I wrote this article where I noted how an insurance company in Nigeria, Noor Takaful, returns “surpluses” after settling claims  to its customers or selected charities, dealing with the insurance business conflict (any denied claim is profit). Ignorantly, I said the company copied US-based Lemonade on the playbook. 

But over the last few hours, many people including professionals from Indonesia have educated me that Lemonade indeed copied what has been practiced in most countries under Islamic tradition. Yet as that debate was going on, some traditional insurers have reached out to me that my post could poison their brands (imagine that for a village boy!). 

According to them, there is an inherent risk if people expect that surpluses on premiums could be returned to them or distributed to chosen charities under all scenarios. To provide a balanced perspective, I call everyone’s attention to this comment by “Babatunde” who submitted it in the comment section.

The comment provides a balanced and nuanced perspective which makes it clear that even the Noor Takaful playbook may not be without cons just as the traditional insurance playbook has its own cons. That is the beauty of free markets: may the best idea win!

—–The Comment from Babatunde——

Dear Prof.
Thank you for your article on the Noor Takaful profit sharing playbook. I have chosen to respond via inmail here rather than on the comment section to avoid the controversial reactions my review may bring, and most important, to avoid being seen as attacking the strategy of Noor Takaful by some onlookers.

Having reviewed some comments from the readers it shows that their might have been some gaps in the article that they do not take into consideration or do not know at all before providing their comments. Hence, this my review.

While the strategy of Noor Takaful sounds great they aren’t practicable in the conventional Insurance companies. Do not forget that Noor Takaful is strictly an Islamic based organization which is guided by the business ethics of Sharia laws.
For one, Noor Takaful does not provide coverage for all types of risks which the conventional insurance companies do. Noor only deals in risks which are supported by the Sharia laws. For instance, Noor Takaful can’t write risks from a Tobacco company or some none approved business concerns. Hence this has limited the options available to the buyers.

Two, I supposed some of the fundamentals on which Noor pays out the profit-sharing were on the premise that there could not be some long-tail claims which may likely be reported months or year after the profit sharing.

I am saying these simply to ensure that the ordinary buyers (who were probably unwilling except for compulsory insurances) do not assume that they were being shortchanged by their present (conventional) insurers who do not participate in the surplus sharing playbook.

As I have indeed mentioned in one of your posts about insurance operations in Nigeria, the fundamentals of pricing for the insurance products, as it with most public goods in Nigeria,  are wrong. Let’s example some of the issues here.

First, most consumers of insurance products see the product from the perspective of prices rather than, as it should always be with insurance products, the scope of coverage. The buyer looks into the cheapest insurance products to buy and on the basis of whether it’s compulsory to buy not necessarily because he/she values the benefits being purchased. That’s why you see ordinary Nigerian purchasing a TPO policy from the licensing office for even a lower price than the regulated price of the TPO Insurance coverage. Most of the insurances sold at the licensing offices are either complete fake or issued by insurers who had no plans to honour any resulting claims from such products. They expect that those who bought such products have no intention to make claims on the policy or do not have adequate knowledge of the benefits derivable from the product purchased. The mainstream insurers have long ceased issuing/selling their insurance coverage through those licensing offices due to extreme chances of issuing fake. My point, such buyer of the TPO have no intention of making use of the benefits of the insurance products purchased but just to pass the police checks whenever demanded on the road. Hence, this category of buyers would never buy a comprehensive insurance policy on their vehicle as they do not see the need for it!

Two, the insurance products pricing in Nigeria  is fundamentally wrong! I believe we do not charge appropriate rates for the level of risks being carried. For instance where the level of claims on a risk portfolio or from a particular client is high it’s more difficult for the insurers to charge higher rates at the next renewals. This is due to many factors. You are blackmailed with the relationship with the client. Your competitors are lurking around the corners just to take over the business at a lower rates not with or without the knowledge about the performance of the portfolio with the existing insurers. Hence, the insurer is yet forced to maintain the existing rate even on a bad portfolio. If the managing broker on the account is only about the business rather than the mechanics of pricing, then the woes of the insurers are compounded.
The fluidity at which market can adjust its rates is much lower compared to reducing the rates at the request of the client or broker. In the international market which I also have substantial knowledge of how they operate, the mere fact that a loss incident was reported on a major insurance policy is sufficient enough to justify increase in the rates and review of the coverage terms at renewal. It doesn’t matter whether the loss incident eventually leads to a successful recovery or not! The fact that an incident related to the insured risk was reported was enough for the market to react with hardening of the terms. It doesn’t matter whether a particular client has ever made a claim or not. It’s a market portfolio that counts not individual client’s claims activity. I hope we get there quickly in Nigeria. In Nigeria, despite the humongous claims paid so far arising from the #EndSars violent protests of 2020, the market rates are yet to adjust so much/that’s if at all to this losses. So that’s the kind of market an average insurer operates in here in Nigeria.

