As Nigerians across the world celebrate the country’s 60th independence anniversary, one of the founding fathers’ dreams that still looks far from being realised is a vibrant financial market of which the insurance industry is a major component.
It is with this mindset that stakeholders of the insurance industry are marking this year’s anniversary with trepidation.
Although stakeholders who appraised the sector’s performance have commended the advancement recorded thus far, they nevertheless admitted that it has failed to grow in line with their expectations compared to other arms of the country’s financial market.
Indeed, the history of Nigeria’s insurance industry pre-dates the October 1, 1960 independence as the oldest insurance company in Nigeria; the African Insurance Company Limited started underwriting and indemnity operations to individuals and businesses in 1958.
Without doubt, one would have expected an industry two years older than Nigeria to have recorded tremendous feats in its contribution to the economy. Sadly, reverse has been the case and this is hinged on the numerous challenges such as low penetration, among others confronting the sector.
Several reports have shown that the industry has barely grown in real terms over the last 10 years compared with other countries with comparable economic challenges.
In fact, when compared to banking and the capital market, Nigeria’s insurance remains the weakest link in the its financial sector, contributing little to the Gross Domestic Product (GDP) over the last three decades, despite several interventions by government.
But, experts have projected that the sector’s penetration will rise by a factor of 10 times in real terms to 3.69 per cent in the next 10 years because the technological infrastructure, population and data necessary for its expansion are available.
“With a market supported by the country’s steady economy and large population, Nigeria’s insurance sector will enjoy a period of growth and development over the medium and long term, albeit interrupted by a slower pace of growth in 2020, due to the effects of the coronavirus pandemic.
“The outlook for premiums growth, however, continues to be limited due to low average earnings and widespread poverty, which will weigh on insurance affordability. As even the more affluent middle-class consumers tend to avoid purchasing insurance, which hampers the growth of compulsory basic insurance lines such as motor/vehicle insurance, Nigeria’s potential consumer base needs to be educated more on the benefits of both life and non-life insurance coverage to support more robust growth in the sector,” a report by Fitch Solutions stated.
According to a report by Agusto & Co in 2018, the asset base of Nigeria’s insurance sector closed at N1.3 trillion on December 31, 2018, representing a Compounded Annual Growth Rate (CAGR) of 17 per cent over the last three years, while Gross Premium Income (GPI) generated was estimated at N448.6 billion, reflecting a 12 per cent growth year-on-year.
However, density of the sector (a measure of industry’s gross premium per capita) presently at $6.2 lags behind its African counterparts with South Africa at $762.5; Egypt $22.8; Kenya $40.5 and Angola at $30.5.
In addition, the industry’s Return on Equity (RoE), which stood at around 8.4 per cent in 2016 as against 8.6 per cent in 2015, however, experienced a setback in the last two quarters of 2017 with a contraction of 1.9 per cent in Q3 and Q4 respectively despite growth observed in the general economy. It, however, recovered in the first quarter of 2018, expanding by 18.1 per cent compared to 1.95 per cent growth recorded by the economy.
The industry which consists of 57 registered insurance companies, is divided into life, non-life and re-insurance; and has its non-life arm accounting for 48.7 per cent of total Gross Written Premium (GPW) while life and re-insurance accounted for 30.1 per cent and 21.2 per cent respectively.
It is safe to say that these data signify huge growth opportunities for the Nigeria’s insurance sector, however many companies lack the capacity to underwrite big risks especially, in the oil and gas, marine and aviation sectors of the economy due to insufficient capital base and this is why the industry is currently on a recapitalisation journey which will end September 2021.
Recently, operators via the umbrella body of insurance underwriters, the Nigeria Insurers Association (NIA), paid a visit to the Speaker House of Representative Hon. Femi Gbajabiamila, seeking for improved engagements between the association and the lawmakers.
The NIA Chairman, Ganiyu Musa, who led the delegation, urged the Lower House to assist the industry overcome its present challenges through legislations that will expand the frontiers of insurance to enhance its contribution to the national economy.
Responding, Gbajabiamila, promised to collaborate with the association to make laws that will promote insurance business in the country.
In a chat with Daily Sun, the Executive Director, Finance, African Alliance Insurance, Olabisi Adekola, said the industry has done quite well over the years considering where it began and is presently having grown from one run by foreigners till the incorporation of the first indigenous player, African Alliance Insurance, in 1960.
“Now we have a thriving insurance industry that has become even more attractive to multinational players, Adekola added.
Speaking on the industry’s contribution to the Nigerian economy she said, “We all agree we can do better. Recent figures show there are about 1.5 million Nigerians with one form of insurance. In a country of about 200 million people, are we saying just about 1 per cent of that is above the insurable age? Of course not. The very poor penetration shows how much more impact we can make.
“My expectation is literally rooted in the outcome of the ongoing recapitalisation. I expect a better industry populated by stronger firms able to fulfil their obligations as due to all stakeholders. From there, we will grow more trust and thus get more people to buy insurance as a need and not as a grudge thereby aiding our contribution to national GDP.”
Also speaking, Ekerete Gam-Ikon, an insurance expert and consultant said major challenges of the sector which includes; lack of collaboration and cooperation needed to maintain a common focus on growing the industry; no national insurance policy or roadmap that Nigerians can connect with and multiplicity of insurance that leaves Nigerians more confused, public apathy to insurance, and operations of fake insurers need to be urgently addressed.
“The performance of the industry has not been all that bad but the thought that the industry could do better is just disturbing. The adoption rate is less than 2 per cent of our population, are we not interested in having more? Gam-Ikon quizzed.
Pointing out areas to be improved on by stakeholders for expected growth, he said “policyholders need to educate themselves more on the terms and conditions of insurance before buying as ignorance is not an excuse.
“Operators need to be more creative and innovative towards creating value for their customers; while shareholders should have a strategic long-term view.
“Regulators should be ready to take the hard road to instill discipline and protect policyholders by enhancing their capacity and capabilities. Prosecution of companies and executives that violate the laws should not be a subject of discussion or debate outside appropriate legal institutions.
“The learning centres need to broaden their curricula to include basic technology and leadership modules. Lastly, the media needs to do more to bring deeper analysis that will project the insurance industry and empower the policyholders. “I expect an open insurance industry that is inclusive, leveraging tech solutions to embed insurance in the activities of Nigerians!”, Gam-Ikon expressed.