns.

It however said insurers that effectively transitioned during the pandemic to a remote workforce, as well as virtual customer and distributor engagement, could be better positioned to capitalise on a more agile digital infrastructure in meeting evolving expectations for customised products, channels, and services.

“In setting strategic plans, investment priorities, and budgets, insurers should therefore strive to maintain the momentum of creative adaptation established over the past few years, accelerating upgrades in systems, talent, and culture while becoming increasingly proactive, innovative, and customer-centric.

According to Deloitte, technology and resulting improvements in risk selection and pricing are likely to remain the primary drivers of improved bottom-line performance during the year as it alerted  insurers  to expect being  increasingly judged by stakeholders on their response to broader sustainability priorities such as climate risk, diversity and inclusion, social equity, and transparent governance—all of which could become competitive differentiators.

The Deloitte  report noted that insurers are facing a host of macroeconomic and geopolitical challenges likely to inhibit growth and profitability during the year including the looming threat of global recession, continuing fallout from Russia’s invasion of Ukraine, and lingering COVID-19 concerns.

However, insurers that effectively transitioned during the pandemic to a remote workforce, as well as virtual customer and distributor engagement, could be better positioned to capitalise on a more agile digital infrastructure in meeting evolving expectations for customised products, channels, and services.

It suggested that in setting strategic plans, investment priorities, and budgets, insurers should therefore strive to maintain the momentum of creative adaptation established over the past few years, accelerating upgrades in systems, talent, and culture while becoming increasingly proactive, innovative, and customer-centric.

It noted that technology and resulting improvements in risk selection and pricing are likely to remain the primary drivers of improved bottom-line performance.

PWC outlook

PWC in its outlook for the insurance sector in 2023 said, “We expect economic headwinds to persist into the first quarter of 2023 as companies evaluate the impacts of inflation and interest rates on deal values.

It noted, as it has been the case historically, there is expectation for   private equity buyer demand for resilient, EBITDA generating business, such as insurance brokerage companies, to remain strong.

“As the cost of borrowing increases, we expect valuations to decline, specifically for insurance brokerage targets where many of the brokerage consolidators are private equity backed and rely heavily on debt financing to fund these acquisitions. Given the recent rise in interest rates, the cost of funds has increased dramatically, which is likely to impact valuations of these targets into 2023,” PWC stated.

It further remarked that ideal activity in the life and annuity sector has remained strong, as long duration blocks have benefited from a rising rate environment.

“Acquirers of these in-force/legacy blocks don’t rely on debt financing, which makes these transactions appealing to buyers in a rising rate environment. As a result, we’ve seen increased demand and rising valuations for these assets as private equity seeks to deploy its extensive dry powder”, PWC also stated.

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ICEA LION Group has charged insurance regulators and operators in Africa to adopt Environmental-Social-Governance (ESG) to drive sustainable growth of the market on the continent.

Speaking at the recent 2022 Insurance Directors’ conference held at the College of Insurance and Financial Management (CIFM) in Lagos, Nigeria with the theme: ‘Transforming the Insurance Industry through ESG Principles: Directors’ Roles,’ the chief executive officer(CEO) of ICEA LION Holdings, Mr. Philip Lopokoiyit, said the key substance of the Nairobi Declaration on Sustainable Insurance was a declaration of commitment by African insurance industry leaders to support the achievement of the UN Sustainable Development Goals (SDGs).

He emphasised that the declaration is “an Africa-focused initiative designed to encourage and support African insurance market players.”

He further added that, “it is a convening tool that signals their willingness to develop ESG principles and solutions within their businesses as insurance players become change agents in light of the biggest challenge facing humanity.”

The declaration, according to him, is important because, while the UN Sustainable Development Goals (SDGs) are gaining momentum, progress to meet these SDGs from a financial services perspective was not yet at the speed or scale required.

