Relief may soon come the way of insurers, as the Federal Government focuses on the sector for economic development, reports Omobola Tolu-Kusimo.
With the fall in crude oil price and plans to diversify the economy away from oil revenue as major source of income, the Federal Government is now looking at the insurance sector as one major area to grow the economy. The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iwaela, indicated Federal Government’s renewed interest in the sector at a recent conference in Abuja with the theme: The Role of Insurance in a Nation’s Economy. It was the first time such a conference was initiated by her ministry.
Before now, the minister has never attended any insurance sector meeting and conference personally like she does in other financial service sectors like banking, pension and capital market. But at the summit organised at her instance, she had interactions with key players from insurance and re-insurance companies; insurance brokers and agents; underwriters, actuaries and loss adjusters; various consumer groups; two local and foreign investors in the sector; and regulators and government officials. Perhaps, to underscore the importance the minister attaches to the sector, she said President Goodluck Jonathan was waiting for a report on the outcome of the summit to take the next step.
For operators and stakeholders in the insurance sector, the conference was timely. It came at a time operators were agitating for government’s intervention to grow the sector. Apart from raising hopes that government may have started recognising the fact that the Insurance sector is a critical part of any nation’s economy and has the potential to galvanise the optimal performance of other sectors, the intervention also brightened hopes that the botched N1 trillion gross premium income targets may be attained or even surpassed.
Dr Okonjo-Iweala hinted on such possibility. In her opening remarks, she said: “Mr. President is very excited at the potential of this sector, and is looking forward to reviewing the outcomes of this conference. Our objective today is to examine ways of invigorating the industry in our country for the next decade to ensure that it contributes to our national economic growth. The industry is an important component of the financial system in any country. Insurance helps in mitigating risks and thereby provides utility for individuals and corporations.”
She said from economics perspective, risk-averse agents facing uncertainty are better off with insurance, as it helps them in their consumption and also improve their planning. “As Finance Minister, I can tell you that a vibrant insurance industry promotes savings and investments, increases the overall financial assets in an economy and drives development of capital markets. In times of natural disasters such as floods, hurricanes, droughts, insurance companies also help in providing financing to mitigate the social costs of catastrophes,” she added.
The minster further said the insurance industry is a major contributor to job creation across the world. According to her, a vibrant insurance industry results in direct job creation for agents, brokers, underwriters, actuaries and so on; and also indirect jobs for many other industries whose risks are covered by the industry. “So the industry is an important sector; moreover it is big business. In developed economies, insurance companies are large financial players, they are among the largest institutional investors; they are major shareholders in Fortune 1003 companies; they own some of the largest international banks; and they are big investors in the bond markets and private equity funds around the world’, she stated.
Mrs Okonjo-Iweala recalled that the insurance sector had grown steadily in the past decade because of work done by NAICOM and various stakeholders. She disclosed, for instance, that total premiums have quadrupled in the past 10 years growing from N75 billion in 2005 to more than N300 billion today. She noted that not surprisingly, there has been strong external interest in the sector with the entry of foreign investors such as Old Mutual and Sanlam from South Africa. She said just last week, AXA of France reportedly acquired a majority stake in Mansard Insurance for $246 million.
She therefore, stressed that Nigeria has an insurance market filled with opportunities and many foreign investors are going to get even more interested in the coming years. She believes that there are even more opportunities going by the way Federal Government introduced insurance products in the growing mortgage and housing sectors. She, however, said in spite of the investor interest in the sector, the insurance sector in Nigeria, Africa’s largest economy, must be growing even faster. She said:”When we benchmark ourselves against other emerging markets, we realise that we still have a lot of work to do. The current insurance penetration like the ratio of premiums to Gross Domestic Product (GDP) is only 0.4 per cent in Nigeria, compared to 1.1 per cent in Ghana; three per cent in Kenya; and for the BRICS, Brazil is four per cent; Russia 1.3 per cent; India four per cent; China three per cent; and South Africa 15 per cent.
