Any hope for Islamic Insurance in Nigeria?

Recently, Business 247 News Online learnt that two Islamic (Takaful) insurance companies will commence operation in the country in the next couple of months, thus, becoming the first set of Takaful companies to operate in Nigeria. However, the concept is still battling a misconception that it’s for the Muslims, and now it’s future survival rest on its ability to convince other religions followers to key into the scheme. ABDUL OLALEKAN writes.

With insurance penetration below one per cent in the country, it behoves on the insurance industry’s regulator, the National Insurance Commission (NAICOM) to devise other means of selling insurance products to the public, especially those in the grassroots, as most of them have reservations for conventional insurance.

It was in search of a way out to increase insurance adoption that led to the launch of microinsurance and Takaful insurance guidelines in 2013.

However, the modus operandi of Islamic (Takaful) insurance looks appealing as it guarantees profit sharing between the insurer and the policyholders, a trait that is absent in the conventional insurance business as the conventional insurer takes the whole profit made from its investment.

Already, there is still a misconception about Takaful Insurance that it is a scheme for the Muslims, but whether this will change with time, only time itself can tell, although, experts believe there is a prospect in Takaful business in the country.

To this end, Business 247 News Online learnt that two Islamic (Takaful) Insurance Companies will commence operations in the country in the next couple of months, thus, becoming the first set of fully-fledged Takaful Insurance companies in the country.

Hence, when these new operators start operations, experts expect them to rival conventional insurers for businesses, especially in the grassroots where this concept could sell faster.

This medium reliably gathered that five investors had submitted applications to the National Insurance Commission(NAICOM)  to float Takaful insurance companies in Nigeria, although, the regulatory body had only given approval to two of them. The remaining three applications, it was learnt, are still receiving attention from the insurance industry regulatory body.

Findings show that one of the two licensed Takaful insurers, Noor Takaful Insurance Company Plc is expected to officially starts operation latest in December in Lagos, while the remaining one is putting finishing touches to its setup and could commence operation latest by next year.

Investigation revealed that the new insurance firms are mostly owned by foreigners, especially, investors from the Middle East and Asia, who have the needed expertise in the area of Islamic insurance and had operated it successfully in some parts of the world. They are now set to use the template to operate Takaful insurance business in the country.

The local insurance firms, it was learnt, are not ready to float Islamic insurance subsidiary because of its modus operandi, which allows profit sharing between the insured and the insurers, although some of them are operating it at a window level (having a department or product for Takaful insurance).

The likes of African Alliance Insurance, Niger Insurance Plc, among others, are operating it on a window level, following the launching of Takaful insurance guidelines in 2013 by NAICOM.

Although, there is still a misconception about Takaful Insurance that it is a scheme for the Muslims, increased awareness and education, according to experts, will correct this misconception, adding that this is a concept that could rival the conventional insurance in the nearest future, because there is a ready-made market for Takaful business to thrive  in the country.

Insider source disclosed that currently, Takaful insurance is selling fast in the Northern part of the country, with the window operators making their major profits from the northern communities, while the three fully-fledged operators are also targeting the North and the Muslim communities for a start.

The Takaful Guideline of 2013 put the capital base of any interested party willing to float Takaful insurance at N100million for either Family or General Takaful business.

NAICOM’s reaction

Speaking in an interview with Business 247 News Online, the Director, Authorization and Policy, NAICOM, Mr. Plus Agboola, said Takaful insurance is a concept that will deepen insurance penetration and acceptance, especially, in the grassroots, saying, the Takaful insurance is not restricted to a culture or religion.

“It is a concept that preaches sharing of risks and profits. One of the objectives of this insurance is to encourage savings. So, it’s a programme that has short and long-term perspective. Short term perspective, because within one year, whether you have claims or not, you still share from the profit. And long term perspective is that anytime you have loss, once you are a member of that scheme, one to 10 years time, you still benefit from it,” he pointed out.

On how many applications the commission has received since the launch of the scheme in 2013, he said: “For window operation, we have so many applications, but for fully-fledged, we have about five applications, but we have given licenses to about two.”

He said Takaful insurance is a new line of business that many people are completely ignorant of its operation, stating that the challenge of conventional insurance is equally applicable to Takaful Insurance. Saying that the growth of Takaful business in Nigeria requires a highly trained personnel to drive its operations forward, he added that building both human and financial capital within its jurisdiction is a key success factor for achieving the country’s objective of becoming the hub of insurance and Takaful in Africa.

Alhaji Mohammed Kari, the Commissioner for Insurance, had disclosed that the commission was still reworking the Takaful guidelines to ensure that more investors can come to float more Islamic insurance firms in the country.

Experts’ reactions

The Chairman of one of the licensed two Takaful operators, Noor Takaful Insurance Plc, Ambassador Shuaibu Ahmed, said Takaful is about joint guarantee, whereby individuals in a community jointly guarantee themselves against any loss or damage. This function, he said, is undertaken by insurance companies whereby the insuring public transfers their financial risks of loss or damage of their assets or lives to the insurance companies at a price called premium.

“In Takaful Insurance, claims are paid, and whatever that is left, some part of it comes to insurers. It is like mutual assurance, where a form of participants comes together and put funds together. At the end of the day, it’s their money, not insurance firm’s money. Once claims are paid to some participants that record some calamities, whatever balance left in that funds belongs to participants,” he clarified.

Speaking on how Takaful insurer makes profits, he said: “We make our profit from the contributions that are made by the participants. The company normally takes an agency fees, because I want to play a role of managing those funds. We manage the claims, because if you don’t manage the claims, everybody will come and make claims, and some of them might not be genuine.

“So, we are supposed to invest those funds and also manage the claims. At the end of the day, we have an agency fees and we also share in the profit that we are making from the investment.”

The key essential driver of Takaful Insurance, according to him, is transparency, as there must be full disclosure of the terms from the company to the participants, and that claims must be paid as at when due.

He added that once a claim has been verified and its genuineness ascertained, the claimants get his claim within three days, which is the beauty of Takaful Insurance.

However, the Managing Director of Riskguard-Africa Nigeria Limited, Chief Yemi Soladoye, while explaining the reason why some operators are hesitant to leverage on opportunities in Takaful and micro insurance, said: “Most operators are neck deep in running businesses the old style; they are faced with the challenge of meeting the board’s and shareholders’ expectation and this makes it difficult for them to invest in future market developments like micro insurance and Takaful insurance. They have not come together for united market development and whether we like it or not, retail insurance is key.”

The Director, Noor Takaful, Mr. Dato Mohd Yusof, said Takaful has yet to make the desired impact to the public as a viable and preferred alternative to conventional insurance, as it has not been able to attract capital from investors, calling for harmonisation of conventional and Islamic laws and application of Maqasid Shariah to address legal and regulatory issues bedevilling this concept.                                                                                                                                         “There is the need for matured insurance industry and Takaful concept, while limiting new licenses to allow Takaful industry to grow,” he pointed out.

Conclusion

Although experts felt there is a prospect for growth for Takaful insurance, they urged operators and the industry regulator to embark on massive sensitisation campaign, to first dislodge the negative perception of Nigerians about insurance and then educating the populace that Takaful insurance is not a restricted scheme, but a product for all.