Lopokoiyit added that, the ICEA LION Group went to COP 27 in Sharm El-Sheikh-Egypt 2022 as a founding signatory to the  Nairobi Declaration on Sustainable Insurance (NDSI).

The group co-hosted a  Climate Adaptation event together with UNFCCC, FSD Africa and Namib Re as representatives of the NDSI on 9th November 2022.

At this event, the signatories announced the launch of the Africa Climate Risk Facility.

According to the ICEA LION Holdings CEO, the signatories made a commitment to insure cumulatively more than 1.4 billion people by 2030 as well as provide $14 billion insurance capacity for flood, drought & cyclones in Africa.

He spoke on the $900 million multi-donor-trust fund  facility, which when fully set up and resources mobilized, will be available for NDSI signatories.

The facility is expected to drive premium subsidies, product development and capacity building. According to the executive, other significant milestones for the continent at COP 27 included; the launch of the Africa Carbon Markets Initiative as well as the decision by developed countries to establish a loss and damage fund.

In terms of challenges of enthroning the ESG model in Africa, Philip identified six major roadblocks as heavy carbon-driven economies, few African voices on the issue, considerable lack of knowledge & awareness, uneven playing field for early-adopters of ESG,  short-term planning models and lack of green finance instruments to quickly facilitate adoption of ESG principles.

It is imperative to emphasise that the ESG model suggested by the executive reflected prominently in the 16-point communique released by the event organisers, underlining the importance and strength of the Group’s participation at the event.

The ESG principles canvassed by the CEO of ICEA LION Holdings that got a buy-in in the final communique include: that insurance can serve as a veritable tool to solve sustainable challenges such as: Pollution, Poverty, Social Inequality, Biodiversity, Climate change, among others; that the Nairobi Declaration on sustainable Insurance should be given serious consideration by the Nigerian insurance industry and that the outcomes of COP 27 can facilitate Nigerian market expansion, among others.

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Although, industrialisation has brought huge development in job creation and world advancement, it has equally led to the degradation of the environment and encroachment of natural habitat that has led to climate change.

The drought, ocean surge, fire outbreak, among others, are the rotten fruit of industrialisation and urgent steps had to be taken to address this looming danger staring at us.

The Environmental, Social and Governance (ESG) Principles came into being, to address this challenge and several multinationals and local firms have incorporated ESG principles in their modus operandi to lower the effect of climate change.

ESG principles can lead to sustainable business by incorporating toolkits that guide the business in the context of the environment. This will ensure that insurance business is carried out responsibly.

Meanwhile, insurance industry globally is continuously undergoing profound changes, and the disruption faced are not just digital but also harsh market conditions, informed demanding customers, innovative/ new market entrants as well as regulations.

However, in insurance industry across Africa, the Nairobi Declaration on sustainable Insurance are expected to be given serious consideration by the Nigerian insurance industry.

Stakeholders’ Reactions

The commissioner for Insurance/CEO, the National Insurance Commission(NAICOM), Mr. Sunday Thomas, said, with the requisite knowledge of ESG, insurance companies would be able to enhance the value of their companies and avert the danger of paying little or no attention to the impact of ESG in corporate survival and sustainability.

“We must take cognisance of the fact that industrialisation and economic development have given rise to a wide spectrum of environmental externalities and social impacts bringing to the fore issues like board structure, shareholder rights, business ethics, risk management, incentives and executive compensation.

“Consequently, for businesses to continually develop, they must take into consideration the community in which they operate, ensure consistent value to customers, maintain the highest standards of governance and ethics, and mitigate its overall impact on the environment,” he pointed out.

Thomas maintained that, sustainable finance, which is the creation of economic value through the provision of financial services, now integrates ESG considerations for the lasting benefit of stakeholders and the society at large.

The objective, he noted, was to achieve a balance in the pursuit of economic prosperity with environmental protection and social development.

He advised that, in the financial services industry, there is an increasing realization that sustainable practices have a positive potential to save costs, increase revenues, reduce risks, develop human capital and improve access to finance thus, while ignoring sustainability issues increases legal and reputational risk.