As an international broker of repute and one who believes in data, I know which insurer I dare not approach to place a business of my client. I know the insurers that I can hold to their words when a claims occur to pay. I know insurers that I would have to threaten or support with prayers to get my client’s claim paid.

Let me make two analogies quickly. One, in the London market when a broker presented a broking slip (that’s the document that contains the details of the risks to be insured and presented to insurer/s for their review and terms) to one underwriter and gets a quote, do the same thing to a second insurer, then a third insurer. After the third insurer such broker or any other broker who presents similar risks (whether using same slip or a different one) would never get terms from any other insurer. They would tell him the risks details are already in the market and refer him to the previous insurers who had presented terms on the risk. If the broker insisted that the new insurer make a quote, such insurer would never quote lower or better than the previous insurers. However, in Nigeria the information sharing is so poor that you can easily set off a pricing war among the insurers with one slip! Two, due to the recent violent uprising in South Africa, in July precisely, the market had so much reacted to the losses that all the risks presented for renewals as at that period were adequately marked-up to reflect the existing market situations. Even a major Nigerian Telco with presence in South Africa took in a large increase in property and cyber renewal premiums even though the risks are here in Nigeria but because the insurances are priced centrally. The Nigerian market is yet to have the nerves to take such bold steps!

The purpose of my thesis above is to show that Noor Takaful isn’t playing the book on the same data as its other competitors in the Nigerian market and it’s important to review it’s business model to avoid providing skewed views to the Nigerian insurance buyers.

Another Comment from LinkedIn Feed

Ndubuisi Ekekwe i read your initial post subject matter.
E.g Both Noor Takaful Insurance Limited insurance and the traditional insurance companies under the comprehensive motor insurance ask that the insured pays an annual premium. The insuring public therefore usually ask we sales people the question of “what happens to my money if I don’t have an accident in an entire year”…..this question got answered by the Islamic insuring model by way of returning whatever is left in the portfolio after all associated cost is deducted which includes claim payment.
This question from the insuring public is out of the sense of filling that they are wasting money on motor insuring when they don’t claim over a period of time,well the discount for not claiming is insignificant.

Here is the fair solution to both the insuring public and the insurers, Pay-U . This insurance mobile App charges a user per minute,hence you pay for what you use and you don’t end up filling you’ve thrown away money.
So if you drive a NGN2,000,000 car,you’ll pay less than 2naira per minute while driving and 70kobo while parked,you have the option of turning OFF your insurance when you’re parked.

I have no political party card. And on that, I call it the way I see. I want to congratulate the governor of Imo State for bringing the President to Ala Igbo. Yes, you can throw verbal insults; fine. But fact be fact, disconnecting when you are not disconnected will not serve you any purpose. 

If the southeast continues to pay taxes to Nigeria, we need to engage with Nigeria. So, it is good the Imo State Governor was able to bring the president to Imo state. Hopefully, he will visit Ebonyi state next month. 

Then, the President spoke like a politician when he said “‘the evidence is there for everyone to see that Igbos are in charge of Nigeria’s economy” in Imo State. I think every part of Nigeria is in charge of something; those varying capabilities are things we can deepen as a nation. We need to show civility and decency with power. The way the President spoke today will bring many friends to him. I challenge him to modulate his policies and be a leader for all Nigerians.

Then, next time there is a state visit, Nigeria needs to showcase our women leaders. This is not 1960!

—–press release on below

THE EVIDENCE IS THERE FOR EVERYONE TO SEE THAT IGBOS ARE IN CHARGE OF NIGERIA ECONOMY PRESIDENT BUHARI TELLS SOUTH EAST LEADERS

President Muhammadu Buhari Thursday in Owerri said that he would want to be remembered as the President who stabilised Nigeria in the area of security, economic prosperity and triumph over corruption.

The President, who spoke at a town hall meeting with South East leaders during his one-day official visit to Imo State, said with less than two years left in his eight-year tenure as President, security still remains a major priority for his administration.

‘‘If there is no security, there is nothing anyone can do no matter how much you try or the initiative you have.

‘‘Security is number one priority and then the economy. When people feel secure they will mind their own business,’’ he said.

The President told South-East leaders that while fighting corruption in Nigeria had become very sophisticated and difficult, he would continue to strive to leave a lasting legacy of integrity and accountability in the system.

‘‘Nobody can accuse me of having companies or mansions anywhere in the country and I thank God that I try to keep myself as clean as possible, so that I cannot be taken hostage.