“Moreover, for Nigeria, when you look at assets in our overall financial system, insurance also accounts for only three per cent of total assets, compared to 12 per cent from pension assets and 79 per cent from banking assets. This is different from other emerging markets such as Brazil and Mexico, where insurance assets accounts for about six per cent of total financial assets; and for India where insurance contributes about 14 per cent of total financial assets.”
As promising as Nigeria’s insurance sector is, there are several challenges to be addressed. Some of them, according to Dr. Okonjo-Iweala, include lack of consumer trust, a fragmented industry with some weak and insolvent players, low enforcement of compulsory insurance policies, lack of professionalism by some agents and brokers in the industry, and a general shortage of skilled professionals in the entire industry. She said while the government has carried out reforms in the banking and pension sector, the insurance sector is next and would take off soon.
While articulating Federal Government’s vision for the sector and where it sees the industry by 2020, she said the first part of the vision would be to grow the gross written premiums of N300 billion today to N1 trillion in the next three years, and to N5 trillion within the next decade. “So, we should be attaining gross premiums of about $30 billion in a decade from today,” she said, adding that the second part would be to deliver jobs in the industry.
As the minister pointed out, the insurance sector is a powerful engine for job creation in the economy. She, however, regretted that today, there are only about 30,000 people working in the industry. “This sector should clearly be creating many more jobs for us. So the second objective of our vision would be to grow the number of direct jobs created in this industry from the current 30,000 people to 100,000 people in the next three years, and to more than 300,000 people in the next decade,” she declared.
The third part of the vision, she disclosed, would be to widen access by growing the number of insurance policyholders in the country. “We are a country of 170 million people, but with only three million policyholders. Let us also work to achieve a minimum of 10 million policyholders in the next three years, and 30 million policyholders in the next decade,” she said.
Team work, the way to go
Dr Okonjo-Iweala insists that to develop the sector, all hands must be on deck. “We cannot develop this sector alone. All of us stakeholders will all need to work together to realise the potential of this industry,” she argued. Continuing, she said: “Clearly, the Federal Government has an important role to play in this sector. We need to get better at enforcing compliance for some compulsory classes of 10 insurance such as for motor vehicle insurance and group life insurance. We also need to clarify various regulations. For example on banc assurance, the use of corporate agents and we need to work on strengthening the supervisory powers of NAICOM.”
She said too often, at such gatherings, stakeholders talk a lot but do not come up with concrete plans. “I would like to encourage you to be open and honest in sharing your perspectives and feedback. But I would not want us to get stuck only in rehashing the difficulties but to proceed to focus on the concrete actions which can help this sector to realise its full potential,” she stated.
The minister’s appears to enjoy the support of the President on the need to leverage on the potential in the sector to grow the economy. Indication to this emerged few days after the conference when President Goodluck Jonathan, in his acceptance speech at the Peoples Democratic Party (PDP) Convention held in Abuja, confirmed that his administration is working to revitalise the sector.
The President said: “Compared to other emerging economies, our insurance sector has not achieved its full potential. Today, only three million of our citizens are insurance policy holders, and overall insurance penetration is less than 0.5 per cent of our GDP. We want to transform this sector, just as we have done for our banking and our pensions industry. Our goal is to grow the total insurance premiums in our country from N300 billion currently to N1 trillion in the next three years and to increase the number of direct jobs created in this sector from about 30,000 people today to over 100,000 people in the next few years.”
Stakeholders react
For Director-General, Chartered Insurance Institute of Nigeria (CIIN), Kola Ahmed, the Federal Government was re-focusing its attention on the sector because of the crash in fuel price, which is affecting the economy because petroleum is the nation’s main source of income.
“It is a blessing in disguise for the sector and I want to believe that the government means well this time around because of the seriousness with which the programme was packaged and the attention given to it by the minister, ” he told The Nation.
Ahmed disclosed that various committees were set up during the summit, which had more than 50 per cent chief executive of insurance companies in attendance. He added that the minister made it known that all the committees set up must start work immediately and that they have the backing of the government.
