SPEECH

2003   IILA   ANNUAL  CONVENTION

INSURANCE & LOSS ADJUSTING IN AFRICA

BY

SAMMY  A. I.  SOTOMI   ACII FCIIN AILA

(President – Institute of Loss Adjusters of Nigeria)

(Chairman – Equity Trust Loss Adjusters)

Being an Address Delivered at the Breakfast Meeting of the

AUSTRALIAN INSURANCE LAW ASSOCIATION/

AUSTRALIAN INSTITUTE OF CHARTERED LOSS ADJUSTERS 

&

INTERNATIONAL INSTITUTE OF LOSS ADJUSTERS

On Tuesday  23  September, 2003  @  Adelaide, Australia.

Mr. Chairman of session, President of IILA, ladies and gentlemen, good morning.  It’s a great pleasure
and privilege for me to address this great gathering of Professionals  on the topic of INSURANCE & LOSS
ADJUSTING IN AFRICA.

My address is going to be very brief only on the practice and not on what is Insurance/Loss Adjusting, a twin
subject that I do believe that most of you are probably more vast and experienced than my humble self.

HISTORICAL BACKGROUND
The Insurance Companies in Africa evolved mainly from the Agencies of the major insurance companies in
Europe that were in existence in Africa Countries during the colonial era, which later metamorphosed into
full insurance companies such as Royal Exchange Assurance in Nigeria along with the National Insurance
Companies established by each African Country after independence. 

The National Insurance Companies in Africa are usually government agencies handlingmost of the government
accounts with the dual purposes of preventing capital flights in term of insurance premium and as a tool of
economic development.

Later, as the economy of the African countries continue to develop, indigenous insurance
companies were established as private companies limited by shares and those floated on
the stock exchanges as public liability companies. 

On the other hand, the growth and development of Loss Adjusting in Africa follows closely that of the
Insurance Companies as Service Providers for Insurers in the business of Claims handling, although the
practice of loss adjusting as presently known world over became prominently practiced and widely
accepted within the last two and half decades in Africa.

Loss Adjusting practice in Africa is still predominantly dominated by foreign Loss Adjusters from Europe
and North America who have established branches in some African Countries such as Cunningham Lindsey,
Mclarens Toplis, Crawford, & Gab Robins ( all having presence in S/Africa); and CCS Global with presence
in North Africa, Kenya, Uganda, Tanzania & S/Africa.

Some of the foreign Adjusters establish Correspondence and Associates in some African
countries where they do not have an establishment of a  branch of their operations. 

However, Nigeria and South Africa have in existence the largest number of trained and professionally
qualified indigenous Loss Adjusters in Africa with Nigeria having a total of thirty-three (33) registered
Loss Adjusting Firms.

Also, the practice of loss adjusting is more developed and well established in these two countries with
each having their Institute of Loss Adjusters (ILAN for Nigeria & ILASA for S/Africa) which are involved in
self regulations, formulation of code of practice & conduct and the protection and preservation of member
firms’ interests.

Requirement for establishment of Insurance Companies and Loss Adjusting Firms in Africa varies, but most
governments exercise some sort of control and regulations in the control of the business and most have in
existence legislations guiding the practice of the business with some governmental agencies acting as
Regulatory Authority such as National Insurance Commission (NAICOM) in Nigeria.

THE PRESENT

The present developmental stage of Insurance and Loss Adjusting in Africa in comparison to the rest of the
world could best be described by the following statistical table:

TABLE 1

The above data show clearly that Insurance/Loss Adjusting in Africa is still very much at its early
stage of development/growth but with a great potential.

At present, there are over three hundred (300) registered insurance companies in Africa with a
corresponding sixty (60) Loss Adjusting Firms (estimate), but the pattern of premium generation and
size of these companies is that the National Insurance companies of each of the Africa companies
produce averagely 25% of the total premium as they have a near monopoly of their governments’ accounts.

For example, although there are over one hundred and ten (110) registered Insurance companies in
Nigeria but 85% of the total premium income in the Nigerian insurance marketis generated by the
biggest ten of those companies. The same pattern goes for the Loss Adjusting Firms.

Furthermore, South African insurance market generate over 50% of the total premium income for the
Continent and having the largest and the most developed life assurance portfolio.

However, the major reasons identified for the low insurance premium income in Africa is due to the twin
problem of low capacity retention and inadequate technical know-how in the evaluation, assessment and
underwriting of the Oil, Gas, Energy and Aviation Risks.