“ESG (Environment, Social, and Governance) are the three broad categories within which corporate sustainability is measured. It is pertinent to point out here that sustainability reporting is becoming more and more prevalent and sought for not just by governments through regulations, but also by stakeholders such as investors, consumers, and employees. Increasingly, companies all over the globe are incorporating sustainability in long-term development strategies as well as their day to day operations.”

While admonishing insurance institutions to imbibe the principles of entrenching  ESG issues in their decision-making process while they conduct insurance businesses, he added that, “working with other stakeholders to raise awareness on environmental, social and governance issues, manage risk and develop solutions in the conduct of insurance business in Nigeria is key.

“More so, working together with government at all levels, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues in the insurance sector.

“We must demonstrate accountability and transparency by regularly disclosing publicly your progress in implementing these principles to relevant institutions responsible for; Monitoring and Evaluation of Compliance and Carrying out survey and research among stakeholders including (NAICOM, SEC, FRC),” he pointed out.

Thomas stressed that NAICOM also expects that insurance institutions take interest in pursuing: the developments of Green Products; improving operations geared towards energy efficiency; investment strategies; leveraging technologies; insuring people with disability; prioritise Corporate Social Responsibilities (CSR) and  improving & complying with professional standards.

He reiterated NAICOM’s resolve to proactively respond to Climate changes like flood and disaster management; Monitoring Population Growth- Annuities Insurance Longevity; watch out for Green Technology- which includes Work on Electronic Submission of regulatory returns and renewal of licenses etc; investment and strategy support to Ethical Investment.

Other areas of top priority are: Green Products- Takaful & Microinsurance, implementation of Policies to encourage Insuring Crops and Weather Base Index, treating customers fairly- Prompt Claims payment as well as seeking synergy with development partners FSD Africa on BimaLab Project.

“Wherever there is a challenge, there is an opportunity. Thus, all the sources of disruptions can be harnessed to become a source of growth for insurers. While no one can predict exactly what insurance might look like in a decade, insurers can take several steps now to prepare for these changes.

“It is imperative that as an industry, we take precautionary measures by raising awareness within ourselves on the potential sustainability impacts of business transactions, and integrating these considerations into pre-emptive and holistic risk management processes.

“We encourage insurance companies to reduce their environmental footprint through their internal operations and business activities. As leaders of your respective companies, it is instructive that you take deliberate steps at reconciling long-term with short-term goals, global expansion with local objectives, workplace and community issues; all of which must be united, while not losing sight of the basic goals of profitable operations and increasing shareholder value.

“In other to facilitate economic prosperity, ensure environmental sustainability and social development, we must join forces with identified stakeholders to drive long term sustainable growth in the insurance sector for lasting benefits to all stakeholders.

“As an industry, we should draw on external knowledge and partnerships to keep pace with wider trends affecting not just the local but also the global insurance market. We must discover strategies to adapt and overcome further changes in the near future that may arise as a result of entrenching Economic, Social and Governance principles, as we forge ahead together in creating an enabling and sustainable environment through value creation,” he stressed.

Similarly, ICEA LION Group has charged insurance regulators and operators in Africa to adopt Environmental-Social-Governance(ESG) to drive sustainable growth of the market on the continent.

Speaking at the recent 2022 Insurance Directors’ conference held at the College of Insurance and Financial Management (CIFM) in Lagos, Nigeria with the theme: ‘Transforming the Insurance Industry through ESG Principles: Directors’ Roles,’ the chief executive officer(CEO) of ICEA LION Holdings, Mr. Philip Lopokoiyit, said the key substance of the Nairobi Declaration on Sustainable Insurance was a declaration of commitment by African insurance industry leaders to support the achievement of the UN Sustainable Development Goals (SDGs).

He emphasised that the declaration is “an Africa-focused initiative designed to encourage and support African insurance market players.”

