The Demise of the National Insurance Company (NIC): Can the Privatization Commission explain the sale to a Nigerian-based private company?

As its 37-year existence as a national financial institution draws to a close, with the reported decision by the National Commission For Privatization (NCP) to sell the National Insurance Company (NIC) to a Nigerian-based private insurance company, Sierra Leone’s indigenous financial services sector is once again being dealt a severe blow, the socio-economic ramifications of which are as yet to be fully comprehended. It is ironic that an institution established in 1972 by the APC government of Siaka Stevens to serve as a last resort provider of insurance services to the nation is being dismantled today when its role and services are most needed in facilitating the country’s development.

The rationale adduced for privatization of government-owned institutions was to alleviate the burden on the nation’s budget and to free up private sector development. According to the NCP implementation document, Strategic Plan for The Divestiture of Public Enterprises-Implementation Programme (2003-2006), “the government policy on privatization is to restructure and rationalize the public sector in order to lessen the dominance of unproductive investments in the sector and to re-orientate the enterprises for overall efficiency, thereby reducing or eliminating current subsidies and future calls on government finances and borrowing”. 

While loss making enterprises were to be privatized with employee ownership and local participation “given high priority in the sale process”, the decision of the NCP to sell the NIC at all, let alone to a Nigerian based insurance company, not only fails to comply with its own criteria for divestiture but raises serious conflicts especially with the absence of transparency in the bidding and sale of the company. Despite its poor management, NIC was and has never been a drain on the nation’s finances as none of its operating budget ever came from the nation’s consolidated fund. Rather, the company’s precarious financial position can be directly attributed to the failure of governmental institutions to pay for insurance policies and services.

It is thus hoped that the Presidency and Parliament as a matter of urgency and transparency obtain from the National Commission for Privatization answers to questions such as: What are the terms of the proposed sale agreement? Were other companies involved in the bidding for the company? Why were indigenous insurance companies or individuals not involved in the bidding, if any bidding ever was done prior to the reported sale? How much was paid for such a valuable insurance asset, which only needed a change in management and new policies addressing the nation’s developmental concerns to return it to profitability?

The news of this impending sale is all the more painful to alumni and employees of this once venerable institution as several members of government, constituting the cream of the nation’s current political leadership have at some point worked at this institution and as such bear a special responsibility to forestall its demise. It is thus is this context that President Koroma and parliament’s intervention is being sought to halt this transfer of wealth from the people of Sierra Leone to a foreign private owned institution.

Mis-management alone not a recipe for sale of NIC:

I recently had occasion to review the latest Sierra Leone Insurance Commission (SLICOM) Annual Report on the activities of insurance companies in Sierra Leone and was especially struck by the appalling performance figures reported by the management at the National Insurance Company (NIC).  From a once premier insurance company in the country, an analysis of the NIC’s poor performance in all sectors spanning over a decade, can aptly be attributed to the poor management and leadership skills of the Managing Director and consecutive Board of Directors.

An analysis of the statistical figures in the Sierra Leone Insurance Commission (SLICOM) Annual Report, 2006 is highly instructive in assessing how the company has been and is projected to be managed under the current management. The statistics, facts and figures to a trained actuarial mind will glaringly show a trajectory of continual stagnation and disintegration in all levels of insurance productivity as reflected in the company’s below-industry standard claims and combined ratios; high outstanding premiums; exorbitant management expenses; very high expense ratios and dramatic decline in overall market share without a concomitant strategy and vision to initiate a turnaround of this deplorable business situation. I have chosen to address two of the below mentioned areas affecting the solvency of the company.

The Life Insurance Business:

In the 1980’s and early 1990’s NIC had unsurpassed dominance in the underwriting of life insurance in the country. In fact the current Managing Director was a Senior Life Insurance Manager during this period. However, its near 70 percent market share had dwindled to 32 percent in 2003 and to a 19 percent market share in 2005 culminating into a dismal minus 14 percent share in 2006.  The dissipation of the life insurance business in the company is a singular testament to the incompetence of management.

Outstanding Premiums:

In the underwriting year 2006, NIC reported gross premiums of 4 billion 167 million 697 thousand Leones (LE4, 167,697,000.00). However, of this amount the sum of 2 billion 170 million 486 thousand (LE2, 170,486,000.00) represented outstanding premiums the management was unable to collect. As previously stated the high levels of uncollected premiums represent a sort of unfunded liability by governmental ministries and institutions who represent the bulk of the deadbeats. A sucessful program designed to collect on this hugh outstanding premiums owed could easily make NIC one of the nation's profitable companies.

The level of incompetence exhibited in managing such a modern financial institution not to mention an inability to design and introduce modern insurance policies addressing our nation’s developmental aspirations is indeed breathtaking in scope.

As a concerned observer of the activities of the National Insurance Company (NIC) and looking at presenting its management, financial and business profile in a very clear objective manner, it is regrettable to note that the continued downward spiral in productivity and growth witnessed over the years is projected to continue unless urgent and radical steps to rectify the situation are undertaken by both the management and its Board of Directors.

Conclusion:

The company’s current dismal performance however should not be the basis for the rumored sale of this venerable institution to a foreign Nigerian insurance company. What is required is a visionary and pro-growth management with clearly defined goals and objectives articulated with accountability to further this national institution’s continued relevance in the development of our nation. Sierra Leone has the talent and expertise in the insurance field that can take over the management of this institution with the requisite fiduciary and oversight duties and responsibilities by a competent professional board that can bring about fiscal accountability to the management and profitability to this once venerable insurance institution in our country.

The attention of the National Commission for Privatization (NCP) is respectfully drawn to the fact that in making an assessment of an Insurance company’s financial strength or ability to meet its ongoing financial obligations, a comprehensive qualitative and quantitative analysis of risks to the Insurer’s financial health, operating performance and business profile as reflected not only in the balance sheet but other financial statements and regulatory reports must be assiduously reviewed and taking into account. In this regard thus the Commission’s decision to sell the NIC is economically unjustified and robs the nation of a venerable institution which only needed a change in management and introduction of new insurance products for it to viably compete and provide not only taxes to government but more importantly serve as a beacon of our nationhood.