CHALLENGES AND OPPORTUNITIES FOR

INSURANCE BUSINESS IN A VOLATILE ENVINRONMENT

Mr. President, ladies and gentlemen
Let me start by expressing my appreciation for the kind invitation
extended to me to participate in this important forum on a topic which
has evolved into a key issue in the business world. First, the organisers
of this event must be commended for exercising great insight in
choosing this theme: The Insurance Industry in Motion: Emerging
Issues for the Professionals. This is suggestive of the fact that the
management of the Chartered Insurance Institute of Nigeria is fully
alert to keep the teeming members of the Institute informed of the
unfolding events in the business world.
I have been asked to speak on the topic: Challenges and
Opportunities for Insurance Business in a Volatile Environment.
It is interesting to note that this topic touches on the core area of
insurance operation, because volatility creates uncertainties for
individuals, businesses and governments in terms of expectations. In
the Foreword to the Code of Good Corporate Governance for the
Insurance Industry in Nigeria, Professor Joe Irukwu, revisited the
intractable problem of risks and uncertainties, which has been the
greatest challenge to humanity on this planet from time
immemorial. This problem has remained unresolved despite the great
advances in the areas of science and technology over the years. It
should be noted that volatility gives birth to risk and uncertainties, the
very reasons for the insurance mechanism.
Please, permit me to address the topic in a thematic approach. With
this, the key words will be discussed in sections.
Environmental volatility, which McKnight (2012) calls environmental
dynamism, in the simplest of terms, pertains to change in a firms
external environment. Various dimensions of environmental dynamism
include complexity, and velocity. Complex environments are
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characterised by interconnections among different facets of the firms

environment, such as regulatory, competitive, and economic. Velocity
refers to the rate at which firms are presented with new opportunities
or face challenging disturbances. In high-velocity markets, changes are
nonlinear and less predictable, market boundaries are blurred and
industry structures are ambiguous and shifting.
Why must we all be concerned with volatility in our environment? The
simple answer is: There is a link between volatility and development,
negative or positive. The process of development allows a society to
adapt to the uncertainties created by changing environmental
circumstances in such a way as to continue to improve the standard of
living of its members. Growth can be followed by long periods of
stagnation or even downturns. Development is not only a result of high
or positive growth rates, but also of the stability of that growth.
2.

