Despite various market initiatives introduced by the National Insurance Commission (NAICOM), the insurance firms have continued to battle growth prospects. Omobola Tolu-Kusimo writes on the challenges and way forward.
IN 2009, the industry regulator, the National Insurance Commission (NAICOM) set an ambitious target of N1 trillion premium income which stakeholders agreed to meet.
However, 13 years after, their hopes have vanished as they could not it.
Yet, despite this setback, the NAICOM has set another target of N6 trillion by 2030.
The target was set by the regulator through its initiative entitled: “Market Development and Restructuring Initiative (MDRI)” to increase the sector’s contribution to the country’s Gross Domestic Product (GDP).
It was also aimed at increasing the Gross Premium Income (GPI) from N164 billion to N1.1 trillion, drive compulsory insurance enforcement, fight fake insurance institutions, grow the insurance agency system and create 50,000 new jobs.
But this is far from been achieved by the commission, insurers, brokers and agents that are meant to work together to achieve the set goals are not divided.
Findings from NAICOM show that as at last year, the industry generated a Gross Written Premium (GWP) of only N630 billion.
Essentially, GPI is an income statement that shows the total sum that an insurer has earned while GWP is the total premium (direct and assumed) written by an insurer before deductions for reinsurance and ceding commissions. Hence, GWP is usually more than GPI.
More findings show that only 1,334,855 policies are being held by Nigerians while only 1,150,908 policies are held by corporate & non-individual Nigerians.This brings the total policies to 2,485,763.
Consequently, insurance penetration stands at 0.88 per cent, about one per cent as at December 2020 while contribution to GDP stands at 0.4 per cent.
Regulatory Reform
The Head, Corporate Communications & Market Development, Mr. Rasaaq ‘Salami in a presentation at a media forum reviewed the various MDIs of the Commission over the years.
He said: “Market Development and Restructuring Initiative (MDRI), launched in 2009 to, among others, deepen insurance penetration and increase sector’contribution to GDP; increase the Gross Premium Income from N164 billion to N1.1 trillion; drive enforcement of compulsory insurance; fight fake insurance institutions, grow the insurance agency system and in the process, create 50,000 new jobs.
“The Commission has also keyed into National Financial Inclusion Strategy through Bancassurance, Microinsurance and Takaful Insurance. We also moved forward on our ICT drive.”
He said they were, however, yet to explore target markets that include government at levels – Federal Government, state governments, local governments and the Ministries, Departments and Agencies (MDAs).
Their assets are meant to be insured while they comply with laws on compulsory insurance, he added.
“We are also yet to explore the Nano, Micro, Small and Medium scale Enterprises (NMSMEs) with Microinsurance, Takaful, Bancassurance, and the entertainment sector.
“The reform and various actions by the commission to expand the reach or tap into a different segment and unexplored market, which is the retail end and other activities aimed at achieving insurance market development brought about the Bancassurance Guideline; Takaful Insurance Guideline; Microinsurance Guideline; Risk Based Supervision (RBS) Framework/Own Risk-Assessment (ORSA); Nigerian Insurance Industry ICT Guideline; Guideline on Insurance of Government Assets; and Insurance Web Aggregators Operational Guideline.”
He said so far, the commission has established liaison with target state government in Lagos, Ekiti, Kano, among others, and put machinery in place; sensitise NMSMEs on insurance products and benefits in their consumption in Kano, Abuja, Lagos.
“Other market development include collaboration and written approvals of the Inspector-General of Police (IGP) to partner the Commission on its enforcement of compulsory insurance across the country; interface with the Federal Road Safety Commission (FRSC) to strengthen implementation of the compulsory third party motor insurance, among others.”
‘Salami highlighted challenges mitigating against the growth of the industry, citing lessons learnt and recommendations by the Commission.
He said there had been inadequate insurance of government assets, which brought about difficulty their restoration of their damaged assets.
He also said the Commission has recommended that the Guidelines on Insurance of Government Assets be approved and a committee constituted to develop an enforcement strategy, noting that if MDAs comply with the guidelines, it will ensure prompt and adequate insurance of human and material assets of the government.
He highlighted the challenge of price-based competition among players as operators had been unable to build reserves for claim settlement.
He said the Commission, therefore, recommends mergers and acquisition among fringe players. It moves to conclude the recapitalisation and enforce compliance with revised market conduct guidelines
Another challenge, he said, is poor perception of the industry by the public.
He stressed that the operators were working to meet claims obligations while the Commission recommends sensitisation of the polity on the benefits of insurance.
Salami added that the Commission is working to ensure prompt regulatory actions and urging operators to publicise testimonies of claims that were paid, and imbibe good market conduct practices or fair treatment of customers.
Other challenges include low financial literacy, cultural and religious hindrances.
Revealing the Commission’s next proposed step, he said they were embarking on the full implementation of the NAICOM’s Strategic Plan and 100 per cent involvement of the supply side.
On expected deliverables, he said: “The Commission plans to promote insurance as a tool for stimulating growth of other sectors and raise funds for project development at the Federal and state levels; create over 250,000 new jobs; improve insurance consumer trust and confidence in the sector; increase insurance contribution to GDP from 0.4 per cent to over three per cent; lower insurance gap from 94 per cent to 70 per cent; and increase industry GPI from N630 billion in 2021 to N6 trillion by 2030.
“It is noteworthy that market development is a costly affair and requires huge capital to keep going thus, funding is critical. However, NAICOM will continue to work with all stakeholders to develop strategic, sustainable and implementable initiatives for deepening insurance penetration to enable optimal contribution to the Nigerian economy.”
