‘Cost of aviation insurance in Nigeria is largely determined by reinsurers’

Bode Akinboye is the Group Managing Director of Standard Alliance Insurance Plc. In an interview with Ifeoma Okeke, he speaks on the major factors that determine the cost of aircraft insurance in Nigeria. He also speaks of some of the company’s products and services that distinguish it from its competitors. Excerpts

Can you tell me about Standard Alliance Insurance Plc and what the oreganisation stands for?

Standard Alliance Insurance is a composite underwriting firm. We just merged our life and non-life businesses. We have gotten all regulatory approvals. We have our licence reissued by the National Insurance Commission, (NAICOM).  We have obtained Securities and Exchange Commission approval. We have obtained the approval of the Nigerian Stock Exchange. We now underwrite both life and non-life insurance. Our vision is to be the preferred insurance company in Africa in terms of products innovation, customer service, profitability to our shareholders and corporate social responsibility. We pride ourselves as an innovative insurance company because we have been a leader in terms of introducing new ideas and new products into the insurance market. We just launched the Salary Protection Insurance Scheme to further buttress this.  We are doing quite a lot of work on new products and will soon come out with new initiatives on agriculture insurance and health insurance, amongst others.

Airlines have complained that insurance companies in Nigeria do not have the capacity to carry the huge risks of airlines. How true is this?

It is not true because capacity is relative. Insurance is an international business, so if I approach you today, I have reinsurance companies behind me, which have retrocessionaires (reinsurance companies, which reinsure reinsurers) behind them. So it is a long chain. So every business you take from Nigeria can find its way to the United States of America, (USA), United Kingdom (UK), Russia and even find its way back into Nigeria. If there is no capacity to handle airlines, the capacity can be put in place and there are laws that enable the insurance companies through our regulators to put the necessary capacity in place. Insurance is a game of large number and unless you get the large number, it is impossible to get the large pool of fund to handle those heavy claims.

Another factor is pricing. The general public wants top quality services from the insurance companies, but they do not want to pay the right price. You cannot get what you don’t pay for. Nigeria is one of the few markets where you can get the cheapest form of insurance. In UK, US and Canada, average premium you pay as a first time driver is about 25 percent of the value of your car. In Nigeria the premium can be as low as 3.5 percent. This needs to be monitored and controlled otherwise quality service delivery in insurance industry will be difficult to sustain.

Why do local and foreign insurance companies share the risks to insure aircraft in Nigeria?

Most aircraft in Nigeria are on lease, so the lessors have global insurance covers with their international insurance companies, but in order to comply with the Nigerian laws, airlines still have to pass it through a local insurance company. Any insurance company that takes up a business knows that we are in business of risks management. You have to look at your balance sheet and know how much of those risks you can retain and bring other insurance companies to join hands with you. If they cannot carry it, you take it to the international market. The truth is that there is no business that is too big for the insurance world to take-up and as long as you give it to insurance company that knows its onions, they will know how to place that business in the global market because it is a global network and that is where the strength of insurance is. Every business you take, you have to find a formula where you take the portion you can absorb and give the rest out to others both locally and abroad. With that, there is no business that you cannot place with insurance companies.

Why is the cost of insuring an aircraft so high in Nigeria?

The cost of insuring aircraft is so high in Nigeria because of claim experience. There have been a series of aircraft accidents in Nigeria and the environment is also not safe. These are what drive rates. We look at different factors before we know how much we want to charge. The rates are not determined by us, the rates are determined by foreign reinsurers who take the bulk of the risks. For most aircraft in Nigeria, we retain maybe 20 to 30 percent risks; the remaining 70percent is insured abroad. That is how the market is because aviation is a specialized risk. It is not just for anybody. Inside the aircraft, we have complex equipment and these are not as straight forward as insuring a motor vehicle. There are special risks that need to be handled by experts. As long as we are still developing the know-how in Nigeria, we still have a lot to learn from our counterparts abroad. We just have to take the one we can absorb and give the rest to the international market. 

Why do Nigerian airlines do monthly insurance?

Every sector is looking for survival and aviation has its own challenges. So, in an attempt to save cost and manage liquidity, they want to buy insurance in the right size so that they can use and pay, but the requirements for aviation is very strong that you must have insurance throughout the year, non-stop otherwise you cannot fly that aircraft. So, even if they pay monthly, there must be a structure to make sure that their insurance is on-going. So I believe the monthly payment is just about cash-flow and liquidity management not the cover. The cover has to be 24hours every day for a year.

What services can you offer to airlines different from what other insurance companies offer?

What we can offer to airlines are flexibility, access to the London market which is the standard for placement of insurance risk and we will not play with their requirements in terms of where to place the risks and get the necessary approvals prior to placing such risks. Apart from that, we are developing passenger insurance to complement the mandatory cover whereby every passenger flying from one airport to another can also have extra insurance benefit to complement what they have in case there are any accidents. So, it is more of speed, quality of engagement with them and placing their risks in the Lloyd’s of London market, which is the standard for placing such risks.

Compared to more developed markets, the insurance industry is Nigeria is yet to attain full potentials. What do you think is responsible for this?

The reason why insurance industry is not making the needed impact compared to other countries is as a result of improper application of law and order. It is about seriousness of government to get different sectors of the economy to work. When government was serious about telecoms, telecoms worked. Government had to privatise the sector and gave it rules such as licencing rules, compliance rules, setting up of Nigerian Communications Commission (NCC) and enforcement of those rules. Today we can buy phones; you can port at any time. The same thing goes for Insurance. Compulsory insurance is the start-up of insurance and what has been used elsewhere and in developed countries to drive insurance penetration. So the lack of political will and structures to ensure and monitor compliance are some of the major problems preventing the insurance industry from making the right impact in Nigeria. On the back of compulsory insurance is where we are supposed to have innovation, new products and services. Today, I do not think Nigeria is getting five to 10percent of the potentials in compulsory insurance. It is not my responsibility, as an underwriting firm, to implement; it is the duty of government.

Can you talk about your salary protection insurance scheme?

This product was borne out of the need to protect employees and skilled workers, who may lose their jobs suddenly due to the current economic downturn, which could make companies to downsize. It provides cover for accidental loss of job and not voluntary resignation. What has happened to some companies in the last few years with foreign exchange problem is that they are not able to produce and as such they can’t continue to carry certain costs and they need to cut cost. Part of the cost is employee cost; this means you are asking people to go home. When you ask a breadwinner to go home, where does he go from there? How do you boost his morale? He will not be able to pay school fees, buy food and pay rent and medicals. So, we have designed this product to enable those who may be unfortunate to lose their job to be paid their salaries for up to two years on a graduated basis. The customer decides how much he wants to insure, provided it is not more than his current salary. The maximum insurable salary is one million naira. So they can insure any amount from their salary as far as it is within their salary and it is not more than one million naira. If there is a sudden loss of job, which is not as a result of fraud or voluntary resignation, in the first six months, they will be paid 100percent of their insured salary. The next six months we will pay 75 percent of that figure, the next six months which takes them to 18 months, we will pay 50percent and the last six months 25percent.