Volatility in the Global Economy

Of recent, the economic woes in many developed economies are a

major reason for volatility in the global market. Most developed
economies are suffering from predicaments reminiscent of the global
financial crisis. For instance, growth in the United States slowed
notably in 2011. Gross domestic product (GDP) growth weakened
further in 2012 and, even under the baseline assumptions, a mild
contraction was expected during 2013. Another big economy, Japan,
fell into another recession in the first half of 2011, resulting largely, but
not exclusively, from the disasters caused by the earthquake in March.
The World Bank's estimated economic cost of the earthquake was
US$235 billion, making it the costliest natural disaster in world history
(Los Angeles Times).
While the U.S. economy has shown signs of picking up in terms of
consumer spending and GDP, there are global obstacles that could
impede growth, both in the short- and long term. For example, the
European nations continue to struggle with sovereign debt. More
governments are imposing austerity programs to balance their budgets
and are unable to allocate additional funds to stimulate their
stagnating economies. Failure of policymakers, especially those in
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Europe and the United States, to address the jobs crisis and prevent
sovereign debt distress and financial sector fragility from escalating, it
is feared, might send the global economy into another recession.
The dimensions in which the crisis manifested itself have made some
analysts to describe the situation as perhaps the worst economic
recession since the Great Depression of the 1930s. For the first time,
the world economy has witnessed stagnation or minimal growth since
more than seven decades.
This has resulted in high unemployment rate, which is a major
stumbling block on the path to recovery. Persistent high unemployment
remains the Achilles heel of economic recovery in most developed
countries. The unemployment rate averaged 8.6 per cent in developed
countries in 2011, well above the pre-crisis level of 5.8 per cent
registered in 2007. In the United States, for instance, labour
participation rates have been on a steady decline since the start of the
crisis.
One may ask: why all this story of the financial crisis in the US and
Europe? This should interest us because managing the macroeconomic
volatility induced by financial crisis poses a challenge for the emerging
markets and developing countries like Nigeria. Waves of capital inflows
that are in excess of an economys absorptive capacity, or highly
speculative in nature, may lead to exchange-rate overshooting,
inflation, credit booms and asset price bubbles. More importantly,
volatile capital flows carry the risks of financial and economic stability,
with the threat of sudden stops and withdrawals of international capital
owing to heightened risk aversion, potentially contributing to the
spreading of financial crises. Yet, the world financial crisis is just one in
a series of events that are responsible for environmental dynamism.
In the last few years, we have all witnessed a unique combination of
systemic change driven by globalisation, technology and increased
environmental awareness, combined with a number of seismic shocks
to the global economic system such as September 11 attack in the US,
Hurricanes Katrina and Rita, and the Asian Tsunami, Sarbanes Oxley,
Arab Springs, and at home here in Nigeria, insurgence in the northern
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part of the country. The combined effects of all these forces will forever
change the way managers do their job. We have also witnessed the
emergence of the Internet as the primary means of information sharing
and a powerful force in the conduct of global commerce, and the
emergence of China and India as economic powers. It is no surprise
that there has been a tremendous increase in volatility, uncertainty
and risk.
From the highlights above, you will agree with me that we cannot
afford to be spectators. Why? The world has been transformed from a
series of loosely connected economies with reasonably predictable
flows between them to a complex web of relationships where the
global impact of local events is felt almost instantaneously. Axson
(2009), therefore, asserts that managers must learn to succeed in a
world where:
Volatility will remain high due to the ever-increasing
interdependence of customers, suppliers, regulators and markets.
Events formerly viewed as extraordinary are now part of the
normal course of business. All organisations need to be able to
understand how they will respond to unexpected material events,
both positive and negative.
Opportunities for competitive advantage and differentiation will
increasingly depend upon an organisations ability to respond to
changes in the business environment.
No doubt, these unfolding events, drivers of volatility, have far
reaching implications for the insurance professionals. Now, let us focus
our attention on the various challenges posed by this environmental
dynamism.
2. Challenges Posed by Volatile Environment
In a recent report, entitled 2012 Global Insurance Outlook, Ernst and
Young acknowledges that the repercussions of the global economic
recession continue to reverberate across many parts of the world,
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creating significant impediments to the growth and prosperity of global

insurance business. This crisis has thrown up many challenges,
especially for the executives of insurance organisations, which include
protracted low-interest-rate environment, intensifying regulatory risk
and capital pressures, eroding top lines and a desperate need to
streamline costs. We have also witnessed changes in the insurancebuying preferences, largely driven by the Internet. The list is
inexhaustive, but we will consider some of these.
2.1 Impaired Growth and Development
From the findings of Delloitte (2012), the US and Western European
economies remain in the doldrums, with gross domestic product (GDP)
gains likely to be slow and unsteady for some years to come. That
means businesses may hesitate to launch new ventures and expand
existing operations, thereby limiting growth for general insurance
business. The debt crisis and ensuing credit freeze have also had a
significant impact on the balance sheet of the global insurance
companies, particularly those investing in the European countries.
Insurance companies (globally) are one of the three biggest classes of
investor of the European sovereign debt and hold approximately 30%
of the total outstanding debt. The significant exposure to this class
poses a great threat to their sustainability as most of the debt
instruments mature in the next three years. In the event of a failure to
refinance, the insurers can lose a substantial portion of their
investments. The crisis has left portfolios vulnerable to these risks
which may cause a sizable impairment.
Meanwhile, low interest rates in the United States are making it difficult
for life insurance underwriters to deliver attractive returns to
prospects, while putting a damper on investment income for general
insurance underwriters. At the same time, persistently high
unemployment and a sluggish recovery in that economy is putting a
crimp in family wealth and disposable income, which could make it
harder to expand sales of discretionary financial products such as
individual life insurance or an annuity for retirement. Also, according to
a report by Ernst and Young, other than Asia Pacific, where continued
growth is expected, the rest of the world is mired in economic
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instability. For example, Europe is still saddled with ongoing political

