Insurance industry in dire need of transformation – Head Audit Services at KPMG, Mr Okunlola

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Mr. Kabir Okunlola, Head, Insurance Audit Group & Partner, Audit Services division of KPMG in Nigeria. He spoke with Ediri Ejoh & Gabriel Olawale on how the sector can draw the right attention and market penetration.

How do you see the insurance industry in Nigeria in the last two years?

When you look at the capitalization of insurance companies that are listed on Nigeria stock exchange, it’s poor and if you look at market performance by sectors, you will realized that most of insurance entity haven’t done very well because of their operating performance as well as appetite of investor because there are other sector that do a lot well and investment fight for capital. So for this to stop, fundamentally as a country we need to address some key areas, such as governance which am happy the regulator are already looking in that direction by issing what they called 2017 priority areas.

The strength of insurance business is the overall performance of its life business and when you look at it relatively, Nigeria is about 70 by 30 life to non-life. In other developed market, it’s other way around and what the life business help insurance industry to do is to develop the right pull of funds because life investment are generally able to generate sufficient long term fund which in turn help the government in area of infrastructure. So transformation is inevitable in insurance industry because the underperforming records in the last couple of years cannot continue.

Kabir Okunlola; Head Audit Services at KPMG

Why is the sector underperforming?

The reasons cut across lot of factors. First, the sector lacks adequate financial investment to enable it drives the opportunities that abound in the sector. Another thing is human capital investment as well as lack of genuine oversight functions by the government. For these reasons, the sector is seriously fragmented, Out of about 56 insurance companies in the country, we have six insurance companies controlling more than 60 per cent of the market which means the other 50 insurance companies are not doing as much.

What is the role of International Financial Reporting Standard 4 in this transformation process?

Nigeria is in the regime of IFRS 4 which is generally referral to as phase I, with focus on presentation and disclosure related issue for insurance companies so that people can better understand the business of insurance. So it’s more or less driven by consistence principle as against comparability. What it means is that two different insurance companies with same size, product, capital and even the same market size may report performance differently depending on the performance standard they adopted.

This has really generated the need to have the phase II of IFRS which is called IFRS 17. This is expected to be issue before the end of this year, and to be effective by 2021. Its objective is that it strives to ammonized accounting principle by insurance companies and also focuses on risk management. What that will do is that you will never have a situation whereby two insurance companies are doing two similar things but reporting some fundamental differences in their financial performance. It will also inject confidence and consistency in the market as well as investor interest in insurance business because investors will have better understanding of the sector to make right decision. This will help to create employment and raise fund for infrastructure instead of going to borrow.

Way forward?

If you have a situation whereby you can consolidate that and have very few very strong player that have the right capitalization investment, right technology, then we would have the right depth in the market, right product development and right pricing. The focus on the consumer need in that sector will be very strong and ultimately generate the desire growth in that sector.

Why Insurance conference?

The insurance conference which is bid to hold on the 28th of February, 2017 is part of KPMG investment in providing top leadership, and helping to coordinate decision and assessment around right opportunity and investment in this sector. What we intend to do is to bring together resource persons locally and internationally to enlighten the stakeholders on what need to be done and how to drive transformation. Opportunity and challenges for transformation, discuss around IFRS 4 among others will top the agenda.

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