Expectations for a vibrant insurance sector are high this year. Omobola Tolu-Kusimo examines issues that may shape the industry and set the tone for a bountiful year.
The insurance sector has been growing at a snail pace. Between 2012 and 2016, its Gross Premium Income (GPI) result has hovered around N300 billion; about 0.2 per cent insurance penetration level and 0.4 per cent contribution to Gross Domestic Product (GDP). There are 57 insurance companies in the country.
Notwithstanding the impressive number of operating firms in this sector, the average number of policyholders is a paltry 1.5 million from a population of over 190 million.
Stakeholders blame the low patronage on factors such as the general apathy of the populace to insurance, a situation which arose from past knowledge of how insurers failed to pay claims to policyholders when there was an accident.
But despite improvements in paying claims in recent times, Nigerians are yet to understand the need to buy insurance for their daily activities. They are also yet to be aware of the benefits of insurance.
Besides, experts in the profession are convinced that the industry itself is yet to fully overcome the problems of unethical practices and unhealthy competition among players. For instance, most insurance firms are said to be neck-deep in rate cutting, making it impossible for them to charge commensurate premiums for policies, which in turn make many of them unable to pay claims.
But overtime, there has been reforms embarked upon by the Federal Government through the National Insurance Commission (NAICOM). The Commission said the industry has undergone series of changes, which have had a considerable effect on efficiency, positive productivity, stability, market structure and performance that have attracted foreign investors in the process.
Experts on their part said the sector has fairly helped businesses in the country, including individuals, to rebuild and recover from losses quickly.
The regulatory body in its lined-up priorities for 2017-2020 embarked on market development, capital verification, management expenses in Insurance companies, statutory returns, risk based supervision (RBS), corporate governance, among others. The commission believes that if it gets all of these right, the sector will be able to perform its role in developing the nation’s economy.
Meanwhile, the commission has said the country will witness tremendous change that will lead to the sector’s growth this year.
According to the regulatory body, the industry will witness voluntary mergers and acquisitions between insurance companies while micro insurance, takaful and compulsory insurance is expected to drive the fortunes of the sector.
Regulatory Outlook
In an interview with NAICOM’s spokesperson, Rasaaq Salami, he explained that the sector is full of expectations that a vibrant industry will emerge from the changes to be seen soon.
He, however, noted that the future of the sector is in retail business, takaful and compulsory insurance.
He disclosed that registration process of another Takaful company by the commission is ongoing.
“The future of the industry in Nigeria is the retail end of the market. So, the Commission’s drive is towards the development of that segment of the market. We just released a revised micro insurance guideline, which is targeted at the low-income earners. The distribution channel is being expanded to accommodate more players to reach wider consumers.
“Takaful is beginning to take proper roots with the commencement of operation by the two wholly Takaful companies in Nigeria. Registration process of another company is ongoing in the Commission. All of these, coupled with the collaborative efforts of the Commission with relevant bodies and agencies to enforce compulsory insurances across the country will significantly impact positively on the Gross Written Premium (GWP) and penetration,”he said.
In the same vein, NAICOM Deputy Commissioner, Sunday Thomas, while giving an update on what has been done so far said: “We have already commenced implementation on our regulatory priorities in 2017-2020. In the second phase of the Market Development and Restructuring Initiative (MDRI), we recognised the need to bring in the state governors for effective implementation. Recall that when the Commissioner for Insurance, Mohammed Kari, paid a courtesy visit to the Kaduna State Governor, Mallam Nasir El-Rufai, he emphasised programmes that we want to enforce utilising the state machinery. We have done the same in Lagos and Ogun states.
“Arrangement is also being made to meet the governor’s forum to canvass all the governors and see where they stand on the implementation of the second phase of the MDRI. Part of the selling point is the fact that it is going to enhance their employment initiatives. It will also improve their Internally Generated Revenue (IGR) within the law. All of these have been brought into the implementation of the second phase.”
Speaking on companies that fail to pay claims to policyholders, the Deputy Commissioner said the commission will deal with such companies, noting that the commission can withdraw the license of such company when necessary.
On the issue of capital adequacy, he said it will not be recklessly introduced into the market.
