Following last week’s criticism by the Federal Government of the insurance industry’s low penetration and contribution to the country’s Gross Domestic Product (GDP) and its readiness to support it, the operators have said they are ready to take steps to drive growth, reports Omobola Tolu-Kusimo.
Can insurance operators take a pill of their own medicine as risk managers and recapitalise and are they willing to take a lead on Nigeria’s financial sub-sector as it is in other developing and developed countries?
Do they also have the capacity to adequately de-risk the economy, and are they willing to be creative, innovative and harness the opportunities that exist in an economy that has the largest market in Africa? Do they have what it takes to respond to the Federal Government’s call for action?
These and more questions were raised by the government, experts and other stakeholders at the just- concluded three-day conference of the Insurance Industry Consultative Council (IICC) National Insurance Conference with the theme: ‘’Expanding national resources and infrastructure in challenging times” in Abuja.
For the first time in the history of insurance, the second edition was graced by top government officials. The Minister of Finance, Mrs. Kemi Adeosun and her Power, Works and Housing counterpart, Babatunde Raji Fashola, were among the dignitaries.
The operators, including its regulatory body, the National Insurance Commission (NAICOM), called for action by the government against insurance low performance and contribution to the country’s Gross Domestic product (GDP).
Govt.’s call for action
Speaking on ‘Repositioning the Nigeria insurance industry for growth; Government to enable development’, Mrs Adeosun said it would not be news that Nigeria’s economy is facing some of the toughest challenges in living memory.
However, she said the administration firmly believes that the economy has only one direction to move in and that is upwards as true change means doing things differently with the full expectation of different outcomes.
She said the government’s commitment to rebuilding the country’s physical infrastructure must be matched by rebuilding our soft infrastructure and the enabling environment for business to thrive.
She said a key element of the enabling environment is the de-risking provided by the insurance industry.
According to NIA sources, Nigeria with a penetration of 0.3 per cent recorded total industry Gross Written Premium (GWP) of N350 billion in 2015. If we collectively set a seven-year target of achieving Africa’s average penetration of 3.5%, we can transform our industry into one with GWP of N4.5 trillion by 2023.
She said: “To achieve this, the industry will have to grow at a Compound Annual Growth Rate (CAGR) of 44 per cent from 2017 to 2023. This is in no way an impossible target and in fact represents the type of ambitious objectives we need to set for ourselves as several sectors in Nigeria, including telecoms, banking and pensions’ management have been able to record such impressive growth through the collective support of all stakeholders. It is also consistent with the Change m andate of President Muhammadu Buhari and insurance have no reason to be different.
“During this summit, it is important that we dimension the industry in its different facets as this is a gathering of some of our most capable minds and tested hands. We also need to act urgently, as the development of the insurance industry will come with other attendant benefits that are critical for us to achieve the type of growth and change we want for our economy and for the large number of Nigerians who have been deprived of the financial stability, protection and business growth that developed insurance markets have provided for their citizens for centuries. All successful economies are characterised by a strong investment culture of which insurance plays a key role.
“A developed and active insurance market will bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, improvement in standard of living. It will also share the cost of adverse events with the government and attract foreign investment into our country.We are currently underperforming and there is a need to immediately address the decline in the industry as it is lagging behind global and African peers.”
She expressed concern that despite being the largest economy in Africa, insurance penetration rate, which is a measure of sector contribution to GDP is 0.3 per cent, one of the lowest in Africa.
She pointed out that the African and global average insurance penetration rates are 3.5 per cent and 6.2 per cent.
“Insurance density, a per capita measure is $10 in Nigeria compared to the Africa average of $61 and global average of $662. South Africa has insurance density of $925. Our low performance is a call to action, to which we must develop a robust response.
“According to the outcome of the 2014 insurance summit,the underperformance of this industry is denying the economy of potential incremental annual GDP growth of as much as 1.5 per cent and access to as many as 70,000 new jobs. The sector should ideally be a strong driver of GDP growth by generating significant value-add. According to a study done by McKinsey for the 2014 Insurance summit, it is estimated that a marginal 3.3 per cent increase in insurance penetration can lead to an incremental 0.5 per cent growth in GDP.”
The minister highlighted several other factors that also contribute to the underdevelopment of the industry as low awareness, poor distribution channels, and unhealthy competition.
She said the government and operator’s immediate and collective next steps is to stimulate extra-ordinary growth and unleash the potential of the industry by carefully taking certain planned steps which is to recognise our true stage of development and strengthen the capital base of insurance companies.
She recalled that in 1981, the minimum capital requirement for banks was N1 million while that of composite insurance companies was N0.8 million.
By 2014, banks had grown theirs to N25 billion and composite insurance companies to five billion naira showing that banks had grown capital requirements eight times faster. The industry needs to recapitalise. Capital levels were last raised in 2007. To take true advantage of the opportunity for the industry we must recapitalise and reposition. The top three banks have capital in excess of N300 billion each! The top three insurers have capital of between N14 billion to N25 billion, she stated.
On what the sector needs to do, she said the stakeholders need to raise minimum capital requirements in a manner that is comparative to what happened in banking in the last three decades. Increased capital will provide funding for publicity and product development, she said.
Mrs Adeosun said this would raise the clout of insurance companies in policy formulation and will enhance their capacity to hire the best people and deploy the technology and marketing, product awareness and investment needed to support the industry.
On the role of NAICOM in the new path to growth, she said there must be enforcement of insurance regulation and solvency standards.
She emphasised on the need to enforce the laws relating to compulsory insurance of vehicles, property among others.
She said NAICOM must also strengthening industry and regulatory capacity
By encouraging actuarial services, marketing and distribution in order to position the regulator as growth drivers and update the legal environment and removal of obstacles to the attraction of talent.
Fashola said the government is building infrastructure and will need a strong and capable insurance sector to insure them.
He queried why the sector is not impacting on the lives of the majority of vulnerable people.
‘’Why is our sector not impacting in quantity in the lives of the majority of vulnerable people in the country.
‘’Every market man and woman in the country is selling recharge cards. These are areas that insurers need to design products that meets the need of the people,’’ he said.
