INSURANCE INDUSTRY AND PUBLIC RELATION: THE NEED FOR STRATEGY REVIEW By Sunday S. Akpan Department of Banking, Finance and Insurance University of Uyo, Uyo, Akwa Ibom State Nigeria Abstract. This paper investigates the Nigerian Insurance industry from the perspective of public relations. This investigation becomes imperative now that all efforts are geared toward restructuring virtually every sector of the economy for sustainable growth and development. The insurance industry has suffered poor image problem and subsequently low patronage by the public.
In an effort to repositioning the industry for effective and efficient performance the paper proposes from the public relative perspective a number of strategies such as prompt and accurate claims payment, automation of operation, aggressive and creative marketing of insurance products, good customer relationship management (CRM), simplified language of policies, the people issues, better business control and reporting, and the good code of ethics as strategies for repositioning the insurance industry in Nigeria. Introduction The Nigerian economy is made up of many sectors.
These include the petroleum sector, the financial sector, agricultural sector, education, power, communication, aviation sectors etc. Insurance industry is one of the sub-sectors in the financial sector of the economy that has played a critical role toward the growth and development of the Nigerian economy as a whole. The Nigerian insurance industry has suffered what experts called image problem. Until very recently, many did not perceive insurance business as a crucial financial service mainly because the purchase of insurance service does not involve the exchange of any physical product (Babington-Ashaye, 2009).
Although it is intangible, insurance is a crucial business service that creates and adds value. It lubricates the oil of business by being the risk bearer. Its importance is better appreciated when disaster of whatever magnitude occurs. Indeed, the economic importance of insurance is to reduce the financial implications of disasters thereby creating a sense of security, which encourages people to engage in commercial activities, without fear, irrespective of the degree of uncertainty.
In other words, insurance service, from time immemorial, has always propelled business as it provides a safety net for entrepreneurs desirous of taking insurable risks. However, as the economy appears gloomy, and the perception of insurance industry appears frosty one would certainly seek answers to such questions as: (i)Being a strategy for managing risk and uncertainties how does insurance industry operate to guarantee good public relation? (ii)How is public relation in the Nigerian Insurance industry? iii)How would it be able to create a positive image and win good public relation? With perturbing speculations on the response, this study is therefore carried out to find the much needed answers to the above research questions. Consequently, the study seeks to achieve the following specific objectives: (i)To find how the insurance industry operate to guarantee good public relation. (ii)To examine public relation in the Nigerian Insurance industry. (iii)To highlight the various strategies needed to create good public image, perception and relationship. Justification of the study
Okoje (2008) admitted that the insurance industry has the capacity to perform more than it is currently doing. If the industry is repositioned, it would achieve the desired optimum level of performance. The profession and players in the industry must come to this realization and collectively evolve strategies for advancing the course of insurance. Carrying out this study is of great significance. First it will reveal the operational guide for use in insurance industry. Second, the study would provide solutions to the bothering issues raised in the above problem statement.
Third, this study will offer useful strategies for effective and efficient operation of insurance firms in the industry. The study to a lesser extent would add to the available literature on the subject matter while also serving as a source material and reference for future writers in same or similar area of study. 2. 0Literature Review The relationship between insurance industry and the public has been a subject of concern by many writers. In trying to establish this nexus, many authors have adopted different approaches, methods and techniques.
Some attempt an analysis of the role that insurance plays in ensuring the safety of the public, some focused on the importance of the industry to the economy and the society and yet others emphasized the regards that the people have for insurance industry. In this section, we shall focus our discussion on the main thrust of the study being how the public perceive insurance industry and the need for a review of the strategies that have been in use in relation to the current market situations. First we review the insurance industry in Nigeria.
Second, examine public relation in the insurance industry and third we offer strategies for its effective operation. 2. 1The insurance Industry in Nigeria The insurance sector in Nigeria, per Soladoye (2010), germinated in 1921, although its regulation started only in 1961. After an indigenization process that the industry underwent in the 1970s, it was opened to foreign competition in the 1980s. Soladoye (2010) noted that the reform of Nigeria’s insurance industry started in 2005 with the announcement of new capitalization requirements for insurance companies.
This led to the consolidation of the industry and 71 companies were recertified in February 2007. According to Babalola (2007) noted that the reform of the insurance sector was a “defining” moment for the sector, stating that it would form the basis for further reforms in line with FSS 2020. The minister announced that “at the end of the day, we are going to have an Insurance sector that will actually have its own share in the FSS 2020. ” Before the announcement of the consolidation exercise in September 2005, the nation had 103 direct underwriters, 350 insurance brokers and five re-insurers.
