- New law streamlines sector to play bigger role in $1tr economy target
The insurance sector has been set on a path to playing a bigger role in the actualisation of the $1 trillion economy target of the Tinubu Administration.
This follows the signing of the Nigerian Insurance Industry Reform (NIIRA) 2025 Bill by President Bola Ahmed Tinubu.
The Act, which repealed and consolidated all outdated insurance legislation into a single, modern framework, has raised the imminence of mergers and acquisitions in the insurance industry.
The Act increases the minimum capital for life insurance businesses from N2 billion to N10 billion, non-life insurance firms from N3 billion to N15 billion and reinsurance companies from N10 billion to N35 billion.
The Presidency yesterday directed the National Insurance Commission (NAICOM) to administer and implement the provisions of the NIIRA 2025 in a manner that unlocks the industry’s full potential and significantly improves insurance penetration across the country.
The sector, after consolidation of firms to meet the new capitalisation threshold, is expected to play a big role in the targeted $1trillion economy.
NAICOM is expected to issue guidelines on the operation of the Act, especially given the need for a transitional period and an orderly process of the recapitalisation.
Experts expect to see considerable mergers and acquisitions within the industry, although there is strong optimism that many of the 55 insurance companies operating now may scale the recapitalisation hurdle.
In a statement by Special Adviser to the President, Information and Strategy, Bayo Onanuga, the Presidency stated that the Act is expected to overhaul the sector.
“This development reaffirms the administration’s commitment to financial stability, economic development, and inclusive growth.
“The NIIRA Act 2025 ushers in a new era of transparency, innovation, and global competitiveness for the insurance industry.
“It aligns with the Federal Government’s vision of achieving a $1 trillion economy,” the Presidency stated.
It listed the merits of the act as follows:
*Introduction of critical measures, such as stringent capital requirements to ensure the financial soundness of operators, and enforcement of compulsory insurance policies to enhance consumer protection;
*Digitisation of the insurance market to improve access and efficiency;
*Zero tolerance for delays in claims settlement;
*Creation of dedicated policyholder protection funds, especially in cases of insolvency and expanded participation in regional insurance schemes, including the ECOWAS Brown Card System;
*Catalysation of new investments, boosting of consumer confidence, and positioning Nigeria as a leading insurance hub in Africa.
The Senate passed the Bill on December 17, 2023, while the House of Representatives passed it on March 13.
Thereafter, a harmonised bill was presented to the President.
Experts applauded the Act, describing it as a necessity for the industry’s transformation.
Chief Executive Officer, Council of Insurance Brokers, Mr. Tope Adaramola, commended President Tinubu.
He believes the Act would address the industry’s weaknesses and optimise its potential.
He said: “This is a development that industry operators and financial analysts have been waiting for, because the insurance industry, despite its enormous potential, has not been able to maximise that potential because of numerous constraints.
“One of these constraints was that the government needed to give enough enabling environment to the industry to thrive, bearing in mind that in Nigeria, unlike some other advanced economies, insurance is sold and not bought.
“The law comes with a lot of positives for the insurance industry in alignment with the aspirations of governments towards making our economy a $1 trillion economy.
“The issue of higher capitalisation for insurance operators is going to broaden their capability to underwrite risks, which are often ceded outside the country.”
According to him, with the impending enhanced capacity, Nigerian insurers can retain most of their risks in Nigeria, with multiplier benefits on the economy generally.
He added that the issue of compulsory insurance has also been addressed, as the government will become more supportive in ensuring that all the compulsory insurance that are extant, but that are not given the required backing, are appropriately addressed.
“Imagine the multipliers of, for instance, sections 65, 64, 64, 65 of the Insurance Act, which talk about insurance of public buildings, and buildings under construction.
“That alone, with government backing, can unleash unprecedented premiums that will broaden the scope of insurance practice as well as its sovereignty.
“There’s nothing that is happening in the insurance industry as part of the financial ecosystem that will not affect the totality of the economy, including unemployment.
“The industry will be in a better position to broaden its employment capability and complement the vision of the government towards reducing unemployment.
“It will also make the industry contribute more to national development,” Adaramola said.
Managing Director, AIICO Capital, Dr Femi Ademola, said it was a good development that the new insurance law has been assented to by the President.
“It portends the opportunity of waking up the sleeping Nigerian insurance sector through the strengthening of regulations, boosting insurers’ capitalisation and enforcement of compulsory insurance.
“The rush to increase capital base by the insurance companies would spur capital market activities, while the separation of licenses has the potential to improve industry expertise.
“By far the most important development is the enforcement of compulsory insurance to deepen insurance awareness and penetration.
“The law has the potential to increase the size of the industry within a very short period,” Ademola, a chartered financial analyst (CFA), said.
AIICO Capital is a member of one of Nigeria’s largest insurance groups.
Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the new Act would play complementary roles in the ongoing recalibration of the nation’s financial system.
“The insurance industry is needed to provide risk sharing and protection for various sectors as the economy grows, and it cannot do this effectively if the industry itself is not well capitalised. You cannot grow beyond your size.
“So, while the banks now have the capacity to finance large ticket transactions due to enlarged capital, the insurance industry also has to boost its capacity to underwrite larger transactions.
“With this new move, hopefully, underwriting transactions that typically have been outsourced abroad will now be done locally.
“Secondly, that industry also provides critical investment capital to critical sectors within the economy, so the ability to play this role on a larger scale will also improve if they become better capitalised.
“Beyond the business aspect, it also strengthens regulation within the industry and hopefully will improve transparency and accountability.
“All in all, I think it is a positive move by the government,” Amolegbe, a senior investment analyst, said.
Agusto & Co estimated that recapitalisation of existing insurance businesses alone would add some N600 billion in new equity funds to the insurance industry.
Recapitalisation is expected to provide headroom for operational performance as insurers strive to optimise enlarged assets.
Agusto & Co. approximated gross revenue for the Nigerian insurance industry to N1.1 trillion in 2024, with the new law expected to deepen the industry’s double-digit growth.
The average growth rate for the Nigerian insurance industry in the recent period was more than 30 per cent. However, insurance penetration is less than one per cent.