He noted that the operators spoke out and mentioned the issue of government not being supportive of the industry by not paying its insurance premiums, not insuring assets and properties as expected. “I believe that with the present state of the economy, especially with what is happening in the oil market, which is affecting our economy and the fact that the government has tried everything with the banks which seems to have reached their saturation point, their focus on insurance sector will bring a change to the sector and the country generally,” he said.
Similarly, Chairman, Nigeria Insurers Association (NIA) and Managing Director, Linkage Insurance, Godwin Wiggleon, said: “The President is trying to transform every sector of the economy. He has done it in agriculture, stock exchange, and banking and even in entertainment, but he has now seen insurance as a vital sector that can boost the economy. I see a better future for the sector and we should be looking at a different sector from this year 2015.”
The Managing Director, FBN Life, Val Ojumah, also thinks that the government is turning to all sectors of the economy to find out what they need to do to turn the nation’s economy around. He noted that with the general elections around the corner, government will do all it can to contribute to every sector.
Earlier in his welcome address at the summit, Commissioner for Insurance, Fola Daniel, said the event was unique because it was organised under the auspices of the Coordinating Minister for the Economy to set a three-year agenda for the transformation of the insurance sector.
Speaking on past reforms in the sector and their outcome, he stated that the first notable initiative for the reform of the industry was the Financial Systems Strategy, code-named FSS 2020 developed in 2007 to position the financial services sector to drive the vision of making Nigeria one of the most 20 developed economies in the world by 2020, and the financial centre of choice in Africa.
He said following the aspects of the strategy that relate to the sector, NAICOM developed and launched its MDRI with the objectives to build capacity for NAICOM staff and stakeholders in the industry, develop the insurance agency system; build confidence and integrity in the industry, create awareness and secure the support of government and relevant agencies and ensure public compliance with various compulsory insurance requirements of the law.
According to him, a significant element of the MDRI was a target of N1trillion gross premium income by the year 2012. He however, said implementation challenges and the impact of the 2008 financial crisis on the sector impeded the attainment of the initiative. He said notable among the negative impacts were the huge losses suffered by insurance companies as result of the near collapse of the capital market and decline in the growth of personal lines as a result 2009 changes in the financial services industry.
He added that as at the end of year 2013, the gross premium income of the industry only grew to N300billion from N101billion in 2007. Although, the 2013 achieved gross premium income puts Nigeria as third from fifth position in Africa, “we know and I am convinced that we can do a lot better.”
On key challenge to the growth of the industry, he said: “It is how to get sufficient number of potential customers to buy insurance. This decision is influenced by factors such as the image of the industry, financial literacy, economic constraints and attitude of the consumers, amongst others. There is also a mutually reinforcing relationship between the industry’s growth and the level of national economic development.”
According to him, in advanced economies, personal lines insurance for example, has acquired a cultural status and is given priority as a means to mitigate various risks and reduce incidence of poverty. But it is not the same in Nigeria. “The major question to answer therefore will be what to do in Nigeria to break barriers and release the potential that ought to come with demographic advantage,” he said.
The commissioner expressed hope that the interaction in the summit would result in workable programmes that will not just address these challenges, but also identify initiatives that will radically transform the industry to enhance its relative contribution to the nation’s economy. He stated that before now, the Federal Government did not genuinely accept insurance as an important tool to the development of the country owing to its past dealings with the sector.
He said although group life insurance is made compulsory for employers to provide for their employees by the Insurance Law created by the same Federal Government through NAICOM, government has continued to flout the law as it did not provide the policy for its workers in 2012 and 2013.
In the years that the Federal Government bought the policy, he said it did not pay insurers premiums as and when due and at the moment, it owes them premiums worth billions of naira it purchased to cover its workers. As a result, many workers did have valid insurance cover. It was not until last year when NAICOM enforced the “No Premium, No Policy” in the sector that the Presidency began to gradually pay premiums.
However, with this refocusing, the consensus of operators and stakeholders in the insurance sector is that a new dawn may be in the horizon for the insurance industry, one that would position the sector to contribute to national development, particularly that the challenges arising from the plunge in oil price.