From March 1, 2007, insurance companies were required to increase their shareholders’ funds to N2 billion for life operations from N150 million, N3 billion as against the previous N200 million for non life operations and N10 billion for re-insurance business up from N350 million. The consolidation was also to significantly raise the contribution of the insurance industry to Gross Domestic Product (GDP) from less than 1. 0 per cent in 2004, compared to 16 per cent in S/Africa; 14 per cent in the UK; 9 per cent in USA; and Malaysia.
It was also to increase the number of Nigerians that buy insurance policies from only about 5. 0 per cent. The Insurance Act (2003), which came with reforms, was designed to transform the industry, increase the capitalization of insurance companies, classify the business of insurance into life insurance and general insurance business, and make provisions for better supervision and control of the industry in Nigeria. The Act also facilitated the prohibition of insurance of Nigerian based assets abroad except with the involvement of Nigerian insurers.
The advent of the Pension Reform Act (2004) also supposedly brought some good fortunes for the insurance sector, as it required that employers of at least five workers should take out compulsory group life policy in favour of their workers. With these, many investors in anticipation of the turnaround of the fortune of the industry bought into insurance stocks to make good returns in the coming years and month, when the expectations would have crystallised. The exercise, was also supposed to reduce the playing field from then 103 direct underwriters, five re-insurers, 350 insurance brokers, thereby growing gross premium income further.
The move was also to address the high fragmentation of the industry, where each of the top five players had less than 4. 0 per cent market share, excluding NICON with 16 per cent, while the top 10 companies accounted for 34 per cent of market share. The fragmentation was blamed for the inefficient pricing and service levels in the industry, characterized by lack of product innovation, delay/default in claims payment. Efekoha (2009) admitted this much when he said the industry consolidation programme led to marked improvement in the performance of the insurance companies quoted on the Nigerian Stock Exchange (NSE).
According to him: “The consolidation exercise has impacted positively on the industry as noticeable in increasing confidence of investors in insurance stock, and increased capacity of local players and ability to retain greater risks. The sector following the recapitalization exercise has really emerged as a formidable player in the financial services sector. The trend in the capital market shows that insurance stock prices have been on the upward trend. Many investors are ecording huge capital gains that have made instant millionaires of those who invested heavily in insurance stock, and this trend promises to continue. ” He noted that the initial anger that trailed the pronouncement of new minimum capital levels by most operators in the sector gave way to enthusiasm, as operators began to see the “bigger picture” unfold. When the government consolidation campaign got to the insurance sector, most people felt the new capital regime of between N2-billion to N10-billion was far too high for the local market.
However, the local market is now being driven by enhanced risk retention capacity, sundry alliances, and offshore participation that have all raised the prospects of the sector. IBS (2010) concluded that Nigerian insurers could start earning a yearly gross premium income of N1. 27-trillion ($10-billion) by 2016. The report by IBS analyzed several issues in the Nigerian insurance industry including premium growth rates, marketing and distribution, pricing, product development, and best prospects, among others. Labelling the Nigerian insurance industry, a ‘goldmine’ perhaps best represents its latent opportunities. Though demand for insurance services in the country has remained relatively low since the past 40 years due to problems, which include lack of capacity and low insurance awareness, analysts say the industry can potentially generate an annual Gross Premium of USD10 billion (N1. 27 trillion) in the next 10 years,” IBS stated in its summary of findings from market trends in the Nigerian insurance market.
With the enhanced capital, the insurers predominantly owned by Nigerians were expected to play deeper in the niche markets- oil and gas, marine, aviation and life insurance. 2. 2The Public Relation Perspective of Insurance Industry According to Adeda (2009), the business of insurance is about trust and the only way the industry can get to the heart of the people is when insurers deliver their promises promptly. The industry, he said, must consistently uphold the principles of ethics and probity in order for the industry to be assured of a future.
The insurance industry in Nigeria has up to date suffered the image problem. Confirming this, Adeda (2009) said “I have come to realize that the major impediment to the penetration of insurance in Nigeria is lack of awareness, coupled with the culture and attitude of our people. The problem of poor image, which has been lingering in the nation’s insurance industry for over half a century, has been identified as one major contributory factor impairing the growth of this strategic sector, resulting in loss of public confidence in the industry.
For many people across the globe, insurance is nothing more than a necessary evil. In most societies, there is often a clear understanding of the nature, need and essence of insurance. But in the Nigerian environment, the perception is different. The average man on the street hardly understands the workings of insurance or if there is any value to be derived from entrusting part of his earnings to an insurance company. These are the daunting tasks to tackle as no nation could develop without embracing modern insurance. Till date the public relation image of the insurance industry is still gloomy.
This description of the insurance industry by Adebayo (2009) suffices: The ordinary Nigerian does not see any need in taking insurance policy. It is not that he/she has once taken any policy and was disappointed when it was time for claim, but a matter of lack of culture for insuring his life or assets. While some people see banks as partners in safekeeping of their money and valuables, insurance is seen as a thing for some kind of people. This is a challenge confronting insurers, the effort to improve market penetration and make the industry compete effectively in the global market.
