Bringing Insurance to the Grassroots


KENNETH Ezenwani Odogwu, chairman of Royal Exchange, is a very busy man who sits on top of the management position of several companies including Siotel Nigeria Ltd and Odogwu Group of Companies. A principal partner in Flora Shaw Chambers, Odogwu has been the chairman of Royal Exchange Plc since July 26, 2007 and has been its director since September 1, 1997. He has been a director of A.G. Leventis (Nigeria) PLC since May 7, 2012 and … the Lion of Africa Insurance Company Limited. He served as a director of FinBank Plc (a/k/a First Inland Bank Plc). He is a legal practitioner and was called to the Nigerian Bar in 1990. The distinguished lawyer, is also a pioneer in the telecom industry; he set up the first digital call centre and cyber café in Nigeria. A capital market operator, Odogwu holds a Bachelor of Arts degree in History and Economics from the Kings School, Canterbury in 1981, an LLB from F&M Pennsylvania University, USA in 1985, postgraduate degree in Law, University of Sheffield, England in 1989 and Bachelor of Law, BL from the Nigerian Law School, Lagos, in 1990 and obtained an MBA in general management and finance from Stem Business School, New York University, New York, USA in 1996. Despite his busy lifestyle, Odogwu does not believe in all works and no play. First, in a family of eight children, Odogwu who says he loves his parents but was more influenced by his father in the choices he had made in life, finds time to relax, play golf with friends and read. He also created time out of his overloaded schedule to speak with Realnews editors – Maureen Chigbo and Olu Ojewale, in his boardroom in Lagos,on the operations of Royal Exchange, the Nigerian economy, takaful insurance, the current rebasing of the Nigerian economy and its significance for the insurance sector as well as why Nigerians must be compelled to take life insurance. Excerpts:

Realnews: The rebasing of Nigeria’s GDP is a very topical issue. How do you see it and how will it affect the insurance sector?
Odogwu: I think it is a very significant development in the sense that it affects a lot of ratios and particularly in the insurance industry; it has a huge bearing on our ratio that deals with insurance penetration. That penetration, that ratio is usually GSP, gross same product with GDP. Usually our insurance ratio has been based on $260 billion. In 2012, the industry made a total GSP of N300 billion which roughly is about $2 billion. So, that’s .07 percent penetration. But, with the increase in GDP to 510, it means to say that our insurance penetration is now at about from .03 percent to .04 percent which means to say that we are not doing as well as it should be doing. The insurance industry is not growing as quickly as it should when you compare our performance in Nigeria to the performance of other countries in Africa. Let’s say Africa average is 3.2 percent which means to say that the difference is about .03 to 3.2 percent; we are talking of about $20 billion out there with that 1 percent growth; that’s what is there but we are only generating 10 percent of that. Obviously, we are not doing well at all.

OdogwuRealnews: What can be done to turn around the situation?
Odogwu:  It’s a good question. I think several things can be done. One is implementation. There needs to be a lobby industry not just only the industry but government should help us with enforcement because insurance does a few things really. One, it generates business confidence that results in high growth for companies. Two, is the social security and three, very important for government, a source of long-term capital. And we are looking for long-term capital to grow our infrastructure. We are depending on pension funds. We are depending on sovereign wealth fund.  Insurance is a very important and viable source of long-term capital which the government has to take very seriously and develop it. We have seen how, for example, the expansion of Lekki road was built in partnership with an Australian infrastructure company, they built that road. That’s how many insurance companies end up being asset management divisions to manage streams of short-term and long-term income that come to the company.

Realnews: The rebasing of the GDP ranked our economy 26th on a global scale of largest economies. But what does that mean to the life of a common man?
Odogwu: It obviously says that we are not doing very well because there is so much poverty. We have to do a lot in terms of inclusivity. From an insurance perspective, Royal Exchange has looked at the opportunities down there, as being a very important part of our growth. Insurance should not be just an elite thing focusing more on institutions, corporations, high networth individuals. But now we have things now like micro insurance, takaful insurance – these are ways of bringing in the masses into the industry as they start understanding the benefits of insurance risk assets. That’s how we intend to do it. But obviously, it means to say that there is need for a lot more aggression, a lot more free technology, better human resources skills. That’s why the cooperation of government is also very important because we hope to tie it to certain government agencies that drive our business.