He further added that, “it is a convening tool that signals their willingness to develop ESG principles and solutions within their businesses as insurance players become change agents in light of the biggest challenge facing humanity.”

The declaration, according to him, is important because, while the UN Sustainable Development Goals (SDGs) are gaining momentum, progress to meet these SDGs from a financial services perspective was not yet at the speed or scale required.

Lopokoiyit added that, the ICEA LION Group went to COP 27 in Sharm El-Sheikh-Egypt 2022 as a founding signatory to the  Nairobi Declaration on Sustainable Insurance (NDSI).

The group co-hosted a  Climate Adaptation event together with UNFCCC, FSD Africa and Namib Re as representatives of the NDSI on 9th November 2022.

At this event, the signatories announced the launch of the Africa Climate Risk Facility.

According to the ICEA LION Holdings CEO, the signatories made a commitment to insure cumulatively more than 1.4 billion people by 2030 as well as provide $14 billion insurance capacity for flood, drought & cyclones in Africa.

He spoke on the $900 million multi-donor-trust fund  facility, which when fully set up and resources mobilised, will be available for NDSI signatories.

The facility is expected to drive premium subsidies, product development and capacity building. According to the executive, other significant milestones for the continent at COP 27 included; the launch of the Africa Carbon Markets Initiative as well as the decision by developed countries to establish a loss and damage fund.

In terms of challenges of enthroning the ESG model in Africa, Philip identified six major roadblocks as heavy carbon-driven economies, few African voices on the issue, considerable lack of knowledge & awareness, uneven playing field for early-adopters of ESG,  short-term planning models and lack of green finance instruments to quickly facilitate adoption of ESG principles.

It is imperative to emphasise that the ESG model suggested by the executive reflected prominently in the 16-point communique released by the event organisers, underlining the importance and strength of the Group’s participation at the event.

The ESG principles canvassed by the CEO of ICEA LION Holdings that got a buy-in in the final communique include: that insurance can serve as a veritable tool to solve sustainable challenges such as: Pollution, Poverty, Social Inequality, Biodiversity, Climate change, among others; that the Nairobi Declaration on sustainable Insurance should be given serious consideration by the Nigerian insurance industry and that the outcomes of COP 27 can facilitate Nigerian market expansion, among others.

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Insurance industry will soon witness risk based recapitalisation exercise to ensure that each insurance company only insures businesses it has the capacity to redeem its claims, LEADERSHIP learnt yesterday.

Risk-based capital is a method developed by the regulator to determine the minimum amount of capital required of an insurer to support its operations and write coverage.

The risk-based capitalisation exercise, which may commence in 2023, is to ensure that underwriters upgrade their capital base in alliance with its risk appetite.

While this model iwill not prescribe any uniform capital, low capitalised insurers will face business restriction when the exercise commences.

Similarly, it was learnt that, high capitalised underwriters would be the only ones writing businesses in highly risked sectors, such as, Oil and Gas, aviation and maritime, even as the low capitalised ones would be restricted low risk businesses.

LEADERSHIP also learnt that  this initiative will enhance soundness and profitability of insurers through optimal capitalisation, even as it introduces proportionate capital that supports the nature of insurance business.  The complexity of the businesses being  conducted by insurers means the industry must undergo risk-based recapitalisation.

However, investigations show this method seems to be the best for the market as there will not be license withdrawal.

Corroborating this development yesterday at the 2022  National Insurance Commission(NAICOM) seminar for Insurance Correspondents in Lagos yesterday, the commissioner for insurance/CEO, NAICOM, Mr. Sunday Thomas, said the commission and FSD Africa have commenced the process of developing a risk-based capital model of the Nigerian Insurance Industry as part of the various regulatory and market development initiatives to uplift the insurance sector to a global standard.

Currently, he said, the industry is already operating a risk-based supervision which will later be backed by risk-based capital.

Thomas stressed that the commission is engaging stakeholders including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states.