and macroeconomic uncertainty, which seriously affect the investors,
consumers, and of course, the insurers.
2.2 Rapid adoption of IT and evolution of Social Networks
The rapid adoption and fast evolution of social networks has added to
the level of dynamism in the way both consumers and businesses do
communicate. The growth of social networking one of the fastest
ever global adoptions has to a larger degree shifted the balance of
power towards customers. In just six years since its launch, for
example, Facebook has attracted over 800 million users. As consumers
become even more comfortable with social networks several scenarios
are likely to develop. People exchange more personal information and
start building networks of trusted friends, family and acquaintances,
shifting the balance of trust from insurance agents and advisers to
online communities. Internet, mobility and social networking have
changed the game over the past decade and have created a new
generation of customers who demand simplicity, speed and
convenience in their interactions. These trends will accelerate, leading
to a situation where customers will be more willing to buy direct using
their online and offline trust network of friends and family to guide
their choice. This will result in a fundamental redefinition of the role of
advisers and the disappearance of distributors as a sales channel.
To increase market share and generate growth, according to Deloitte
(2012), insurance companies will need to reexamine and adjust their
distribution capabilities. For some, that means adding new channels
such as an online sales capability, either on a stand-alone basis or to
complement their existing agency distribution force. For others, that
means changing who they distribute through. In the latter case
particularly for those using independent agentsinsurers often swing
two ways in terms of producer assessment. Traditionally, the pendulum
has tilted more towards the emotional side of producer relations, which
emphasises the personal relationships maintained over the years with
the insurers. Insurance consumers are likely to increasingly go on the
Web to research and shop for insurance.
2.3 catastrophic Events, Natural and Man-made
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The severity and frequency of catastrophic events, both natural and

man-made, have been increasing over the past 20 years. Between
1990 and 2009, hurricanes and tropical storms accounted for 45.2% of
total catastrophe losses, and the rate and intensity of these storms is
predicted to increase with global climate change. A large portion of
claims payouts result from business interruption coverage losses. In
the Chilean earthquake, for example, over 50% of claims were filed for
business interruptions and extra expenses. In addition to catastrophic
events, insurers must also contend with man-made degradation of the
environment. Increasing energy consumption and associated
atmospheric pollution will directly impact insurers risk exposure. With
continued fossil fuel use, pollution will remain a significant health
issue, threatening the well-being of populations in both developed and
developing countries. Life and health insurers will need to closely
monitor trends in atmospheric pollution in order to accurately assess
risks in different regions. Of course, it is hoped that sophisticated
environmental measures will help mitigate the most serious
consequences of these disasters. It is also projected that renewable
energy sources will account for 23% of electricity by 2035. However,
there is this concern that increased consumer investment in
sustainable solutions (e.g. solar panels) will gradually create new
modeling and pricing risks for non life insurers, thus adding to the
dynamism of already volatile environment.
It is commendable that insurance sector, especially in the developed
economies, has been good at developing catastrophic models that
capture known high severity/low frequency events (e.g. earthquakes,
tsunamis, etc). However, as reported by PWC, most of these models
perform poorly when it comes to unknown Black Swan events.
Therefore, many have expressed concern that over the next decade
the insurance sector could be overwhelmed with uncorrelated
catastrophic events reducing capacity and raising prices. That is why
Delloitte (2012) alerts us to the fact that while tornado, earthquake
and other regular natural disaster losses made a big dent in the
industrys bottom line in 2011, more threatening, are the Black Swan
events, which could result, not just in widespread insurance claims, but
in severe operational disruptions for insurers as well. Black Swan
losses could result from the collapse of a government, the failure of
power grids or communications networks due to unusual solar storms,
the possibility of a devastating cyber-attack and the potential for
another major terrorism assault. You will all agree with me that the
environment, in which the insurers operate, is, indeed volatile!
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2.4 Climate Change