Across the globe, people naturally do not imbibe the culture of insurance unless educated and convinced about the need to protect what they value. So, that Nigerians do not buy insurance is not to say that we are different from others, but it is because we have not been exposed adequately to the knowledge and importance of getting ourselves associated with insurance (p. 3) 2. 3Insurance Industry and Public Relation: Strategy Review For insurance industry to live up to its billings and garnered or whirled good public relation, the strategies hitherto in use must have to be review and upgraded.
Special focus will be on insurance as an agent of development even in the rural areas. (i)Strategy I: Prompt and Accurate Claims Payment A major reason why insurance was treated with disdain in the past was its poor record of claims settlement and delay in the payment of verified claims. As Ruebenson (2010) declared recently, “for insurance operations, claims had better be a core competence or you just won’t be successful”. Many insurance companies have not fared well in this area. Understandably, insurance products can easily be abused.
Indeed, clients who may be out to cheat for monetary gains can abuse the policies drafted. This is not a peculiar phenomenon in our country. There are many cases in other jurisdictions of persons who committed crimes and unethical practices in the hope of harvesting insurance compensation from the insurer obvious of the equitable maxim that he “who must come to equity must come with clean hands’. This often justifiably raises the issue of legality of insurance claims. However, litigation over claims put a great strain on the ability of the insurance practitioner to establish that the company he represents is a credible firm.
The engagement of loss adjusters notwithstanding, the negative impacts generated by delayed settlement or repudiation of phony claims and litigations, are often immense. (ii)Strategy II: Automation of Operation In spite of the fact that the above developments were caused by the desire of the insurers to fish out spurious claims, many operators in the industry have come to realize that verification of claims can be expeditiously done through the adoption of appropriate software and the creation of a single customer data-base from disparate back-office systems including underwriting, claims, billing, policy-management, etc.
With increased recapitalization and consolidation, it is hoped that many insurers would be able to create a single source of customer data using information and communication technology (ICT) facilities such that a single, real-time view of customers’ total portfolio will be available to agents, brokers and sales executives. Sophisticated ICT systems are vital for managing business intelligence, but technology is also important for making internal processes more efficient and cost effective. The goal of technology is not just automation.
The imperative is to link billing systems to eligibility systems, provider system, claims systems and reporting systems. With these, the lead-time for the processing of claims will be significantly reduced. Thus, re-engineering the various processes, procedures and organizational structure can pay dividends for claims management. Also, with the envisaged increase in capitalization, ability to pay claims would also not be a problem. (iii)Strategy III: Aggressive and Creative Marketing of Insurance
Products The Insurance practitioners must deliberately strive to identify the needs of their consumers, plan produces that will adequately meet those needs, properly price, promote and distribute those products such that both parties will mutually benefit from the process. In other words, the insurer must translate not only the customers’ needs into product and service requirements but also must deliver the products at competitive rates with the right quality. Insurers should therefore not underestimate the importance of product features and strategy even as they pursue their distribution networks.
Especially significant is the need to innovate as conditions change and to service unmet demands or segments. This may require the modification of existing covers or providing totally new options. The insured should be delighted by the quality and variety of product/service he gets such that his patronage is assured. Product offerings must be aligned, though, with the insurer’s broad value proposition and strategic direction. So the aim of any alliance or acquisition is not to increase the number of products per se. he goal should be to assemble a product portfolio that allows the insurer to serve as many target customers as possible and to respond quickly to the changing needs of the market. Thus, with the on-going consolidation and deregulation of the financial services sector, it is hoped that mergers of insurance companies will produce a pot pourri of products while the tariffs for premium will now be more competitive and attractive and attractive for the insurer to be able to deliver on his promise. Whether we like it or not, the whole business of insurance must be built around the customer to guarantee his brand loyalty.
In other words, insurance companies must continue to carefully develop products based on the information they obtain from the market place and package them in a manner that will both be beneficial to the insured and insurer. (iv)Strategy IV: Customer Relationship Management (CRM) The introduction of Customer Relationship Management is a critical success factor in insurance business. Insurers must imbibe this market-focused philosophy because, companies that can tailor their product lines and distribution channels to tested customer needs, with a focus on service, will win competitive advantage. v)Strategy V: Simplify Language of Policies Winning the confidence of the insured is crucial. Confidence can only be built if the insured understands what he/she is being encouraged to purchase. To achieve this confidence, there is need to simplify the language with which insurance policies are couched. A home grown policy design should be evolved by the industry rather than the archaic legal jargons evolved by the merchants of old. The business world is dynamic and there is no reason why the policies, which are basically contracts, cannot be written in modern day English language and legal expressions.
