Developing appropriate monitoring and evaluation template for investors in insurance

AS THE INSUR ANCE SECTOR continues to look green for investments and expectations heighten on improved returns, the need for better methods to measure and extract value from the performances of the insurance companies, have become more imperative.

Coupled with the anxieties surrounding the passage of the Insurance Amendment Bill by the National Assembly, investors really would have to consider some proactive and drastic reviews of the basis of the relationships between them as shareholders and the leadership they have put in place to steer the affairs of the companies.

Such reviews should begin with carefully appraising the operating environment to understand that insurance companies need to be more innovative and responsible, and then initiate measures using tech solutions to ensure significant attainment of set goals and targets.

The peculiarity of insurance business models makes this even more critical and I shudder when I continue to see investors who depend on traditional performance metrics to monitor and evaluate their investments in insurance companies in Nigeria, then expect different results year on year.

Now is the time to consider Monitoring and Evaluation (M & E) as a reliable and efficient system towards ensuring consistent positive performance of your investments in insurance and through the Boards and their respective Board Committees, these are some of the elements to examine:

Quality of Leadership

It is unlikely that the Insurance Laws guided by the National Insurance Commission (NAICOM) will allow insurance companies to bring in people with proven track record for successful turnaround of businesses without professional certification in insurance to lead insurance companies, so investors should seek ways of having high performing teams in place rather than the one-man show that is common amongst the insurance companies today, whether publicly quoted or not.

It has become evidently exciting for investors that have their companies excelling on account of their decision to have accomplished business moguls, sometimes of diverse background, on the Boards to guide and support their Executive Management put in place to meet the stringent requirements of the regulator. For example, companies are required to have the Executive Board Member in charge of Marketing and Business Development with professional insurance certification, which means the person, would likely come from within the insurance industry. Few companies have this working well for them while most have had the Chief Executive Officer combining such roles with leading the company, in this season of increasing governance and recapitalization issues.

Innovation begins with the caliber of people you have at the leadership level. When they are persons that have been successful in their endeavours, they are more likely to be open and embrace new solutions and this is what some of the succeeding insurance companies have done and their investors are delighted to invest more.

Additionally, these investors will need to protect their investments by encouraging their C-level Executives to take Directors and Officers Liability Insurance in the face of new opportunities which companies venture into with minimal knowledge of the local market operators and sometimes, end up paying fines to the regulators or avoidable claims to policyholders or even suffer reputational backlash from the public.

Quality of Policies Underwritten

Up till now, it is not the business of the investors or shareholders what and how the insurance companies incept insurance policies for their customers (policyholders), just as it is not best practice to do so. However, the other reason, besides quality of leadership, for which investors have earned returns on their investments in insurance companies have been the types of customers, policies or contracts and experiences they have had over the years.

We know how shareholders have assisted their insurance companies to generate premium income; however the price wars in the insurance industry have created losses for them ab initio. Just imagine insurers giving discounts and incentives simultaneously to prospects in a bid to win them over, while the expenses for managing them through the year remain high, then you will understand why it has continued to be difficult for meaningful profits to be posted and reasonable dividends paid.

Smart policyholders have understood that the only strategy used by insurance companies to win businesses from others is price reduction, so they apply the bait during policy renewal discussions, despite the fact that claims were recorded, settled and paid in the course of the insurance year.

Little wonder, in some very precarious situations, investors and shareholders have sought to behave like policyholders in order to receive some benefits when it may have become obvious that the year would likely end without profits.

Still, smarter insurance companies that are committed to delivering returns to their investors and shareholders maintain focus on the quality of customers they retain, and this explains why corporate accounts contribute over eighty percent of the Gross Written Premium (GWP) of the insurance industry in Nigeria.

Good Governance

Increasingly, insurance companies that are delighting their investors have managed to abide by code of good governance they set and allowed to guide their operations, hinged on regulations and guidelines of NAICOM. These are the companies that are not fined by the Nigerian Stock Exchange (NSE), Federal Inland Revenue Service (FIRS), National Pensions Commission (PENCOM) or even NAICOM itself.

The insurance regulator provides such regulations to guide the conduct of insurers in the market and where the desire to get premium in beclouds the minds of the leaders thus leading their companies to incur claims and burdensome payouts, the investors through their Boards’ Committees would need to monitor the experiences of customers and possibly reports on policy attritions.

The role of Non-Executive/Independent Directors in this regard cannot be overstated and the innovationoriented insurance companies understand why it is better to have persons with some industry experience in that position.

Generally, the nature of insurance business, unlike other businesses including banking, entails holding promises that are a thousand times more than the premium paid by the policyholder for years, hence the need to regularly monitor and evaluate one’s investment is not only a Call to Action but an action that is necessary to safeguard the future of the insurance industry.

Insurance requires long term funds to grow and sustain the potentials in agriculture, creative arts and entertainment, infrastructural developments and tourism, so investors have to see and appreciate the picture and understand what appropriate M & E will do.