Chiamaka Ajeamo, [email protected]

The history of insurance in Nigeria pre-dates the country’s 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, the reverse is the case as the Nigerian insurance sector  has continued tottering as an infant establishment without much to show after 61 years of operation.

In fact, when compared to banking and the capital market, Nigeria’s insurance remains the weakest link in the nation’s financial sector, contributing  little to the Gross Domestic Product (GDP) over the last 59 years despite several interventions by government.

Several published reports have revealed that aside battling numerous challenges, including low penetration, insurance industry has barely grown in real terms over the last 10 years compared with other countries with comparable economic challenges.

Experts have however 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 and data necessary for its expansion are available.

Nigeria’s insurance versus other African countries

A recent report by Agusto & Co, a credit rating agency had disclosed penetration rate (measured as a percentage of GDP) of the Nigeria’s insurance industry stood at 0.3 per cent in 2018; compared to 14.7 per cent recorded in South Africa; 2.8 per cent in Kenya; 1.1 per cent in Ghana; 0.6 per cent in Angola and 0.6 per cent in Egypt.

The report also revealed, the density of the Nigeria insurance 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.

It further disclosed 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.

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.

Agusto & Co, opined that the profitability of 2017 was hampered by weak investment returns, rising maintenance and acquisition expenses as well as increasing claims.

The industry which is divided into life, non-life and re-insurance, 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.

No doubt these data signify large growth opportunities for the Nigeria’s insurance sector, although 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.

Recapitalisation of insurance sector

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The Nigerian insurance market has experienced different hurdles in its bid to satisfy the needs of its stakeholders with finance being a major constraint towards achieving most of its objectives.

But in a bid to resolve these challenges, NAICOM for the first time in 2003, through the Insurance Act of 2003, directed underwriters to increase their capital base. The capital base for life insurance was increased to N150 million from N20 million, non-life business was raised from N70 to N300 million and reinsurance business moved from N150 to N350 million. The policy however forced 14 insurance firms out of business.

However another recapitalisation project was executed in 2005, when insurance companies’ capital base was beefed up to N2 billion for life business, N3 billion for non-life and N10 billion for reinsurance business. This reform again reduced the number of firms to 49 from 103 due to mergers and acquisitions witnessed in the industry.

Efforts by regulators to implement another round of recapitalisation on August 27, 2018, through a circular, ’Tier Based Solvency Capital Policy for Insurance Companies in Nigeria’(TBSC), was unsuccessful as stakeholders protested and thus, with the order of the Federal High Court, the TBSC policy was withdrawn.

But the current recapitalisation programme which NAICOM communicated through  a circular, ‘Minimum Paid-up Share Capital Policy for Insurance and Reinsurance Companies in Nigeria’ setting new capital requir ment for June 2020, for all insurance businesses in Nigeria, except for takaful and micro-insurance, is primed to bring about far reaching reforms expected to make the indsutry more competitive.

So far the development has left insurers doing all within their power to beat the deadline set .

According to NAICOM, the reason for the recapitalisation exercise is to boost the financial capacity of insurance companies to underwrite bigger risks in key sectors like oil and gas, aviation, and maritime where most risks continue to be ceded to foreign firms and to ensure the sector contributes more to the GDP.

Commenting on the performance of the insurance industry in the last 59 years, the Director- General, Nigerian Insurers Association (NIA), Mrs Yetunde Ilori, said that the industry has progressed with several evolutions witnessed so far, as the industry moves in the dynamics of the economy.

“We are not where we were 59 years ago. This is about the third recapitalisation exercise that would take place in the industry. A lot of things that were not in practice then are now in operation, a lot of insurance covers that we were not providing before are now available. The industry has become more innovative and it is moving in line with the nation’s economic dynamics. We are involved in the financial inclusion programme of the Federal Government,” she said.

Also speaking with Daily Sun, an insurance expert, Mr Ekerete Gam-Ikon, noted that most of the problems associated with the insurance industry in Nigeria over the years, and until now, can be attributed to the poor conduct of both operators and regulators.

He added that two critical issues facing the insurance industry up till now are liberalisation of rates and delay in the settlement of claims irrespective of what is said about capital and the ongoing recapitalisation exercise.

“Anyone who has been in insurance industry long enough has heard and discussed rate-cutting as the number one problem where customers are given outrageous discounts thus affecting the premium income ultimately retained by the industry.

“Only a few insurance companies have an excellent attitude to claims settlement and this has really helped them to stay ahead of others. The biggest threat to the recapitalisation process is the volume of outstanding claims insurance companies are burdened with especially those that desperately need funds to survive,” he said.

He suggested that, if greater attention is paid to these issues through effective collaboration of operators and regulators, the future of the insurance industry in Nigeria will be brighter again, just as it was when the ‘No Premium No Cover’ aspect of the law was fully implemented.