The dynamism in the operating environment of the insurers is also a
result of climate change, which, in some cases, is already affecting
most major types of insurance products. The impact of climate change
on property insurance, where the insurer bears the risk of a loss
suffered directly by the policyholder will be enormous. The claims will
include not only damage to the insured property as a direct result of
weather, but also those of business interruptions and other
consequences of weather-induced events. Also, health and life insurers
will face increasing costs. In addition, insurers will face claims based on
liability coverage, where they will have to pay for legal claims brought
by third parties against the policyholder. Depending on the nature of
risk involved, all these types of insurance may be particularly affected
by climate change-related losses. And insurers will also face the
challenges of insurability that may deeply impact the industrys ability
to spread risk. The direct risks to insurers from climate change are
primarily catastrophe related. Catastrophes, defined by the American
Academy of Actuaries, as infrequent events that cause severe loss,
injury or property damage to a large population of exposures, are the
single largest threat to insurers solvency, because they pose a unique,
complex, and significant set of risks to insurers solvency. And there is
significant evidence that climate change will increase both the risks
borne by insurers from catastrophic events and the uncertainties
associated with those risks.
2.5 Terrorism and Political Instability
Over the past 30 years or so, there has been an increase in terrorist
attacks around the world. Terrorists are attacking the global supply
chains once every four days on the average. Thus, the insurers will
have increased exposure as the frequency of major attacks increases.
In addition, terrorist attacks often impact multiple product lines (e.g.
commercial property, business interruption, workers compensation, life
etc.), which are often modeled independently. As a consequence, the
potential losses from the so-called uncorrelated risk factors could be
large, requiring substantial industry-wide capital to insure losses
beyond a certain level. Further detailed modeling is required to
understand the capacity requirements for terrorism coverage. There is
also the issue of political instability. Resource scarcity around the world
is magnifying the risks of geopolitical instability, as evidenced by the
recent and current political upheavals in the oil-producing nations of
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the Middle East and North Africa, or the Arab Spring. Not only that all
these will bring in various dimensions of risk, they will also alter the
techniques used in computing the insurers solvency.
2.6 Compliance with Regulations
In many countries, regulatory standards are fairly vague and tend to
be less detailed and less sophisticated than in developed countries.
While a tight net of overly prescriptive regulations can impede the
efficient functioning of insurance markets, lack of a sound set of rules
can be even more detrimental. There is this fear that without proper
regulation, insurers relying on inadequate risk management systems
can enter the market with cheap products, resulting in under-pricing
and under-provisioning, pushing sound insurers out of the market.
Regulators continue to mull changes in line with more sophisticated
international standards, posing risk management, disclosure and other
challenges. In Nigeria, for example, regulatory compliance is a major
concern for the insurers, and the industry is anticipating potential
impacts of implementation of No premium, No cover rule and
preparation of returns to the NAICOM.
The implementation of Solvency II is expected to have far a reaching
impact on the insurance industry worldwide. It is also argued that the
implementation of the new solvency regime in Europe will stimulate
the growth of traditional insurance business models. In the capital
markets, balance sheet volatility is expected to increase the cost of
capital in the short term, and there will be an increase in mergers and
acquisitions activities driven by a number of factors including the need
to diversify product portfolio from life insurance products.
One regulatory change that has already been effected which may have
a long-term effect on the insurance industry is the unanimous
adoption, by the International Association of Insurance Supervisors
(IAIS), in October 2011, of the Insurance Core Principles (ICPs). The
ICPs, while not legally binding, essentially, are the best practices of
regulation and supervision, and form the basis of the evaluations of
national or other regulators by the International Monetary Fund (IMF).
Notably new in the revised ICPs is an emphasis on market conduct.
Understandably, compliance with the IAIS core principles speeds
developing countries integration into the global economy. Establishing
an effective supervisory body also drastically reduces the potential for
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fraud and financial crimes and signals foreign investors that the
country intends to meet its responsibilities in the global financial
system. To benefit fully, however, countries need various types of help
in understanding and implementing the core principles. Countries at
earlier stages of development tend to require more assistance with
fundamental reserving and financial analysis practices, while those at
later stages may need help with risk-based capital and asset-liability
risk modeling. At all levels, however, the principles relating to
supervisory independence, corporate governance, internal controls,
and investment regulation present the greatest challenges.
Thinking along this direction, the National Insurance Commission
(NAICOM) recently launched the Code of Corporate Governance for the
Insurance Industry in Nigeria as part of its strategic efforts to rebuild
and sustain the waning confidence of stakeholders in insurance.
Indeed, the insurance industry regulator expects that the hidden
potential of the sector will be unleashed for maximum impact that will
induce economic growth in Nigeria through compliance to the Code.
The guidelines, as issued by NAICOM, set out the business practice that
would be strictly adhered to by every insurance operator in Nigeria
with effect from January 1, 2010. This very comprehensive policy
handbook is, among othes things, meant to strengthen the operational
standards within the insurance industry. It is also aimed at improving
the quality of performance of insurers, re-insurers and insurance
intermediaries and, to ensure the institutionalisation of effective
corporate governance structure for all insurance institutions.
In addition, following the adoption of the Nigeria Road Map to IFRS by
the federal government, NAICOM expected insurance and reinsurance
companies to take appropriate steps to ensure a seamless transition to
the new financial reporting regime. To this end, the Commission
directed all insurance and reinsurance companies to submit their plan,
for conversion to IFRS, by 1st April, 2011. Thereafter, information on
the progress made in the implementation of the said plan should be
provided in the quarterly return to the Commission. In order to
facilitate this change, the Commission in collaboration with the
Nigerian Accounting Standard Board (NISB) has made arrangements to
embark on the awareness session for the relevant stakeholders in the
insurance industry. Compliance with these various sets of regulations
remains a big challenge to insurance top executives.
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The list of these challenges is inexhaustive.