Realnews: You mentioned takaful.  It has to do with Islamic religious beliefs in doing insurance.  When the idea of Islamic banking was mooted in the country, there was a lot of controversy. Do you think the idea of takaful will gain ground in the country?
Odogwu: I do definitely; it’s my view.  It’s an insurance product that can be used out there. It’s a product that can be used to bring the masses in and make them part of the industry. It does not mean that a non Moslem cannot invest in takaful insurance. They can also use the service. I think it will gain ground.  Everybody that has a financial investment of some sort requires insurance. And it fits part of the country that if their religious belief does not allow for normal insurance, they can use takaful. It’s okay.

Realnews; Let us know more about takaful and how it can be implemented because people do not really understand it just like the Islamic banking where people think it is a tool to Islamise the country? Can you explain how it works?
Odogwu: It’s nothing like that at all. It is a very good product that I think every Nigerian will embrace. It is a savings and insurance product, more of savings than an insurance product. Basically, it allows people to contribute little amounts of money, almost a mutual fund kind of thing.  And there is an Islamic board that will decide if certain products created are Islamic or not Islamic. That’s basically what it is. It’s basically an insurance.

Realnews: But it has not taken off?
Odogwu: It has. One or two companies have taken off. And Royal Exchange, intends to participate very actively in takaful insurance. I know licenses have been granted and we intend to do that in the northern and some southern parts of the country.

Realnews: When do you intend to do that?
Odogwu: We have already started putting some structures in place to make effective take-off. We are also doing some consultations.

Realnews: Will this takaful reduce the apathy in insurance?
Odogwu: Yes, we believe so.  One of the problems in Nigeria is lack of financial education. In life, there are risks every day. Like in the area of life insurance, there are certain payments that have to made throughout your life. Some are very important for education, housing, for medical,  for marriages even for death, these are five very important cash flows. What insurance does is that in case the owner or provider dies or is hospitalised for whatever reasons, that the payment continues through an institution. And what they do is to make a fraction of the payment, that is, the premiums are paid to the insurance companies.  These payments are taken care of either for  life or for a term.

OdogwuRealnews: What is responsible for the apathy? A lot of people suspect that it is because whenever there is a claim to be made it takes a long process which will never come to pass? What can be done to get people to believe that insurance people are reliable and that they can get their money back if need be?
Odogwu: For insurance companies in Nigeria, realiability has improved a lot. The National Insurance Commission has done a lot through the MDRI which is its initiative in 2012 to give confidence and Market Development and Restructuring Initiative, MDRI. Obviously, the regulator has recognised this complaint and has made tremendous strides towards providing confidence through this programme.

Realnews: While we are still talking about NAICOM and what it has done to help the industry, could you talk about the enforcement of the “No Premium, No cover” policy by NAICOM and how it has helped the insurance industry and Royal Exchange in particular?
Odogwu: I think it has helped with liquidity. It means that instead of waiting till the end of the year for payment, it comes immediately. In terms of Royal Exchange, it has made us more liquid and enables us to make our claims processing quicker.

Realnews: The global financial crisis had a lot of impact on institutions in the finance sector in the country. How have you coped with over the years and what is the situation in Royal Exchange now?
Odogwu: Yes, we are an insurance company and we are in the area of risk management. We were able to continuously scoop our environment out to look out for potential risks. It did not affect us much because we saw some indices that the market was not doing as well as it should be doing, so we began to take our investments out of the capital market and make other investments. So, we were hit a little but not to wreak havoc.

Realnews: So the burst in the capital market did not have any ….
Odogwu: It didn’t have a huge effect on us. It had a small effect.

Realnews: Which areas do you think insurance companies are not doing very well in the country?
Odogwu: The problem goes back to the issue of implementation, not necessarily from the regulator but other government agencies. You will think that the industry is doing very well with car insurance. It is not true. For instance, a policeman who is on the road checking insurance papers can stop you and ask for your insurance papers. He does not know if the papers are real or not. And if you do the mathematics, you will see that 80 percent of the vehicles you see on the road, and I am just throwing out a rough figure, are not insured. At the same time, if you go to America or England, you will find that if you check the vehicle’s number, it brings out all the information including the insurance. That’s why I said that government agencies have to help with the implementation; that is important.