For example, the main stay of the Nigerian economy is Petroleum Oil with it accounting for 95% of the
Foreign Exchange Earnings and 65% of the Budgetary Revenues of the Government, yet the insurance
of almost all risks associated with Oil is placed directly overseas through the National Insurance
Corporation of Nigeria (NICON) with minimal retention in the country.

Presently, the major Re-Insurers for the African market are Munich-Re and Swiss-Re, with both sharing
between them 90% of the business and having offices in South Africa and with Swiss-Re having an
additional office in Abidjan, Cote D’Ivoire to serve the West African market.

The following table is an example of premium income distribution of insurance companies in Nigeria.

TABLE 2.

GROSS PREMIUM INCOME OF INSURANCE COMPANIES IN (=N=000) NIGERIA BY CLASS OF BUSINESS
(1991 – 2000) AS PER THE NIA. 

SOURCE:  RETURNS MADE BY MEMBER COMPANIES TO THE NIGERIAN INSURANCE ASSOCIATION.

NOTES:

1.              All financial figures are in Naira and the exchange rate to US $1 is =N=120.

2.              The figures in parenthesis are in percentages and each represents the proportionate
share of that class in the total GPI for  the particular year.

3.              General Accident includes – Accident, Burglary, Workmen’s Compensation and
Miscellaneous Insurance business not else where classified.

TABLE 3.

PARTICULARS OF LARGE CLAIMS OF =N=1MILLION & ABOVE (2001).

The table below shows large claims of =N=500,000 each and above paid under various classes
of business

Between (1997 – 1998) and =N=1,000,000 and above paid in 1991 and 2001 as reported by some member
Companies.

Large claims of =N=1,000,000 each and above paid by some member companies in 2001 amounted to

=N=6,605,183,592 as against =N=2,743,424, 119 paid in 2000.

An analysis of large claims paid in 2001 showed that the first three highest single claims were paid by

NICON Insurance Corporation and included the following: =N=944,000,000 paid to N.N.P.C. 

On Fire, =N=696,301,008 paid to N.N.P.C on Damage to Crude Blow-Out at Orgho N0. 2 Well. 

An examination of the table below showed that most of the losses paid in 2001 were on fire policy.

THE PRACTICE

The practice of Insurance/Loss Adjusting in Africa is regulated by most of the African
Countries: for example in Nigeria, the conduct and practice is regulated by NAICOM and
prescribe standards and regulations regarding:

(1)  Registration Requirement including Capital Requirement  

(2) Liquidity Ratio and Technical Reserves’ Compliance 

(3) Uniform Accounting Procedures and Returns format

(4) Qualification Requirement for CEOs & Heads of Departments

(5) Advertisement.

Great emphasis is placed on the professional qualifications of all managers, the minimum
being Associate of the Chartered Insurance of London or Nigeria along with management
experience of ten years or more.

The Chartered Insurance Institute of Nigeria is empowered by the Insurance Act for providing
educational standards, examination and training and compilation of Register of all categories
of Insurance Professionals such as Students, Associate and Fellows.

It is also responsible for formulation and enforcement of the Code of Conducts for all professionals
in the Nigerian insurance markets comprising of Insurers, Loss Adjusters and Brokers.

The Insurers have a market association known as the Nigeria Insurers Association (NIA); the Loss
Adjusters are represented by the Institute of Loss Adjusters of Nigeria and the Brokers market
association is known as the Nigeria Corporation of Insurance Brokers (NCIB).  

The Institute of Loss Adjusters of Nigeria (ILAN) have in place an approved examination structure
to commence in April 2004 and the entry qualification is ACII, ACIIN or qualifications of other
professional bodies such as Engineers, Architects, Lawyers etc.

Also, there is contemplation on embarking on the Claims Technicians examination for the Claim
personnel of the Insurance Companies under the auspices of the Chartered Institute of Loss
Adjusters of London (CILA).  ILAN has also strived to maintain contacts and exchange of
information with all the other loss adjusting associations in the world.

Both Institute of Loss Adjusters of South Africa and the Institute of Loss Adjusters of Nigeria are
currently members of the International Federation of Adjusting Associations (IFAA).

THE FUTURE

I stand boldly before you today to state that insurance/Loss Adjusting is yet to achieve its full
potential in Africa and that the prospect is that of a brilliant future for this profession.

First, let us examine the following economic indexes of some of the three biggest economics in
Africa, namely South Africa, Nigeria and Kenya in relationship to that of our host country -
Australia in the recent years using 2002 as the base year with the exception of the Population
figure which is based on July 2003 estimates.

TABLE 4.

·       ESTIMATED FIGURES FOR 2002.