Yes, the impact of this volatility is there for everyone to see.
Undoubtedly, the turbulence has had an impact on both financial and
market performance of firms. On one hand, fluctuations in operating
margins have increased. On the other hand, industry leaders are falling
from grace to grass. Political and regulatory risks have also become
material for many industries. A higher level of globalisation and
increased speed of information flow has heightened exposure to global
volatility. In short, the insurance industry globally is confronted with
uncertainty and risk of a different order of magnitude.
Yet even in such uncertain economic times, there are opportunities to
generate profitable growth by attracting new customers as well as
taking market share away from competitors. Insurers can achieve this
by tweaking existing products and launching new ones, reevaluating
their distribution systems, reconsidering their marketing strategies and
reinventing their customer experience.
3. Opportunities Emerging from the Volatile Environment
As has always been the case, challenges normally throw up
opportunities. Therefore, in this climate of uncertainty, it is possible to
achieve good results. The question one needs to ask, then, is: How did
those shocks and policies combine to produce the observed growth
outcomes? Researchers have developed microeconomic evidence
linking policies and shocks to the resource allocation decisions of firms,
and particularly to the scale and ex ante efficiency of investment in
human and physical capital.
3. 1 Opportunities offered by IT and other Devices
Social media offer greater opportunities for the insurers operating in
this volatile environment. Beyond providing a platform for
policyholders to share information and create a community to make
interactions with insurers more frequent, relevant and meaningful,
social computing can be used more regularly within insurance

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companies to improve collaboration, particularly as insurers expand

domestically and globally.
In addition, insurers can more creatively capitalise on the rapid growth
of smart phones, tablets and other mobile, Web-connected devices.
Some enable claims reporting and documentation to be filed from the
site of a loss over a smart phone. Others allow prospects to get quotes,
check their coverage, make payments or track claims progress. Still,
others are more prospective and educationalassisting prospects in
determining how much life insurance they might need.
New technologies can significantly enhance operational efficiencies,
increasing revenue opportunities and improving the customer
experience. The explosion of computing power and storage enables the
accumulation and analysis of extremely large amounts of data. The
growth in active sensors and devices connected to the internet, which
are projected to reach 50 billion by 2020, will have a significant impact
on the availability of real-time information. Insurers who can exploit
this information for better pricing, underwriting and loss control will
have a distinct competitive advantage over their peers.
Insurers can also use analytics to gather more insights on buyer needs
for better cross-selling. Such data could serve as an advanced form of
customer relationship management, because, as insurers follow the
development of clients, they will be in a position to offer additional
coverage and services.
3. 2 Opportunities of Global Expansion
With the US and Western European economies failing to deliver
consistent, large-scale growth, it is only natural for their insurers to
consider greener pastures in emerging markets such as China, India
and Brazil. The increasing attractiveness of the emerging markets,
combined with uncertain growth in the developed world and stricter
regulatory guidelines have made the insurers re-evaluate their
strategic goals towards developing countries.