Realnews: Does the insurance body carry out some training for the officials of implementing agencies?
Odogwu: That is very right. There is very little the NIA will do without technology; it will be difficult. That’s why I said that technology is the key. At the moment, it is difficult. There is no programme that will enable you to find out if it is real or not. That’s why we said that technology is very key to this programme. Better infrastructure.

Realnews: You said something like when you go abroad, there is some technology to capture all the data about a vehicle when you check the vehicle number. Can such not be introduced in the country?
Odugwu: Through the NIA and NAICOM, such proposals have been made. I was happy to hear from the ministry of finance during the rebasing of the GDP conference that the contribution of the insurance is low. The regulator is very much aware and will make efforts in that direction.

OdogwuRealnews: Let’s talk about Royal Exchange. At your annual general meeting last year, you said that your company remained resilient in its performance while it is also exploring new business opportunities and maintaining a strong hold on its existing business in 2012. What is your forecast for year 2013 just ended given the adverse business environment in the country especially the epileptic power supply?
Odogwu:  In 2012, we made a profit before tax of about N700 million with a net of about N600 million. Our strategy is to grow about 20 percent. And we gave dividend consecutively for the second time  in 10 years and we would like to continue along that line.

Realnews: Can you talk about the strategy?
Odogwu: We saw that we were doing a lot of things. We were in investments, insurance and we decided to streamline a lot of things. That made the insurance group to focus on life insurance and micro-finance because of the penetration. As a management, life insurance provides long -term capital. The cash flow- we are an insurance group basically but we found that a strong asset management capability will help to drive the entire group.

Realnews: You talked about life insurance as a source of long- term capital. Do more people take it?
Odogwu: Yes, I think more enlightened people take it. I think it is very important. Anybody in life likes security and I think financial security. Life insurance is very important too.  In Nigeria, not many people take it because not many people are aware of it. That’s why we talk about financial education that we need to have at all levels of the society to be able to educate people on insurance risk assets. It’s something that I think should be enforced. I don’t know if there is a policy that compels everybody to take life insurance.

Realnews: You mean there should be a policy that is compulsory?  What obtains abroad with life insurance?
Odogwu:  Abroad the average insurance person has to market insurance. In Nigeria, the average insurance sales person has to market insurance as well as the need for insurance. It is a very daunting task. It is not that the insurance industry is poor but the environment in which it is practiced is not just as it should be.

Realnews: If insurance is that important, why will people not like it?
Odogwu: We, in the industry know it is important. We need to communicate it. I believe that when the people understand it, they will embrace it. Most people do not like to bring out the extra cash. But collectively when you look at it, it is extremely important.

Realnews: What is the least life insurance policy one can take?
Odogwu: It depends on your need. You can take N10,000 a month. Depending on your need, you could pay N20,000 a year. You can take insurance that you can pay N1000 a month or N20,000 a year.

Realnews: Royal Exchange is certainly not the fly by night insurance company. It has been in existence for about 90 years. How have you sustained the company over the years?
Odugwu: We have been around for 90 years and we intend to be around for another 90 years. It’s been a culture to be very conservative in the way we go about doing our business. We don’t price too low. We pay our premium on time.  And we provide the resources to pay. In 2010, we paid about N8 billion. We always pay people’s claim and we pay promptly.

Realnews: The insurance companies have always complained that they are not included in insurance activities in the oil and gas sector.
Odugwu: The oil and gas business does not involve the insurance sector as it should be. But the Nigerian content which started with the previous administration and now this administration, has stated that by 2010 Nigerian insurance companies will handle about 35 percent of insurance business in the oil and gas sector and it will get to 75 percent by 2012.  It is a very good policy. But unfortunately, Nigerian insurance companies get less than 5 percent. The reason being that we don’t have the balance sheet. The balance sheet is not large enough to be in a position to take the risk.

— May 12, 2014 @ 01:00 GMT

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