“We are already doing some comparative analysis of the capital in the market and the present capital adequacy. The verification of the existing capital with relation to how that capital is being deployed within the market are our priorities. We want to make sure that companies that are operating within the market are adequately capitalised. It’s not just enough to say that a company should have this amount of capital. The capital is not a destination, but a journey throughout the lifetime of that company and we are putting machineries in place to make sure that this is sustained.
“Similarly, we have been gathering knowledge in the area of implementation of the RBS of which risk-based capital is a subset. We are conducting a pilot inspection that will enable us test run with some companies. We want to see the level of adaptation of the new concept of RBS. This will help us see some of the gaps that are presently existing. In terms of our knowledge acquisition and also the knowledge by the market. We also have plans to create awareness on RBS for the market because they must know their responsibility within the implementation of the RBS.
Challenges, prospects
Chartered Insurance Institute of Nigeria (CIIN) Director-General Richard Borokini said insurance penetration is dependent on insurance enlightenment. “Nigeria has about 200 million people and we have a duty to ensure that they know about insurance. The penetration will not improve until we are able to improve public perception about insurance. Our institute does not sell insurance products directly, but we have been supporting the industry to enlighten the public. But the industry also realises that it is going to take a long time for people to fully accept insurance.
“Don’t forget that we are bonded with culture. Nigeria has deep cultural problems compared to the western world. For example, in Nigeria, if I come to you and ask for N5000 to take care of my sick child, you are likely to part with the money. But if I ask you to buy personal accident policy for N5000, you will ask me if I pray for an accident to happen to you. So, this is part of the problem and the only way to solve it is by continuous public enlightenment and telling them about the benefit of insurance.
“Another issue is the fact that we are selling an intangible product, the benefits of which people do not get until a mishap happens. But If you are thirsty and you take a bottle of water, you get satisfaction immediately. In insurance, satisfaction never comes until there is an accident before you test the product you have bought. This is where the agitation by people comes from. They feel that if they have been paying premiums for 10 years and no accident occurs, how will they get benefit for the product?
“However, the industry is responding albeit very slowly. We now have takaful product in the market. The product is based on the fact that you are a partaker of a profits from the company you have bought the product from. When companies make profit every year, part of the profit will be shared with the policy holder. So, you don’t wait until an accident happens before you get the benefit of insurance.
“Of course, some other companies are coming up with products along this line. Discounts in premiums are given in cases where there is no accident. But truth of the matter is that, what companies are getting in terms of product offering is quite small compared to the claims they are paying. Some companies are not doing well because they pay a lot of claim, but collect low premiums,”he said.
A recent report by Agusto & Co., titled: “Insurance Industry Report”, stated that the Pan-African credit rating agency in Nigeria was convinced that a developed and active insurance market would bring about increase in the GDP, accumulation of long-term funds for infrastructural financing, job creation and an improved standard of living.
It read: “As the largest economy in Africa, the industry remains largely underdeveloped. The evolving risks such as job losses, cyber risk, among others, offered prospects for the development of new insurance products. Anticipated government spending in construction could support growth in the industry through bonds, group life, workers’ compensation, among others. Micro-insurance is also expected to gain traction on the back of a large populace, which remains outside the insurance coverage.”
Chairman, Linkage Assurance, Dr John Eseimokumoh said although the industry is the second largest in the Nigerian financial sector after the banking industry, the insurance penetration in the country is less than one per cent.
“This is largely due to the apathy of most Nigerians to insurance services, including compulsory products. However, industry analysts are optimistic that with the gradual introduction of retail products, online offerings as well as the introduction of new products with better value customer proposition, the insurance consumption and perceptions will improve.
Most of the development witnessed in the market have been regulatory driven. The regulator recently released a number of regulatory priorities and outlook for 2018, which are expected to move the industry in the right direction. This include capital verification intended to ensure that operators have the required capital resources for the risk they carry.
Managing Director, Consolidated Hallmark Insurace Plc, Eddie Efekoha said the RBS model introduced by the regulator will likely necessitate a fresh wave of capital injection into companies.
Efekoha, also the Chairman, Nigeria Insurers Association (NIA), said his company and others will not be caught unaware as efforts are already being made to inject fresh capital.
