A Response On My Article on Noor Takaful’s Insurance Playbook in Nigeria

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.

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