Risk management can help bolster firms’ profit amid economic downturn

Despite being the second largest economy in Africa, the majority of Nigerian companies report dangerously slim profit margins, a core problem financial experts say can be curbed with the use of an adequate risk management strategy.

Stakeholders say the aforementioned strategy can help improve the operational efficiency of firms, while contemporaneously maximizing their profit in an economy that slipped into its first recession in 25 years.

Speaking at a risk management event in Lagos, the Managing Director of Wapic Insurance Plc, Yinka Adekoya highlighted that a great economy is hinged on a booming manufacturing industry and the need to strengthen the distributors’ framework to shore up the manufacturing sector.

“It behooves all of us to rub minds on how best to grow our economy and sustain our businesses in the wake of the economic challenges we are facing.’’ said Adekoya.

Experts say attention to data quality, automation to reporting process, good corporate governance, independent of risk managers, clear statement of risk appetite at every level of firm and an appropriately incentive to structure of risk takers are the pillar of risk management that should be pursued by organizations.

Lack of transparency and risk culture has caused major financial loss and forced many companies to go bust or seize to continue in the near future.

Bola Temowo, Regional Vice President (Africa) of the International Institute of Loss Adjusters, Inc., said, “Failure to identify, access and manage the major risks facing the organization’s business model may unexpectedly result in loss of shareholder value and invariably profitability to the organization”.

Nigerian manufacturers beset by a myriad of challenges such as a severe scarcity of dollars to import raw materials and machinery to meet production demands and rising inflation that eroded consumer purchasing power, can use the strategy to improve distribution networks and bolster bottom line (profit).

Nominal GDP growth of manufacturing in the fourth Quarter of 2016 stood at 3.56 percent (year-on-year), 3.37 percent points lower than the 6.93 percent recorded in the corresponding period of 2015.

Analysts are of the view that an adequate risk management strategy can also help close the dangerously low insurance protection gap in the country.

Experts across the globe have agreed that insurers need to work very closely with risk managers, regulators and stakeholders within the country to create awareness about the purpose and value of insurance.

Nigeria is second largest economy in Africa and a population of 170 million with an abysmally poor insurance contribution to GDP of 0.60 percent. This compares with South African’s contribution of 15 percent to its economy.

“Insurance is a veritable way of mitigating risks. Insurers should be creative and develop suitable products for the risks being faced during recession,” said Temowo.

From a risk management perspective, The Head, Group Technical Training, Continental Reinsurance Plc., Mr. Steve Odjugo, reiterated that insurance is a form of risk transfer, which is also a risk management tool. He spoke on the need for business owners to define their risk appetite and advised distributors to take advanced step to manage risk because risk is a reality.

Consistent with its vision to transform and illuminate the insurance industry, the Executive Director of Wapic Insurance Plc., Bode Ojeniyi reiterated the fact that WAPIC does not hide under fine prints and prompt settlements of genuine claims are effected within 48 hours; as long as requisite supporting documents are provided.

Part of the problem with penetrating the insurance markets in Nigeria is the affordability of the end product to the consumer hence undermining growth and revenue.

As a result of these challenges, local operators are unable to take on bigger risk and compete favorable with their big foreign counterparts.

For instance, recent report have it that African Reinsurance, a Pan African insurance company controls 65 percent of reinsurance market, While Continental Reinsurance and WAPIC are left to jostle with the remaining 35 percent.

The third quarter 2016 cumulative gross premium written (GPW) of NSE Insurance 15 index, compromising 15 of the most liquid insurers, stood at N117.51 billion, which is lower than the African’s Re’s GPW of N201.15 billion

NSE 15 insurance index total asset in the same period was N396.45 billion, lower than African Re’s of N419.21 billion.

Wapic Insurance Plc. is a leading West African multi-line insurance company providing innovative solutions covering life, general and special risks. Established in 1958 and listed on the Nigerian Stock Exchange since 1978, Wapic has gained relevant experience across the Nigerian economy in risk management and underwriting, assisting corporations and individuals with various classes of cover.

BALA AUGIE