‘‘I will do my best to ensure that Nigerians that try hard, succeed in their efforts,’’ he said.

On the forthcoming 2023 elections, the President reaffirmed his commitment to free, fair and credible polls, urging the leaders to honestly educate their constituencies on the need to hold their elected representatives accountable.

Acknowledging the resourcefulness and enterprising spirit of Igbo people, the President said:

‘‘The fundamental thing about the Igbo people is that there is no town you will visit in Nigeria without seeing the Igbos being in-charge of either infrastructure or pharmaceutical industry.

‘‘Therefore, it is unthinkable for me that any Igbo man would consider himself not to be a part of Nigeria.

‘‘The evidence is there for everyone to see that Igbos are in charge of Nigeria’s economy.’’

Noting that no country can make any meaningful progress without the development of infrastructure, the President expressed regret that successive governments at the Federal level contributed to the decay of critical infrastructure in the country.

He promised that the Federal Government would complete ongoing key projects in the South East, including the 2nd Niger Bridge as well as the railway lines and routes linking the region with other parts of the country.

‘‘I firmly believe that when you get infrastructure right, Nigerians will mind their own businesses,’’ he said, adding that as a group, the Igbos stand to benefit more from the ongoing development of infrastructure in the country because ‘‘they are more enterprising.’’

President Buhari had earlier commissioned four projects executed by Governor Hope Uzodinma, including the Naze/Ihiagwa/Nekede/Obinze link road, the Balloon Driven/Flood Control drainage at Dick Tiger Road, the Egbeada Bypass road and the New Exco-Chambers, Government House, Owerri.

Addressing Imo residents at the commissioning of Egbeada bypass named after a prominent son of the State, Chief Emmanuel Iwuanyanwu, the President said he was very impressed with the level of work done by the State government.

‘‘I am very pleased with what I have seen and I assure you that I will support Imo State within the Constitution of the Federal Republic of Nigeria,’’ he said.

In his remarks at the town hall meeting, Governor Uzodinma said Ndigbo believe in a united Nigeria predicated on ‘‘justice, equity and fairness.’’

He thanked the President for addressing the interests of Ndi Igbo through deliberate policy initiatives designed to give the people a true sense of belonging, including the ongoing construction of the 2nd Niger Bridge, among others.

Governor Uzodinma said the people of South East would remain grateful to the President for approving the establishment of a Naval Base in Oguta Local Government Area of the State, adding that as time unfolds, the economic benefits of the base would manifest.

The Governor also commended the President for strongly supporting the appointment of two prominent Igbos into two key international organisations-Dr Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation (WTO) and Dr Chikwe Ihekweazu, Assistant Director-General of Health Emergency Intelligence, World Health Organisation (WHO).

In his remarks, the President-General, Ohaneze Ndigbo Worldwide, Prof. George Obiozor assured the President of the continuous support of Ndigbo.

‘‘Ndigbo are committed to Nigerian unity and there is news for those trying to push us out of Nigeria.

‘‘Ndigbo in Nigeria are like fish in the ocean and no matter how rough the storm is, it cannot drive the fish out of the ocean.

‘‘Mr President, it is in this context, that we see a new dawn in your distinguished presence in Igbo land and believe that on your return to Abuja the significance and substance of this visit will form new foundation of a platform for meaningful dialogue on critical issues of concern to the Igbo nation,’’ he said.

Femi Adesina
Special Adviser to the President
(Media & Publicity)
September 9, 2021

Nigeria is a special place. The nation was celebrating a magical profitability of NNPC only for us to just notice that the profit was indeed “technical” (not driven by the usual common demand and supply equilibrium pricing movements). Yes, some movement of funds from the federal government made the Nigerian National Petroleum Corporation (NNPC) whole. It is indeed a very crazy one for the nation; many have challenged the validity of that profit!

Hoping that audited statements when released would provide clarity, the auditors ramped up the high voltage searchlight, revealing something frightening : “The group reported a net profit of N287.2 billion (Corporation: N235.3 billion) during the year ended 31 December 2020 and, as at that date, the current liabilities exceeded it current assets by N4.6 trillion (Corporation: N729.1 billion)…These events or conditions, along with other matters as set forth in Note 42, indicate that a material uncertainty exists that may cast significant on the group and corporation’s ability to continue as a going concern.” the auditors PricewaterhouseCoopers (PwC) said.

Now, are you going to buy the shares of NNPC? I have explained my experience with Transcorp Plc here.

Yes, NNPC could be teetering on the brink of bankruptcy as the liabilities outweigh its assets by as much as N4.6 trillion. Of course, Nigeria will say nothing to worry because it is Nigeria.

