The need to grow the insurance business in Nigeria and boost the economy is receiving greater attention with operators. Experts have, however, proffered solutions for growth opportunities in the insurance sector. Omobola Tolu-Kusimo writes.
Growth in the insurance sector may remain positive and will likely be driven by automotive policy, oil and gas and the housing sector with opportunities estimated at $105.24 billion.
Experts said the estimate is possible if the sector grows at par with South Africa’s 12 per cent of GDP in the next four years.
Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, at an insurance conference in Abuja, listed other sectors that will drive growth as agric, telecom, financial services and manufacturing.
He said, according to Ernst & Young, diminishing economic growth will likely affect demand for life and non–life insurance products, while stronger capital requirements will act as catalyst for consolidation of smaller insurers.
He said changing regulatory environment will encourage investment in real estate with cross border sales expected to commence in January, 2016.
Rewane said the collective investment scheme will expand further, resulting in improvement in data controls, prompted by newer and stricter regulations.
He listed critical events to watch out for as the Monetary Policy Committee (MPC) meeting in July and September, the likely shake up in regulatory appointments, passage of a supplementary budget and the World Bank meeting in Peru.
He said with inflation rate at 9.2 per cent from 8.7 per cent, the insurance industry in Nigeria has underperformed in terms of economic growth, adding that its profitability and size has been suboptimal.
He said: “Relative to the financial services industry and global peers, the industry has been subject of new capital requirements and capacity rules.
“The insurance industry in Nigeria has underperformed the economy in its growth, while its profitability and size has been suboptimal. High inflation increases the cost of future claims on current policies and erodes asset values, while increased inflation makes higher interest rates more likely. This implies that value of total assets under management could drop. In the 2008 financial crisis, insurance companies were some of the biggest losers,” he said, pointing out that sensitivity of interest rate risk varies by line of business and market.
“For life insurers, it affects savings products where investment returns are major sources of profit, while higher interest rate encourages savings.
“For non-life insurers, if interest rates reduce, they could react by raising premiums to maintain profitability.”
On exchange rate risk, Rewane said a devaluation increases the risk that the assured will face higher replacement cost, increases the risk of non-payment of future premiums as disposable income falls, while premium on foreign re-insurance will become higher.
Citing an example with the Singapore insurance sector, he pointed out that the country is one of the most developed insurance markets in Asia with 161 registered insurers and reinsurers.
He listed Singapore’s insurance challenges as “regulatory, addressing insurer solvency, capital and risk management have been changed, new rules could swamp the industry with costs and compliance, longstanding strategic positions maybe altered and costs, prices and returns could soon become unsustainable if changes are mismanaged”.
“Global insurance challenges in 2015 according to Ernst & Young are rising competition, soft pricing conditions, tight profit margins, low interest rates will make savings product difficult to manage, Cyber-crime, data insecurity and lack of experienced talent due to higher mobility and increased competition. According to Ernst and Young, the focus of insurers in 2015 is technology”, he added.
Swiss Re’s Chief Executive Officer for the Middle East and Africa, Frank O’Neill while speaking on how to increase the contribution of insurance to the economy, said education and tailored products, ie takaful will be of great help. He said tailored products and distribution channels (mobile, micro), capacity building: expertise building, supervision, industry action, regulators, education.
“Many factors drive demand and supply of insurance. These include economic growth, wealth, trust in insurance, price of insurance religion; culture, education, property rights; legal certainty among others.
“Foreign reinsurers can help to develop the insurance sector in emerging economies”.
Managing Director, LASACO Insurance Plc, Olusola Ladipo-Ajayi on his part said insurers need to do a lot more to bring some of the provisions of the law in line with international best practices and strengthen the market.
He said that the six compulsory insurance namely; Motor Thirty party liability; Employers Liability; Employers Compensation; Occupiers Liability; Builders liability and the Lagos state Building Control Law 2010 and Health Care Professional indemnity Act all exist on paper.
He noted that NAICOM has tried to harness these in the Market Development and Restructuring Initiative (MDRI) and made it compulsory.
The Commission, however, is not in a position to effectively to enforce the laws as is common in developed countries. It is left to the industry to take up the challenge from here, he said.