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While there are often obstacles to doing business in such countries,

including local regulatory hurdles, infrastructure and distribution
challenges, tax considerations as well as cultural differences, the need
for insurance coverage to meet the financial security demands of an
expanding cross border markets could provide significant growth
opportunities for those with the resources and capabilities to capitalise
on them. Can we learn something from this?
Can the Nigerian insurers with varying degrees of success, seek growth
across the region given the commoditised and seemingly over-traded
domestic environment? Understandably, barriers to entry remain high
in many African countries due to inconsistent and continually evolving
legislative environments. High levels of poverty are contributing to low
insurance penetration, which has led to significant growth in microfinancing, and in turn, micro-insurance products for low income
consumers in poorer African countries. The insurers in Nigeria can
consider the possibility of exploiting these cross-border markets.
3.3 Opportunities offered by Environmental Hazards
Global economic and natural challenges have also opened up new
policy space for developing economies to go beyond conventional
policy prescriptions. The world economy faces some far-reaching
changes as a result of efforts to reduce global warming. While efforts to
control emissions will impose heavy costs, especially on relatively
carbon-intensive economies like Nigeria, they also lay the basis for
establishment of major new industries. More broadly, accelerating
technological change promises to transform the world economy in the
coming years, with new job opportunities in areas such as
biotechnology and nano-technology. You can be sure, some of the
attendant risks will offer great potentials for the insurers to expand
their activities.
The fact that individuals and businesses face risks is good for insurers:
without these risks, they would have no revenue, since bearing risk is
the core business of insurance. The fact that a phenomenon such as
climate change might increase the risk of losses across our society
does not in itself bode ill for insurers. On the contrary, to the extent
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that the increased risk is insurable and potential policyholders are

motivated to purchase insurance, increased risk should be good for
insurers, presenting new business opportunities.
3.4 Opportunity offered by the Grassroots
Mr. Ramadoss, an Indian, once summarised the strategic focus of
benefiting from the dynamism of the business environment, in four
words: re-examine, re-build, re-structure and re-establish. Reexamining is a form of stocktaking. In the aftermath of the financial
crisis, insurance institutions need to re-examine the way they do
business. There is a need to have a fresh look at the economic
environment and the internal working systems of the industry.
For instance, it was mentioned in one of the previous paragraphs that
Black Swan losses could result from the collapse of a government, the
failure of power grids or communications networks due to unusual solar
storms, the possibility of a devastating cyber-attack and the potential
for another major terrorism assault. While some of these events can
be insurable, you will all agree with me that the resulting losses could
be enormous and can wipe out some insurance institutions. This offers
an opportunity to look inward into less disastrous areas that have great
growth potentials. One of these is the insurance designed for the grass
roots, especially the peasant farmers. Micro insurance revenues may
not be fantastic in the short run, but they are more or less stable in
terms of growth. We do well to remember the wise words of Richard
Denny, a veteran marketer based in the UK: Success by inch is a cinch;
success by yard is hard.
Nigeria has a population of about 150 million, the largest in Africa, and
an economy with high growth potentials. Agriculture is the mainstay of
the economy, contributing about 45 per cent of the GDP. Governments
reports also show that Nigeria is the worlds largest producer of
cassava, yam and cowpea all staple foods in sub-Saharan Africa.
Agricultural sector employs about two-thirds of the countrys total
labour force and provides a livelihood for about 90 per cent of the rural
population. Nigerias huge agricultural resource base offers great
potential for growth because the countrys poor rural women and men
depend on agriculture for food and income. Government recently
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initiated Agricultural Transformation Agenda (ATA), aimed at tackling

