Ayodeji Bankole-Olusina has been in the Nigerian insurance industry for over two decades and has seen all facets of the business, both as an investor, player, and contributor to the value chain. In this interview with Business Day, Ayodeji who is currently the CEO at Abettah Financial shares his thoughts on the state of the industry, current challenges, policy and legislative reforms needed to position the sector as a source of long-term capital for economic development. Excerpt:
Paint a picture for us of where the insurance sector in Nigeria is today.
The picture is not what it’s supposed to be, there is a lot of room for growth. I have been in this industry for long enough to see the industry from almost every perspective. I started in insurance, went into banking, and came back to insurance and in the last 10 to fifteen years I have held C-level roles. I am also an investor in the industry. So, I can talk from the perspective of investment, and return on investment, I also have a perspective of the industry’s contribution to the economy. Therefore, I am going to take it from those three perspectives.
I will start with people and skills. Some people are happy that they have given themselves to this industry for this long, but I think there is still a huge capacity gap for the average insurance professional to cover in terms of relevance in the Financial Services Industry and contribution to the economy. So, in terms of professional and business skills, we are still growing. We are still the “poor” relative in the financial services industry.
In terms of investment, the return on investment can also be a lot better. For instance, if I put in a billion naira in banking say 20 years ago, and I put the same amount in insurance for the same 20 years, I would have gotten more from my banking investment, gotten more from my telco investment, and others. Insurance would not have matched up.
But I must mention that insurance is not a heavy dividend-paying business. The way it is structured, is not exactly a huge dividend-paying business. It is a capital appreciation business, a balance sheet growth business in terms of value.
One of the greatest challenges that we have is, what is our performance measurement for insurance. Do we understand it? It is not a dividend-pouring business. Check what happens in the markets that are ahead of us, insurance has never paid huge dividends, but in terms of capital appreciation, it does well there. It does not deliver that here.
Now the third thing that I said I was going to talk about is the contribution to the economy, which is a major challenge. Again, it is the understanding of the government or the perception that the government has of insurance, the perception of we practitioners.
One, insurance is measured essentially on the level of penetration. Two, a major standard measurement is assets under management. How much is the portfolio of Assets and what is the average tenure of the portfolio? These accumulated reserves come from either policyholders or accumulated profits gathered over time. These are funds or capital that we can contribute to infrastructure development opportunities. What is our contribution to mortgages, to consumer credit? These are opportunities for long money.
Today, we have some N17 trillion in pension savings, how does that compare to insurance? That, in terms of tenure, you’re talking about, at least on average 30 years of money sitting in an economy and 17 trillion is only 20 years of contribution. My thinking is that if the government comes up with a policy that encourages and supports life insurance, for instance, we will do another N17 trillion in 20 years from life insurance, you know what that means for the economy.
So my point in the question you have asked is, how are we doing today? In terms of our people, I do not think we are there, some people are there, yes, but not on the average. Now in terms of contribution to the economy, and return on investment, we have a long way to go. Meanwhile, in the last 25 years, I have seen capital raise exercises and that is why in all honesty, raising capital is a good thing but I do not think it is the only answer or the key to transformation.
Beyond whether people will raise capital. Is that money going to be utilised in the insurance industry? Is it even needed?
What is required right now is a rethinking of how the industry is structured and that does not require a lot of capital. For me, distribution needs to be realigned. The number one thing is partnerships; we need to look at how we partner with those who have the reach. The question is, how do we overcome distrust? How do we deepen penetration? Because I am not sure that raising capital is going to bring the growth that we need, most importantly, it is going to put pressure on ROI, again.
On the issue of distrust, from the beginning of insurance that has been the challenge. What is the way out of it?
Let us go back to the very beginning, what is insurance about? Insurance is a social solution for the middle class. The cost of replacement is high, or the absence of the breadwinner can cause financial upheavals in any family or society. The challenge today is that customers do not trust us. Therefore, what do we do to start to improve trust, we look for partnerships. Today who are the trusted partners that are possible, some banks are trusted because they have bigger infrastructure and bigger ecosystem. The bank assurance relationship or policy in this market should be very liberal to bring those people because that is one of the biggest challenges of the insurance industry. The corporations know us already but the individuals, the retail, which is where the game is. There is a lot of room for growth.
So the issue is, where are they aggregated? What are their trusted environments? If they trust banks, then we need the banks. If they trust telcos, then we need the telcos. Whoever they trust, what are their associations? Where can we aggregate people that they trust such that we can partner with those institutions to deliver our offerings? We don’t need actuarial calculations for that. It is a distribution problem, it is a business issue, We need to move insurance offerings from the need column to the lifestyle column. We need to make Insurance Ubiquitous.
What kind of legislation whether new or amendment to existing law should be made to change the face of insurance and what will be the specific objectives?
The government needs to understand the benefits of encouraging and supporting a thriving insurance industry, whether it is non-life, life, or health. I regret that the government policy only enhanced pensions and group life, and 20 years later, we are seeing the benefits. Cheap long money helps the economy: mortgages, infrastructure, and healthcare infrastructure. The Compulsion policy has helped. So in terms of government policy, in terms of legislation, what is the possibility of some type of compulsion on the government side? Mandatory is not wrong if it is for the common good. If that is the level where we are, then let us help it. Let us support it and make it a lifestyle.
Presently you are driving Abettah Financial. Tell us a little about how your experience in insurance is going to help penetrate your target market, and what value is this going to bring to the insurance industry?
I am an entrepreneur in the financial services industry. Where I sit today, insurance is still a pot that has long-tenure capital and can be used legitimately to create value. That is what Abettah is about. Abettah is still looking for opportunities to invest heavily in life insurance, particularly, to transform and introduce a player that would focus on the customer and focus on shared value between the provider and the consumers. That is what we are still about and that is what we want to be in this market.