·       SOURCE:  CIA WORLD FACTBOOK 2003 @ http://www.cia.gov/cia/publications/factbook                                            

The above table indicates that the major economies of Africa is growing again especially
judging by the GDP-Real Growth Rate for 2002 even if such growth is modest and this is
attributable to stable polity, democratization process, privatization and liberalization policies
embarked upon by many African governments which in turn is currently fuelling more foreign
investments in the Africa region.

The continuous rise in the Internet Service Providers and the growth of internet awareness
and population of internet users in Africa is another plus for the economies of the region.
If the current prevailing crime and corruption level are reduced and brought under control,
these economies will definitely have a far better prospect.

Luckily, we have in place in Africa, a sound Insurance/Loss Adjusting practice which will further
act as catalyst in sustaining the economic growth, while the present foreign \investment climate
and economic growth will also translate into greater insurance patronage
with more jobs for Insurers and Loss Adjusters not only in the region but worldwide. 

This paper will be incomplete without bringing to your attention the recent development in the
Nigerian Insurance Market which prospects I consider tantalizing enough to interest any serious
foreign Investor(s):

(a)          UNIVERSAL BANKING:  About one and half years ago, the Central Bank of Nigeria
introduced the concept  of Universal Banking whereby the banks are authorized to
market and sell insurance services in all their branches  across the entire Country.

This has resulted in further growth in the marketing and sale of insurance services due
to the large and extensive branch networks of Banking Institutions and a lot of acquisition
and participation in the share structure of many insurance companies by banks has been
taking place since and  till this moment.

Both the CBN and NAICOM, are currently examining the possibility of having a joint regulatory
authority for all the Financial Institutions in the country probably fashioned after the Financial
Services Commission of G/Britain to streamline the regulatory procedure for the entire financial sector.

(b)         PRIVATISATION PROCESS: In line with the current  privatization policy of the
government, the Shares of the government in the state owned Nigeria Reinsurance
Corporation has recently been sold to foreign investors (Re-Insurers Acquisition Group)
while the privatization of the National Insurance Corporation of Nigeria (NICON) with the
largest share of the insurance business and involving Oil, Gas & Energy in the Nigerian
market is currently in progress.

 (c)          NEW INSURANCE LEGISLATION: A new insurance bill was signed into law by the
President in July 2003; and this law was introduced to encourage foreign participation
in the local insurance companies by foreign investors, to also encourage mergers and
acquisitions between local insurers by raising the capital requirement level to a minimum
of about US$3M for insurance companies.

All the existing insurance companies in the country are expected to increase their capital base to
this amount latest by March 2004 or have their operating licenses cancelled.

(i)                    For the practicing Loss Adjusters, the capital requirement in the old
act was replaced with emphasis on the Professional Indemnity Cover
of not less than US $50,000 or 50% of annual fees for the preceding 
year, whichever is the greater

(ii)                 No person is permitted to transact business as a loss adjuster in Nigeria
unless he is registered under the Bill

(iii)               At least a partner in the firm or a director of the loss adjusting company
must be dully registered by the Institute of Loss Adjusters of Nigeria (ILAN)

(iv)                No person is permitted to be a chief executive of a loss adjusting
company or firm unless he is registered as a loss adjuster by the
Institute (Chartered Insurance Institute of Nigeria – CIIN) upon
recommendation of the Institute of Loss Adjusters of Nigeria

(v)                   An Insurer or any person who knowingly or recklessly transacts business
with or engages the services of an unregistered loss adjuster commits
an offence and will be liable for fine on conviction

(vi)                A qualified or other recognized foreign loss adjuster could only attend to
claims in Nigeria on such terms and conditions as it may, from time to
time, specify provided that the foreign loss adjuster handles the assignment
with and in collaboration with at least one registered firm of loss adjusters
already based in Nigeria.  

All the above notwithstanding, we have some problems confronting the Insurers and more especially
the Loss Adjusters in areas of in-house adjustments by some Insurers, under-pricing of loss adjusters
services, cash-flow problems due to delay in settlement of Adjusters’ fees and some insurers on
co-insurers list not responsive to their obligations as and when due.

However, these problems are being confronted on daily basis and with a strong market
association such as the Institute of Loss Adjusters; the overall prospect is indeed bright for
the profession in Africa.

Finally, I will like to use the opportunity to invite the brave risk bearers and adventurous
foreign loss adjusters that the conditions are just right to venture and invest in the African
Insurance/Loss Adjusting Companies; I assure you will find the experience rewarding and
worthwhile.

Thank you for your time and wishing you journey mercies back to your respective destinations.

Signed:

Sammy Sotomi
2003