Except potential policy buyers know and understand the contract they are going into, trust, which is the basis of insurance, would not exist. Where there is no trust, business cannot be sustained on a long-term basis. (vi)Strategy VI: The People Issues The processes for promoting and marketing insurance services have largely been through insurance agents, brokers and sales executives. These intermediaries help to educate very carefully the intricacies of each insurance policy to clients. When the policies are purchased, they also provide any after sales services that may be required.
They also negotiate settlement with insurers and loss adjusters on the insured’s behalf. Insurance salesmen are used also to market the products. Given the challenges of globalization and the impact of information technology on businesses, including insurance, greater investment needs to be made in capacity building in order to improve the skills of exiting employees. If need be, persons from outside the organization that have the right skills can also be recruited to add fresh blood into the system.
Also, the various intermediaries need to be trained extensively such that they will continue to adhere to code of best practices in the industry. (vii)Strategy VII: Better Business Control and Reporting In keeping with the imperative to pursue sustainable growth, there is need to improve the internal controls of insurance companies not only to eliminate wastes and improve their efficiency but also to ensure that business decisions are optimally taken. In this respect, they must constantly review their value chain in order to achieve the desired level of performance. This is the way to go.
Insurers able to demonstrate mastery of their internal control processes will win consumer loyalty, as good financial health provides customers with evidence of longevity. (viii)Strategy VIII: The Code of Ethics For the insurance industry to remain the lubricant of the wheel of business, the profession must develop and enforce a Code of Ethics in line with universally accepted norms. The Code should define in very clear terms, the acceptable practices and mannerisms of insurance practitioners. All non-conformists or deviant behaviours must be sanctioned without fear or favour.
If there are not sacred cows, the industry will be the better for it as the confidence of stakeholders would be sustained. We must collectively redefine the rules and raise the ethical bar for the industry to continue to flourish. To be trusted, we must be trustworthy. The time for the regulatory agencies and professional insurance institute to act is now. 3. 0Conclusion and implications. In this write-up I have stressed the importance of insurance and the disproportionate perception place on it by the public. Indeed, insurance is perceived as a service you can do without or an afterthought! This perception is an irony.
It is against this that I advocated above the need for the Insurance Industry and the Insurance Profession to urgently re-engineered, redefined and refocused its strategy to whirl good public relation. Insurance must rightly be seen as a Win/Win undertaking. Insurance creates value because it protects. It creates value because it is an antidote to fear, uncertainties and risk, stimulates and encourages investment. If its strategy as reviewed is explored, it will continue to reinforce and facilitate trade both at the national and international levels, such that value and wealth are created on a sustainable basis.
Indeed, the personnel of an organization are its greatest assets. Any investment in human capital is an investment in the future of the organization. Reviewing the insurance industry strategy should not begin and end with just recapitalization and induced mergers. This should be the first step. We must move towards prompt and accurate claims payment, automation of operation, aggressive and creative marketing of insurance products, customer relationship management (CRM), simplify language of policies etc.
Only then will the insured feel confident that they have coverage for any insurance product purchased and their perception corrected. The above investigation has a number of implications for the insurance industry, practitioners and policy owners. To the industry, the above findings would rejuvenate the entire industry by injecting new methods and modus operandi for effective operation. It will also enable the industry to compete effectively against others in the economy at the local and international scene.
The findings will benefit insurance practitioners by means of efficiency, profitability and sustainability. Operators would by the findings of their paper be able to device measures capable of moving their respective insurance firms to a greater height. Also the practitioners would improve upon their overall performance in the midst of stringent regulations, turbulent operational environment and sophisticate consumer market. The policy owners would increase their level of confidence reposed on the industry and fully tapped the benefits thereof.
Such would be guaranteed of prompt claim payment, good insurance product, deepened product awareness, zero time services provision etc Generally, the government would also benefit from the proceeds of the industry since some major macro economic problems of the society like unemployment would be solved. Also a meaningful contribution would be made to the country’s gross domestic product (GDP). References Adebayo, T. (2009). Introduction to Risk Management and InsurancePrentice – Hall of India Private Limited. Adeda, L. (2009). Outlines agenda for changing insurance perception in Nigeria Babalola, G. (2007).
Principles of Risk Management and Insurance. 10th edition, Pearson International Edition. Efekoha, D. (2009) Dictionary of Finance and Investment Terms, 6th edition, Hauppauge, Barron’s Educational Series, Inc. IBS (2010). The Investment Case for the Insurance Sector. Louise P. (2008). Improving Public Opinion of Health Insurance Companies Malthouse Press Limited, Lagos. Okoje, N. (2008). Customer Service Strategy for Insurance Industry. Industry Guide 1(2): 40-49. Soladoye, G. (2010), Risk Management and Insurance Application 2nd Edition. The Insurance Act (2003), Publication of Nigerian Insurers Association.