On the theme “Improving insurance access through market development and innovation in 2022 and beyond”, the Commissioner for Insurance, Mr. Sunday Thomas, added that he was working on his administration’s cardinal agenda of developing the market and deepening penetration.
He said the Commission has been implementing various market developmental initiatives to lift the sector to a global standard through risk-based supervision Framework.
“We can gladly say that the insurance market has undergone substantial structural and regulatory reforms over the years, following the market development initiatives being implemented and the evolution of Nigeria’s financial sector in the last decade, which has been characterised by digital transformation.
“The Commission is trying to open up the market across the geo-political zones by reaching out to the states where insurance penetration is perceived to be very low. We expect the industry to respond to these efforts by bridging the supply gap and ensure they follow up on the Commission’s move to create awareness among high-ranking policy makers in order to prove that the industry is ready for the booming opportunities awaiting them across the country. As I said earlier, the project with the Kano State Government is a litmus test for us as an industry.
“The importance of insurance post- COVID-19 and the aftermath of #EndSARS protest cannot be overemphasised hence, the marginal increase in the uptake of policies boosting the retail market and the annuity component. The recently released industry statistics has shown some growth in the sector. The Nigerian Bureau of Statistics (NBS) figures have shown that the sector has recorded positive increase in almost parameters and have rated the sector as one of the fastest growing sectors.”
Thomas, however, added: “Even though we are climbing the ladder, we know that there is the need for us to do much better as our potential are huge.”
He said their efforts in the development of the market were all-inclusive from the creation of avenues to deepen insurance penetrstion to increasing access to insurance products via digital platforms and increasing visibility of insurance across the nooks and crannies of the country.
“The Commission recently partnered Financial Sector Deepening (FSD) Africa to launch the Bimalab Nigeria, a programme aimed at accelerating the insurtech innovation. We have unveiled the Commission’s sandbox to give room for innovative expansion of insurance reach out. The web aggregators’guideline is also aimed at opening access to insurance and creating a convenient market for insurance.
“So far, the Commission is focusing on using technology to boost access to insurance as that seems the way to go under the prevailing circumstance. We are exploring ways to take insurance to where the other financial sectors are or even surpass that mark. Financial transactions are more of a one-stop shop for everything and is either we key in or lose the business to more innovative outlets that will seize it from us.
“Claims payment has always been one aspect the industry is battling to balance. We agree that we cannot claim ignorance of the fact that the industry is paying huge claims out there even though activities of few among the operators is jeopardising the efforts of the majority. We had before agreed to start ranking companies on the number of claims received and settled on annual basis and we intend to publish such ranking for the insurance consumers. It is always an issue that put the entire industry on the edge. The Commission is doing all it can to see that the non-settlement of claims is brought to its barest minimum in the sector,” he noted.
The Commissioner for Insurance noted that they constitute a critical segment of the industry. He said their roles were being factored into its ongoing growth initiatives.
Thomas listed some issues being combated by the Council of which appropriate rating of risks was one.
He maintained that inappropriate rating of insurance risks had led to a diminution of the reserves and solvency, for which urgent steps were being taken by NAICOM.
Reality check
The Nation check has, however, shown that the regulator and operators would need to agree to work together to achieve their desired goals.
In the past, NAICOM had moved to implement some of its initiatives, but they were shut by the operators.
For instance, NAICOM mandated insurance firms to shore up their capital through a recapitalisation, but this was shut by insurers with legal tussle against the regulator, forcing it to suspend the initiative.
NAICOM also introduced the State Insurance Policy (SIP) policy to deepen insurance penetration in the 36 states of the federation and the Federal Capital Territory (FCT), but this initiative was blocked by insurance brokers as they perceived it to be unfavourable to their business.
Way Forward
A top executive of one of the insurance companies, who spoke on condition of anonymity, said she was tired of hearing the regulator and operators speak and act the same way for decades.
She said they had been talking about deepening insurance penetration above one per cent for the past 30 years of her work life in the industry.
She is saddened that the penetration rate remains abysmally low at less than one per cent till date.
Until we began to do things differently, we would remain at the same position, she advised.
Chairman, Sub-Committee on Publicity and Communications, Insurers Committee, Mrs Ebelechukwu Nwachukwu, who briefed reporters at the last insurer’s Committee meeting in Lagos, said the body agreed on several initiatives that would help propel the sector.
Nwachukwu, who is the Managing Director, NSIA Insurance Limited, said the body agreed on several initiatives that would help propel sector forward.
Citing the new industry portal launched by NAICOM, she said it has changed the way insurance is operated in Nigeria and how the public is served.
No operator would need to be compelled as the activities of the companies and their operations would be captured and monitored in the long-awaited portal, she said.
“The battle, therefore, to win more customers for increased revenue and profitability will put more pressure on companies as management will have to tinker with strategies to deliver value and remain in business.
“Firms will be more faced with the challenge to enhance quality of service, product development and distribution channels in ways that are also cost effective,” she added.
The President, Nigerian Council of Registered Insurance Brokers (NCRIB), Mr. Rotimi Edu, said the brokers did not shut the SIP, but only sought its review, which they were working on with the Commission.
He expressed the resolve of brokers to support the initiatives behind web aggregators, saying it would lead to greater creativity and spread of insurance brokers’ presence in areas of the country where they were non-existent.
A consumer, Mr. Gbenga Owoeye, said he does not buy insurance because he believes they do not pay claims as at when due.
He said he only buys the third party motor insurance because it is compulsory.
For Emeka Njoku, insurance companies need to be more efficient in customer service.
Njoku, who said he once made claim from a company following an accident involving his car, noted that the payment came very late after he had looked for money somewhere else to repair his damaged vehicle.