Please, can someone email the full audited statement to us here; I need to spend time and read the revelations well ahead of the 2024 planned IPO, since it is evident that the Corporation will need to go public to raise money, and improve its balance sheet.

Nonetheless, commendation to the current leadership of NNPC for going that close to reveal these then-“classified documents”. Now, we know where we stand in this country: the temple which feeds the nation may need more sacrifices!

NNPC Will Sell Shares in 2024 to The Public – Will You Buy?

Jaiz Bank, I truly welcome your team to Tekedia Mini-MBA. Welcome to our Institute and thanks for the opportunity to co-learn with a pioneering institution in non-interest banking in Nigeria.

I wrote an article here on Noor Takaful on its business model of solving the insurance conflict (any rejected claim is profit) by returning excess unspent claims to customers or charities. But you know what, a CEO from Indonesia corrected me via inmail, reminding me that what I credited to the US-based Lemonade as a new invention, was something their institution has been doing for decades!

That explains it all: we need to expand our business textbooks to capture what global business is doing.

I welcome all innovators and great companies to the 6th edition of Tekedia Institute Mini-MBA which begins on Monday, Sept 13. Pick a seat at the best school.

The Federal High Court’s ruling last month, which gives states right to collect Value Added Tax (VAT) from businesses operating under their jurisdiction, is resulting in conflict between governments. The federal government is seeking stay of execution to stop states from implementing the judgment while in Lagos State, a rift has blown out between the State and local governments over the proposed VAT sharing formula.

The Lagos State government had proposed 75% for state and 25% for local governments in VAT bill being considered in the State House of Assembly. In response to the bill, the Local Government Authorities in Lagos State under the aegis of Conference of 57 Local Governments and Local Council Development Areas (LCDAs) have requested for an equal sharing formula with the state, asking for a 50-50 sharing formula.

The News Agency of Nigeria (NAN) reports that the request was made by the Secretary of the Conference 57 and Chairman of Odi-Olowo/Ojuwoye LCDA, Abdulrasak Ajala, at a one-day public hearing on the bill organized by the Lagos State House of Assembly on Wednesday,

According to Ajala, the councils required a better sharing formula in the proposed VAT law to pursue meaningful development adding that being the closest to the grassroots, those councils that host the companies, should benefit from a better share than the 25% in the bill.

“On the distribution of revenue, you will agree with me, Value Added Tax is on consumption and production, and all these economic activities are domiciled in our respective communities. In addition, local governments, being the closest to the grassroots, need more revenues given the enormity of the responsibilities the Constitution confers on us.

“Hence, the 25 per cent in the bill is grossly inadequate for local governments to execute all the promises we made to our people; and of course all our electoral promises. This is the reason we are making a passionate appeal, on behalf of Conference 57, that we should raise the bar higher, from 25 per cent to 50 per cent,’’ Ajala said.

The revolutionary VAT judgment, which has been widely hailed as a bold step to fiscal federalism in Nigeria, was led by the Rivers State government. The governor of the state, Nyesom Wike, has ordered the Rivers State Revenue Service (RSRS) to fully implement the judgment.

Lagos is the only other state hastily enacting law to implement the judgment. The Lagos State Attorney-General and Commissioner for Justice, Moyosere Onigbanjo (SAN), said the judgment on the VAT law was not valid only in Rivers state, but any state in the country stood to benefit from it.

He noted that the National Assembly does not have powers on VAT, which was what brought them to where they are today.

In support of Onigbanjo, the Chairman, House Committee on Finance, Rotimi Olowo, had said that it would make no sense if all monies accruable to Lagos state was taken by the Federal Government.

While the economic independent states are likely going to benefit more from the ruling on VAT collection, the call by the Conference of 57 Local Governments and Local Council Development Areas for equal sharing of the revenue with the state government, is suggesting that states will have their own domestic scores to settle with local governments if the Appeal and Supreme Courts eventually uphold the trial judgment.

Update: Lagos Passes VAT Bill

Meanwhile, the Lagos State House of Assembly has passed the VAT bill along with an anti-grazing bill. The state joins Rivers State on the VAT bill.

The Lagos State House of Assembly has passed the Value Added Tax (VAT) bill, a few days after the bill passed the first and second readings at the State House of Assembly.

The House also passed a bill prohibiting the open grazing of cattle in the state after unanimous votes by the lawmakers at a sitting where the 2 bills were read for the third time during the plenary session on Thursday, September 9, 2021.

Following the passage of the 2 bills, the Speaker of the House, Mudashiru Obasa, commended his colleagues for their passion to see that the state continues to grow and also directed the Acting Clerk of the House, Mr Olalekan Onafeko, to transmit clean copies of the bills to the state governor, Babajide Sanwo-Olu, for assent.