Small scale brokerage firms in Nigeria risk extinction
over their inability to generate substantial income to remain in
business. They likewise face the hazard of tightening regulatory requirements, BusinessDay investigation reveals.
Their plight becomes more dire, as the business
environment gets more sophisticated and competitive, as a result of
shrinking opportunities in the commercial insurance space which brokers
typically find most profitable.
Analysts who spoke to BusinessDay last night, said small
brokerage firms would have to contend with a lot of regulatory
requirements, which are not unique to Nigeria, but constitute a
demand across the global insurance space, requiring regulatory
authorities to institute corporate governance culture to protect consumers.
The analysts say a test cases is compliance with the
International Financial Reporting Standard (IFRS), monthly and quarterly
returns, which has posed a lot of problems for many brokers, in terms
of compliance.
Nicholas Okpara, director, supervision, National Insurance
Commission (NAICOM) said most brokers have been unable to comply with
the transition to IFRS, blaming it on lack of organisational structure
in most firms.
“A large number of the insurance brokers are one-man portfolio offices. The managing director
is the CEO, he is the accountant and the secretary and he is also the
dispatch rider, how can he understand what we are saying about IFRS?
“At NAICOM, we have organised series of
seminars to educate them on IFRS, and we have given them reporting
format, but up till now, many of them have not submitted their 2012 IFRS
returns,” Okpara disclosed.
He further noted that a situation where the CEO attends IFRS training meant for the accountants and auditors is very disturbing.
One of the brokers who shared his
experience with BusinessDay, said the operating environment is tough;
“We are finding it difficult to renew our licenses, we can’t meet
regulatory requirements and business is not there.”
He added,”the fact that the entire market
space is controlled by ten percent of the brokers and government and
their agencies, is not helping the rest of us”.
Chris
Davies, senior broker and account executive, Afro-Asian Insurance
Services Limited, said “these are changing times for the global
insurance market”, pointing out that local insurance brokers in Nigeria
must begin to acquire new skills to be able to remain relevant.
“If you want to control a reasonable
share of the market, you must be ready to provide compelling services
that make insurance consumers want to deal with you directly, instead of
the underwriters, and you must at the same time be in tune with modern
technology because that is the direction of the world today”, Davies
stated.
A senior council member of the Nigerian
Council of Registered Insurance Brokers (NCRIB) who preferred not to be
named, said it’s an acknowledged fact that the insurance industry
generally is facing an uphill task in view of the parlous state of the
economy, which is taking its toll on the insurance broking practice, in
view of the fact that brokers are the professional intermediaries who
interface with the clients that feel the pinch of the economy most.
He however
observed that the NCRIB is seeking ways to grow the market and the
survival of the professionals by encouraging them to embrace the options
of mergers or the shared services scheme. “The shared services scheme
seems to generate better appeal from the brokers, as it helps them maintain
their identity. Under the shared services, the collaborating entities
share services at reduced cost, while they have greater opportunities to
prospect for clients”.
The greatest challenge the council member observed, is how to grow the market generally in such a way that even with less insurance broking involvement in terms of percentage, the little they get will enable them break even.
Painting a global picture, he said a
recent report from the British Insurance Brokers Association (BIBA),
indicated that brokers control only about 54 percent of insurance market
share, leaving the rest to other distribution channels.
“It is ironic that brokers in Nigeria
control up to 75 per cent, yet they are not as solvent as their UK
counterparts. This tells us there is a need to grow the market and implore government to revive the economy and promote insurance growth.
According to him, countries such as
Australia, are already practicing the variant of mergers, through the
shared Brokers Administration Scheme, and it is hoped that this will
help brokers stay afloat in Nigeria.
The NCRIB does not subscribe to the view in some quarters, that existing brokers are too many, considering the population of Nigeria and the huge potentials that the industry has.
Nigeria has over 500 registered brokerage firms.
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