He raised concern about some people who hold positions that are unknown to the commission in the various insurance companies, causing problems for and de-marketing the industry.

“Anybody that is not known to the commission and is participating in a critical role in any of the insurance companies will be ban from participating in the insurance sector henceforth. We will make sure that the person does not participate in insurance business in this country anymore,” he stated.

Speaking on the theme of the conference: ‘the Future of the Nigerian Insurance Sector in a Shifting Landscape,’ Thomas said, the commission is promoting the development of products and business models that meet the needs of the financially excluded group, while ensuring automation of the commission’s processes with a focus on Actuarial capacity development Programme and risk-based supervision regime.

He said the theme at this period of rejuvenation, “calls for the Nigerian insurance sector to develop innovative products and distribution channels, embark upon massive infrastructural development, improvement in social safety nets scheme, rejig business continuity plans and general deployment of technology to meet the expectation of today’s consumers and create new experiences that add value.”

The NAICOM boss said, the commission is encouraged “to believe in a new dawn in all facets of our regulatory policies, leveraging technological innovations, and a positive paradigm shift focused and poised to meet the anticipated surge in the demand side of the economy.”

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The National Insurance Commission (NAICOM) has encouraged insurance companies to reduce their environmental footprint through internal operations and business activities.

This call was made by the Commissioner for Insurance, Mr Sunday Thomas, at the recent 2022 Insurance Directors’ Conference organised by the College of Insurance and Financial Management (CIFM) and NAICOM in Lagos.

He added that this has become necessary as insurance remains the industry that ensures the survival of other industries.

He noted that the world is going through rapid changes economically, socially, and environmentally and this has spurred the need to bring directors of insurance entities to speed on these developments to enable sustainability.

He maintained that role of the board of directors in the survival and transformation of their establishments could never be overemphasized, and programmes like the conference were meant to apprise the directors of the developments in the industry and also equip them with the necessary knowledge that will enhance the value of their companies.

“We want to further encourage insurance companies to reduce their environmental footprint through their internal operations and business activities. I want to borrow the words of my dear sister, Dr Yeside Oyetayo, Rector of the College of Insurance and Financial Management, when she said, and I quote, Insurance is the industry that ensures the survival of other industries, it has always risen to the risks associated with human challenges in the past, and climate risks require that insurers must be part of the solution,” he said.

Mr Thomas said the insurance industry globally is continuously undergoing profound changes, adding that “we must admit that the disruption we are faced with is not just digital but also harsh market conditions, demanding customers, innovative new market entrants, and regulations which are also some of the forces transforming the insurance industry.

However, wherever there is a challenge, there is an opportunity. And all the sources of disruptions can be harnessed to become a source of growth for insurers. While no one can predict exactly what insurance might look like in a decade, insurers can take several steps now to prepare for these changes.

He noted that each of the four Principles for Sustainable Insurance has actions in the areas of company strategy, risk management and underwriting, product, and service development, claims management, sales, and marketing, investment management, clients and suppliers, insurers, reinsurers and intermediaries, government regulators, policymakers and stakeholders.

“It is imperative that as an industry, we take precautionary measures by raising awareness within ourselves on the potential sustainability impacts of business transactions and integrating these considerations into pre-emptive and holistic risk management processes,” he submitted.

He advised the directors as leaders of their respective companies that it is instructive that they take deliberate steps at reconciling long-term with short-term goals, global expansion with local objectives, and workplace, and community issues, all of which must be united, while not losing sight of the basic goals of profitable operations and increasing shareholder value.

He said to facilitate economic prosperity and ensure environmental sustainability and social development; we must join forces with identified stakeholders to drive long-term sustainable growth in the insurance sector for lasting benefits to all stakeholders.

“As an industry, we should draw on external knowledge and partnerships to keep pace with wider trends affecting not just the local but also the global insurance market. We must discover strategies to adapt and overcome further changes in the near future that may arise as a result of entrenching Economic, Social, and Governance principles,” he submitted.

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