unemployment, creating 3.5 million agricultural jobs, and wealth of
over N300 billion in farmers incomes, and ultimately achieving food
security in Nigeria. It is hoped all these will materialise.
However, it is reported that 44 per cent of male farmers and 72 per
cent of female farmers across the country cultivate less than 1 hectare
of land per household. These poor groups eke out a subsistence living
but often go short of food, particularly during the pre-harvest period.
Drought has also become common in the northern part of this country,
and erosion provoked by heavy rains and floods is a major problem to
farmers in the south. The rural population engaging in agriculture has
extremely limited access to services such as schools and health
centres, and financial services, especially insurance. Can micro
insurance be explored to take care of their needs?
In line with this, the plans by the NAICOM together with the Deutsche
Gesellschaft fr Internationale Zusammenarbeit (GIZ) of Germany,
Making Finance Work for Africa (MFW4A) and the Munich Re
Foundation, to organise an International Microinsurance Conference in
Abuja this year should be commended
4. Strategic Focus
Even in economic conditions as challenging as these, insurers can
make a positive impact through sound, strategic investments to secure
growth, achieve operational excellence and drive innovation. They
must keep striving to improve operational excellence to squeeze costs
out of the system and adapt to domestic and global regulatory reforms.
The pressure is also on for insurers to differentiate themselves in a
very competitive market by driving innovation in products and
services, defending their brands and winning the war for talent. The
main ingredient is a willingness to remain proactive rather than hunker
down until overall economic conditions improve. To be able to do this,
the regulatory arm and the insurance institutions have to come
together to re-build the insurance market so that insurers,
intermediaries and all stakeholders in the business benefit from an
environment more congenial to growth and development.

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It is heartening to note that the National Insurance Commission

(NAICOM) launched the 'Code of Corporate Governance' for the
insurance industry in Nigeria in 2009 as part of its strategic efforts to
rebuild and sustain the waning confidence of stakeholders in insurance.
The '2010 Insurance Guidelines' that followed are expected to ensure
strict compliance to the rules that guide insurance practice and
consequently rid the industry of the negative public perception.
Speaking in a forum sometimes ago, Mr. Fola Daniel, the Commissioner
for Insurance, stated that the Nigerian insurance market has the
capacity to become the biggest in Africa and one of the largest
globally. The key success factors would include flexibility and
innovation. Insurers will need to prepare and plan in advance of
anticipated regulatory changes, and resolutely reshape their products,
services and distribution channels to conform to evolving customer
preferences and needs. There is much the insurers in Nigeria can learn
from India, a developing country. Despite its exposure to the financial
crisis, the Indian insurance industry was safely anchored in the
sheltered waters behind prudential regulatory seawalls. We may
consider few areas where refocusing is needed.
For the sector to achieve the elevated position the Commissioner
envisions for it, Nigerias insurers will have to overcome the resistance
to obtaining coverage by individuals and businesses. According to a
release by The City UK, a UK based professional body that provides
advice on financial services, only 2.25m Nigerians have access to the
various products and services offered by insurance companies. Though
penetration rates across Africa are low, with only seven countries
having coverage levels above 2% of their populations, Nigeria is one of
the continents largest and fastest-growing economies, meaning that
the insurance sector is underachieving in an expanding market. The
report also adds that the take-up of insurance products was far lower
than the level of Nigerians who had access to formal financial services,
which stood at 43% of the adult population as at the end of 2012. A
survey conducted by Business Monitor International (BMI) Ltd places
Nigeria's insurance density at $8.2 as against South Africa's $870.6,
Mauritius's $377.6 and Morocco's $80.3.
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Of course, NAICOM efforts in the recent times need to be commended,

having effected significantly changes in the industry. We cannot run
away from the fact that awareness about insurance products and their
benefits remains low among the individual households and small and
medium businesses. Many continue to regard insurance as a redundant
expense rather than an effective means of wealth protection, savings,
and security. Several enterprises purchase insurance products only to
meet their contractual requirements. Majority of residents choose
support from family members or social security schemes of the
governments (where available) over insurance plans and retirement
schemes.
This lack of exposure to financial services, especially insurance,
underscores the need for the practitioners to work harder to identify
the insurance needs of the populace, provide services that meet those
needs, and educate the potential clients as to their benefits. Even in
areas where insurance is mandatory there is still low coverage, with
motor cover being the prime example. Though there are estimated
seven million vehicles registered in Nigeria, less than one million of
these have proper coverage, according to the Nigerian Insurers
Association. This calls for real strategising.
In addition, insurance industry relies on information to function. While
much of an insurers added value comes from its superior ability to
analyse and price risk, that ability requires having sufficient data to
calculate losses and expenses per unit of exposure. Without sufficient
data to estimate losses more precisely, insurers either set prices too
low and eventually become insolvent or set prices too high and attract
few customers. Neither scenario is good for market development. A
robust market needs a sound system to collect, organise, and make
available detailed data on losses and exposures. The more
comprehensive, the better, as an industry-wide system of data
collection can help to mitigate fraud, reducing the cost of insurance for
all. Of course, creating a data-sharing mechanism that protects
confidentiality and preserves market neutrality is a complex challenge.
However, it is noted that maintaining large database and up-to-date
information about people and properties insured is critical to the
insurance business, not only to ensure its efficiency and cost

