Chiamaka Ajeamo, [email protected]
Insurance experts have noted that government economic policies and plans for 2020 present huge prospect for growing the economy, promoting job creation and reducing poverty.
Some of the experts who spoke at the 2020 Business Outlook Seminar organised by the Chartered Insurance Institute of Insurance (CIIN) themed: ‘The Nigerian economy 2020 issues, challenges and prospects for the insurance industry’ in Lagos, analysed the Nigerian’s macroeconomic landscape in line with the economic policies of the government for the year, affirmed that the insurance sector in particular has a lot to benefit from the policies to enhance its operations if effectively utilised.
Presenting the lead paper at the event, the Managing Director/Chief Executive Officer, Excel Professional Services Limited, Dr. Oladimeji Alo, quoting GTBank 2020 Economic Outlook document, highlighted five major themes and trends operators have to watch out for in the year.
According to Alo, these themes and trends are; fiscal policy of government as reflected in the 2020 federal government’s budget, Nigerian’s debt profile; interest rate and Inflation, exchange rate policy; external resources and capital flows; and oil prices, production and security.
Before examining the implications of these trends to the insurance industry, he reminded operators of some of the internal challenges of the sector which should not be overlooked even as they worked towards benefitting from the economic wealth. He listed these challenges to include; cultural beliefs and practices that do not support insurance; poor claims management experience of many policy holders, low contributions to GDP, low level of insurance penetration that stood at 1.6 per cent in 2019, large number of operations (58) many of whom are fringe players, weak capital base of many insurers; relative to the risk they underwrite; inadequate skills in some critical areas for instance actuaries, relatively poor showing of the sector in the capital market; and the fast-approaching deadline for recapitalisation in the sector which is due December 31, 2020.
Alo explaining how the fiscal policy will be a challenge to the insurance industry said that; Value Added Tax (VAT) increase might impact the disposable income of the people negatively; the cost of goods and services might go up; failure of government to meet its revenue expectation might further worsen the other economic variables; as well as considerable focus of attention on issues of capital raising mergers and acquisitions.
On the opportunities the fiscal policy will present to insurers, he said there will be improvement in the results of insurance companies on account of the tax reforms in the Finance Act, government investment in major infrastructure projects could mean more business for some insurance companies, there will be improved performance of the sector which might make the sector more attractive to new investors; Improved fortune of Micro, small and medium enterprises (MSMEs) might mean more business for the sector, fewer and stronger firms might emerge and further consolidation of the sector could lead to better performance for some players.
Furthermore, on debt profile, he noted that while this could a major constraint on government expenditure and ability to carry out projects, if well executed could boost insurance growth.
He said: “If properly expended on infrastructure projects as planned, the new debt could spur growth in the economy which the insurance sector could benefit from. As previously noted, some insurance companies could benefit directly from providing cover to activities around some of the major projects”.
On exchange rate, external reserves and capital flows, he said a stable exchange rate would present insurance companies a favourable environment to plan and execute their initiatives. However, a worsening naira exchange rate would affect most players negatively.
For oil prices, production and security, Alo observed that an improvement in the price of crude oil above the benchmark would boost the revenue of the government while the success in the battle against insurgents and normalization of economic activities in the affected areas would greatly boost the performance of insurance companies.
“Relative peace in the oil producing areas and a major reduction of disruption of production activities would be quite helpful in meeting production targets”, he said.
In his final statement, Alo stressed it is only insurance companies who had invested in their brand equity, innovation capabilities, talent management capabilities, information technology resources and capabilities that would fare well in 2020.
Speaking earlier on ‘Recapitalisation and Stability in the Insurance Industry-Role of the Regulator’ the Acting Commissioner of Insurance, Sunday Thomas, said in the course of supervisory review and analysis, the commission observed that the symptoms and causes of a number of ailing insurers with a possible consequence of failure can be attributable primarily to several factors.
Thomas listed these factors to include: risks arising from macro-economic environment, investment and financial risks, poor risk analysis, impairment of certain investments; effect of IFRS on fair value assessment; mismatched assets and liabilities; insufficient liquidity; quality of human capital, effect of risks from governance and risk management structure among others.
He added that the above identified needs made it expedient to increase the paid-up share capital of insurance and reinsurance companies from the existing level. Thomas maintained that recapitalisation of the sector was essential because it will help reposition the industry for the greater benefit of all stakeholders.
On roles of the commission in the ongoing recapitalisation, he said NAICOM as a regulator would ensure transparency and certainty of the process, orderliness of the recapitalisation process, ensure an enabling environment with palliatives and level playing field which will be fair to all.
Other functions, according to him, include; ensuring that recapitalised companies are liquid; safety of funds raised, payment into Escrow Account; orderly exit of un-recapitalised companies and efficient resolution of pre and post-recapitalisation governance/conflicts.
He further stated that the Business Outlook Seminar has been a veritable platform for the insurance industry to review, analyse and project the potential of the economy and the impact of the federal government budget on insurance business.
He rounded off saying the commission is committed to sustainable growth in order to enhance the stability of the insurance industry in Nigeria.
“We therefore invite the insurance sector to maximise the opportunities inherent in the 2020 Federal Government budget of sustainable growth and job creation whilst also ensuring seamless transition to the new capital regime of the industry”.
In his welcome address, the President of CIIN, Mr Eddie Efekoha, said the most important issue in the industry presently is recapitalisation and the sector hopes to continue to get first-hand information on the role they intend to play during the process.
He said figures from the Africa Development Bank Group suggest that GDP growth in Nigeria is expected to rise to 2.9 per cent in 2020 from 2.3 per cent in 2019. However, there are negative indicators such as insecurity which could deter foreign investors, shrink the domestic economy, and ultimately dampen prospects for economic growth among others.
He advised that there is a need to accelerate structural reforms in order to promote economic diversification and industrialisation to minimise vulnerability to external shocks.
“It’s been said that good things come to those who wait, with the current developments in the industry and the country, good things will only come to those who work hard…”