Chinwendu Obienyi and Chiamaka Ajeamo
Nigeria’s insurance industry has not shared in the growth experienced by other Nigerian financial services, notably banks, pension funds and mutual funds.
In fact, it has hardly grown in real terms over the last 10 years because the industry suffers from poor returns on equity.
Despite laying claim to being Africa’s largest and most populous economy, insurance penetration in Nigeria has been abysmally low; less than one per cent when compared with some African countries, such as South Africa (16.99 per cent), Kenya (2.8 per cent), Angola (0.8 per cent) and Egypt (1.2 per cent).
This situation has somewhat affected investors’ sentiment of insurance stocks trading on the floor of the Nigerian Stock Exchange (NSE).
Currently, all sectors’ indices on the Exchange have been on the decline. For instance, the NSE Banking Index stands at -20.64 per cent year-to-date (ytd), NSE Industrial (1.74 per cent), Oil and Gas Index (-25.77 per cent), Consumer Goods (-30.21 per cent) and the Insurance Index which has now hit -0.10 per cent.
The aforementioned indices are reflective of the rising cases of COVID-19 in the country, uncertainties, confidence of investors in the Nigerian business environment, as well as non-effective policies guiding the business climate.
A cursory look at the turnover of some insurance companies is frightening as losses are recorded year in year out, leading to 3/4 insurance stocks not trading at par value and of course some of these companies look at delisting as a way out to ease the pressure on them by both the NSE and National Insurance Commission (NAICOM).
Analysis done by Daily Sun revealed that insurance companies accounted for 31 out of 87 sanctions imposed on listed firms for various financial delinquencies in the NSE X-Compliance latest report.
This implies that, for every 10 firms, the NSE fines about four listed in the insurance carriers, brokers and services (IBS) sub-sector of the financial services sector.
Clearly, insurance companies are struggling because conditions have not been helpful for growth. Experience from other markets, particularly in other climes, suggest three remedies. First, government and regulators collaboration – not only insurance regulators but the capital market, bank and telecom regulators too.
Secondly, the roll-out of micro-insurance with the development aim of financial inclusion, is key to familiarising and educating the market. Thirdly, technology is vital to changing the narrative around insurance.
Yes, NAICOM has given insurance firms one more year to meet the recapitalisation obligation considering how the pandemic has disrupted business activities but, stakeholders are of the opinion that the below-par-value trend of insurance stocks portends great danger for the industry.
Speaking at an Insurance Sector Forum in Lagos, Chief Executive Officer, NSE, Oscar Onyema, lamented that despite the tractions recorded by the insurance sector across some metrics, it still lags behind some other African countries’ with comparative fundamentals in terms of penetration and density.
He said: “An estimated capital of N200 billion is expected to be injected into the Nigerian insurance industry post-recapitalisation with a 400 per cent increase in the minimum capital required for life, 333 per cent for non-life, 360 per cent for composite and 200 per cent for re-insurance.
“While I am optimistic that this directive by NAICOM would enhance performance, bring about efficiency, innovation and profitability, the industry needs significant support to unleash its growth potential.” He noted that regardless of the low penetration rate dogging the sector, it has huge opportunities to boost the economic fortunes of the country.
“At the NSE, we see close parallels between this recapitalisation and that of the banking sector in 2005. The immense growth seen in the banking industry in large, can be attributed to successful capital raised through the capital market. The crucial question before us is unravelling how to replicate similar successes within the insurance space and leverage the platform of the Exchange to successfully raise rightsized capital to fuel accelerated growth,” he said.
He, thereafter, promised that with the ongoing recapitalisation exercise, the Exchange would encourage insurance operators by providing a special window to fast-track the approval process.
According to him, this is hinged on the condition that operators have proved high standards of corporate governance, deep social impact, high regulatory compliance, and enhanced returns for their shareholders.
Meanwhile, the Commissioner of Insurance and the CEO, National Insurance Commission (NAICOM), Sunday Thomas, at a conference in Kano, while unveiling the initiatives to change the face of the insurance industry, stated that the Commission is shifting focus from compliance issues to heighten its market developmental responsibilities.
Thomas noted that areas such as; market development and restructuring initiatives, recapitalisation, implementation of compulsory insurances, financial inclusion strategy, digitalisation, reforms among others will be prioritized towards growing the industry.
“As the year 2020 continues to unfold, giant strides will be made by the Commission in all aspects of its statutory responsibilities. We will continue to introduce new reforms and initiatives in line with international best practices for attaining the level of growth and development we all desire for the sector.”
Furthermore, he said his leadership will ensure a stronger and more flexible insurance legislation as this has been a principal hinderance to the effective supervision of the industry.
He stressed that efforts would be doubled to ensure the emergence of a new insurance law to allow effective policy direction for the industry.
Speaking to Daily Sun, National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, noted that shareholders were not happy with the current value of insurance stocks on the floor of the Exchange, adding that the government needs to sit down with regulators and operators to chart a new path for the insurance industry.
Okezie said: “Today, insurance stocks are trading at 20 kobo, 25 kobo and we are not happy because they are not even trading at par value and the regulators and the government have turned a blind eye to that, rather they are looking at money. Money is not the issue as most of these insurance companies have assets in which they can fall back on.
Confidence is not even there as penetration is low, so the government needs to sit down with the operators and regulators to chart a new cause to stop the decline, bring people not amateurs to manage the economy. We have been borrowing but have not seen the effect of what we have done in years so, the insurance sector needs government’s intervention very quickly. If we continue taking fire brigade approaches, we cannot reach anywhere, we will still remain stuck”.
Insurance expert and consultant, Ekerete Gam-Ikon, believes an effective roadmap is needed to change the face of insurance in Nigeria.
“I see the insurance sector, like Nigeria, going through a twin-challenge of the global pandemic and the peculiar industry which is multifaceted. If the condition of the stocks were bad before COVID-19, they can only get worse.
That said, when you talk about going to “sit quickly with the government”, I am wondering where the connection will be made. This is because the insurance sector is completely private, owned and managed in that manner with the aspiration of on-boarding the huge population we have. What I have previously suggested is to let the regulator in a roadmap show the world the potentials you want to invest the huge capital requirement in also, show what the difference will be now and when that capital has been injected”.
He said insurance can support the government to achieve its aim in searching for revenue, providing more jobs and moving people out of poverty.
“People have been talking about bail-out for the insurance industry and I have expressed my support for it, only if it will be used to settle claims then applied to collectively save those companies under NAICOM management after a forensic audit of their financial records”, Gam-Ikon said.