17

effectiveness but also to help encourage better risk identification and

loss mitigation.
The crucial building block for a robust insurance market is a reliable
cadre of insurance professionals, including actuaries, underwriters,
agents, claims personnel, policy administration and customer service
personnel, managers, and supervisors. Formal training programmes
are by far the most efficient means to develop knowledge and skills in
staff. This is another area that requires attention.
African countries have a possibility of accelerating the pace of
economic progress, provided they can create the right conditions to
exploit the advantages information-based technology offers to enhance
productivity and competitiveness and learn lessons from successful
growth experiences. The 2006 Global Competitiveness Report (World
Economic Forum, 2006) presents striking evidence to conclude that
investment in higher education and information and communication
technology (ICT) boosts competitiveness. Countries across the world
seem to have sharply distinguished themselves in these terms.
Conclusion
While it is a known fact that risk has been a part and parcel of doing
business, in the recent years, the need to demonstrate resilience has
been given greater urgency as a result of a number of powerful trends.
First, a series of high impact, low probability events has alerted
executives to the need for precautions. Beginning with the Y2K scare at
the turn of the new millennium, and followed by the devastating
September 11th attacks, the 2005 hurricane season in the US and a
number of other catastrophes, the vulnerability of business to
unforeseen events has never been more evident. These events have
thrown up several challenges for the insurers. We have also looked at
some of the opportunities that arise from the volatility in the market
place.
In the past few years, business continuity management has emerged
as one of the key tools that organisations employ to manage
operational risks. At the same time, the discipline has evolved from
being one that is focused on the way in which organisations respond to
an unforeseen event, to one that is used to increase their preparedness
18

and overall resilience. Todays business climate has rendered business

as usual a thing of the past. World-class organisations used the
disruption caused by the recession to transform their operations. As a
result, they optimised their businesses to deliver more future-focused
and responsive services at a reduced cost. This softened the shortterm impact of the recession and created the agility required to adapt
to changing conditions and deliver long-term business value. To be
specific, time is a central factor which the business revolves around.
The implications for performance management are significant. The
relatively static five-year strategies, annual budgets, quarterly
forecasts and monthly reports upon which organisations have relied for
decades will no longer be adequate to get the job done.
In summary, we all need to develop what Teece, Pisano, and Shuen
(1997) describe as dynamic capabilities: the ability to integrate, build,
and reconfigure internal and external competencies to address rapidly
changing environments.
We also do well to bear in mind that It is not the strongest of the
species that survives, nor the most intelligent. It is the one
that is most adaptable to change -Charles Darwin
Mr. President, Ladies and gentlemen. It remains for me to express my
gratitude for the rare privilege extended to me to address this crop of
professionals.
Thank you for listening.

Kunle Aduloju
References
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managers and organizations are adapting to the new economic
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De lloittee 2012 Global Insurance Outlook Generating growth in a
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Mobarak, A. M. (2005).DEMOCRACY, VOLATILITY, AND ECONOMIC
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McKnight, B. (2012). Developing dynamic capabilities in environments
of persistent disturbances (Doctoral dissertation). University of Western
Ontario, Canada. Retrieved from:
http://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1632
Teece, D. J., Pisano, G.,& Shuen, A (1997) Dynamic Capabilities and
Strategic ManagementStrategic Management Journal, Vol. 18, No. 7.
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The Economist Intelligence Unit. (2007). Business resilience Ensuring
continuity in a volatile environment

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