By Chiamaka Ajeamo, [email protected] 08060655687
Although the 2020 financial year-kicked off with so much expectations from stakeholders in all sectors of the Nigerian economy, the trauma that followed it to the end was such that many never wanted to experience again.
Indeed, Nigerian insurance industry practitioners for their part were upbeat at the beginning that the year would usher in the long awaited development having tagged it “ The Year of business portfolio expansion”.
This optimism was hinged on two reasons namely the ongoing recapitalisation which will certainly provide companies with financial strength to perform better and retain businesses that hitherto they were incapable of executing due to low capital base and the early passage of the budget for the year.
According to the National Insurance Commission (NAICOM), 2020 was a year it was strategically shifting focus from compliance issues to emphasise more of its market development responsibility and the digitalisation of the industry.
Regrettably, 2020 had a different agenda in store for the global economy and the insurance industry was one of the hardest hit and indeed the first to start counting the costs of the year’s challenge with the emergence of the coronavirus (COVID-19) pandemic and its associated socio-economic shutdowns and economic disruptions.
For instance, following countless cancelled flights, holidays and events; businesses quickly began to experience the effects of disrupted business continuity and did not hesitate to make claims for the interruptions.
But notwithstanding the spread of COVID-19, latest reports from the National Bureau of Statistics reviewed that the nation’s finance and insurance sector grew remarkably in the first quarter (Q1) of 2021. According to the NBS, the sector grew by 20.79 per cent in Q1 2020, an improvement from 20.18 per cent in Q4 2019. However, it contracted by 28.15 per cent in the second quarter of the year.
The insurance industry recapitalisation journey which started in May 2019 with the objective of having bigger and stronger players in the market with enhanced capacity to reach and cover the majority of the Nigerian populace witnessed three extensions.
The NAICOM had extended it from June 30, 2020 to December 31, 2020 due to “the outbreak of COVID-19 which made it difficult to proceed with the December 31, 2020 recapitalisation deadline.” The Commission however, segmented the exercise into two phases; the first should be completed on December 31 2020 and the full recapitalisation on September 31, 2021.
Life insurance companies are to meet a minimum paid-up capital of N8 billion, up from N2 billion; general insurance companies are expected to increase their paid-up capital to N10 billion from the earlier N3 billion.
Composite insurance (those that operate both general and life insurance) are to recapitalise to the tune of N18 billion as against the pervious amount of N5 billion, while reinsurance businesses are now required to have a minimum capital of N20 billion from N10 billion that obtained in the past.
According to findings, six weeks to the December 31 deadline given to attain 50 per cent new capital threshold, only 21 insurance firms out of 58 had met the directive. Of this number, it was learnt that seven of them had fully recapitalised, while the remaining 14 companies had attained the 50 per cent threshold.
In a twist of events, few weeks to the completion of the first phase, the House of Representatives ordered the discontinuation of the recapitalisation exercise and wrote to NAICOM on the basis that it was worried about the impact of economic challenges, such as the COVID-19 pandemic on various underwriting firms in the country.
According to the House of Representatives, “the suspension is expected to last for six months from January – June 2021 and is necessary to give operators soft landing, as well as cushion the effects of Covid-19 and other unforeseen circumstances they might have suffered.”
Following the mass looting and destruction of many government offices, banks, shopping malls, media houses, toll plazas, and private offices by suspected hoodlums during the #EndSARS protests across Nigeria, the insurance industry indeed incurred huge claims.
According to experts, claims arising from the situation was primed to shake the balance sheets of underwriters. But in a related development, the Nigeria Insurers Association (NIA) assured policyholders of claims settlement emanating from the riot.
Chairman of NIA, Ganiyu Musa, stated that claims from the damages will have an immediate negative impact on companies’ liquidity, balance sheet and cash flows but assured that all policyholders both individuals and businesses with valid insurance policies that have been paid for, will be duly compensated as all members of the NIA will indemnify and provide them the necessary payout in line with the terms of their policies.
Similarly, the Commissioner of Insurance and Chief Executive Officer, NAICOM, Sunday Thomas, speaking at a conference urged operators to lead in the quick recovery and restoration of businesses affected by the EndSARS riot.Thomas noted that incidents such as these were likely to increase insurance claims, thereby exacerbating the already weakened liquidity and capability of insurance companies; however, it has reinforced the need for proper underwriting to ensure insurers are able to settle corresponding claims obligations to cushion the effect of losses on Nigerian households and businesses.
He further disclosed that NAICOM was compiling lists of underwriting firms owing clients huge unpaid claims for sanctions; adding that, underwriters must pay utmost attention to the payment of claims, especially, at a time the industry was nursing negative public perception.
Stakeholders’ reaction and projections for 2021
Commenting on the industry’s performance, the Manager, Brand, Media and Communications, African Alliance, Bankole Banjo, said, year 2020 was topsy-turvy for the Nigerian insurance industry.
He noted that in 2021, the coming of new players and the strengthening of capital bases of existing insurers will bring about the much-needed mass education amongst the target audience.
“This would not be a direct outcome but an offshoot of the expected increase in targeted communication and consumer engagement. Overall, the penetration would thus get marginally better and better till we can actually move the needle”, Banjo said.
For his part, Ekerete Ola Gam-Ikon, an insurance expert and consultant said the industry in 2020 faced its biggest challenge and saw its best opportunities but it allowed the latter waste by focusing too much on the former, especially recapitalisation.
He said, “Considering how the insurance industry is closing the year – without effective conclusion of the issues of recapitalization and recalcitrant insurers owing overdue claims payments to policyholders, we can expect that the discussions, as we had last year, will continue. These are crises that the industry has put upon itself and we look forward to seeing how the regulator and operators will address them.
“Interesting opportunities following the effects of COVID-19 and #EndSARS protests may have been missed while focusing on recapitalisation. New products and new collaborations and partnerships necessary to enhance insurance awareness and deepen penetration could not be given due attention, so these are the areas we expect more positive actions from operators in 2021.
“Specifically, as insurers unfold their plans for the microinsurance window, we expect to see initiatives that will boost the relationship between aggregators and insurers.
“With the decision of NAICOM to focus more on digitisation and market development, we envisage that it will strengthen the drive towards getting more Nigerians to embrace insurance. We expect operators and the regulator to shake up the market with new initiatives.
“Generally, governments at national and sub-national levels need to understand how insurance can help improve the efforts at stabilisation, then consider some of the suggestions that have been made, for example, including insurance professionals in the committees required to review the long-term national development plans for the country”, Gam-Ikon said.