Identifying that the insurance industry has not contributed its optimum to the Nigerian economy, stakeholders led by Coordinating Minister in charge of the Economy and Minister of Finance, Ngozi Okonjo-Iweala gathered inside the Congress Hall of the Transcorp Hilton Hotel, Abuja on Monday December 8, 2014 to jointly chart a new direction for the industry. The theme of the one-day summit was “Transforming the Nigerian Insurance Sector- A three year Agenda”.
A careful analysis of top 10 financial institutions in the world reveals that only three of them are banking institutions with the first bank coming at number five. The list according to Wikipedia include Japan Post Holdings- (insurance), Berkshire Hathaway, US, (insurance); AXA- France, (insurance); Allianz, Germany- (insurance); ICBC, China (banking); Fannie Mae, US- (investment services); ING- Netherlands- (insurance/banking); BNP Paribas of France (banking); Generali Group- Italy- (insurance); and China Construction Bank.
This trend is significantly different in Nigeria with none of the existing 61 or so insurance companies bigger than any of the commercial banks operating. Even the 2007 increment of the minimum capital base to N2 billion, N3 billion and N10 billion for life, general and reinsurance businesses failed to achieved the aim of significantly transforming the sector to the big league.
The summit therefore, offered all parties in the insurance value chain an opportunity to collaborate and work with government to determine changes required to urgently propel the industry to its desired level
Some of the most important challenges confronting the industry include lack of consumer trust, fragmentation in the industry as evidenced by the presence of some weak and insolvent players, low enforcement of compulsory insurance policies, lack of professionalism by some agents and brokers in the industry, and a general shortage of skilled professionals.
Commissioner for Insurance/Chief Executive, National Insurance Commission (NICOM), Mr. Fola Daniel described insurance as a critical part of any nation’s economy with the potential of galvanising the optimal performance of other sectors. He said insurance mechanisms reduce the capital needed by firms to operate, increase investments, fosters entrepreneurship by reducing uncertainty and expand available risk management options. The industry also offers social protection alongside the state and reduces pressure on public sector finance.
He traced efforts to reform the insurance industry to the Financial System Strategy (FSS 2020) developed in 2007 to position the financial services sector to drive the vision of making Nigeria one of the most 20 developed economies of the world by 2020. NAICOM thus launched its Market Development and Restructuring Initiative (MDRI) to build capacity for its staff and those of stakeholders; develop insurance agency system; build confidence and integrity in the industry; create awareness and secure the support of government and relevant agencies and; ensure public compliance with various compulsory insurances requirement of the law.
Daniel said an important element of the MDRI was a target of N1 trillion gross premium income by end of 2012 but that implementation challenges and the impact of 2008 financial crisis on the industry impeded attainment of the initiative. “Notable among the negative impacts were the huge losses suffered by insurance companies as a result of the near collapse of the Nigerian capital market and decline in the growth of personal lines as a result of 2009 changes in the financial services industry.
“Thus as at the end of year ending 2013, the gross premium income of the industry only grew to N300 billion from N101 billion in 2007. Although the 2013 achieved gross premium achieved gross premium income puts Nigeria as 3rd from 5th position in Africa, we know and I am convinced that we can do a lot better.”
The Insurance Commissioner identified the key challenge to growing the industry as how to get sufficient number of potential customers to buy insurance- a decision much influenced by the image of the industry, financial illiteracy, economic constraints and attitude of the consumers.
He observed for instance that in advanced economies, personal lines insurance has acquired a cultural status and is given priority as a means to mitigate various risks and reduce incidence of poverty.
“It is not the same in Nigeria. The major question to answer therefore will be, what to do in Nigeria to break barriers and release the potential that ought to come with demographic advantage.”
Despite the challenges, Daniel disclosed that the introduction of a wide range of regulatory guidelines in addition to other market development initiatives have strengthened insurance companies, built confidence in the insurance market and significantly improved the attractiveness of the industry to both local and foreign investors. In recent times, major international insurance companies like Metropolitan Life, Sanlam, NSIA, Old Mutual and AXA have entered the Nigerian insurance market.
Addressing the audience, Minister of State for Finance, Alhaji Bashir Yuguda lamented the lack of popularity of insurance in the country when compared to other emerging markets like Brazil, Russia, India and China saying that when the sector is properly harnessed, it will deliver many important benefits.
Some of these benefits include boosting economic growth and promoting investments and also serving social function by mitigating the impact of catastrophes.
He urged practitioners to place emphasis on life insurance, which he observed can grow much faster than it is currently doing and “think more about introducing innovative channels such as mobile platforms which are becoming very important in other fast growing markets.”
In her opening remarks, Okonjo-Iweala canvassed that for the industry to experience the desired leap, identified challenges must be surmounted. “If we are to harness the potential of this industry, then we need to collectively address several challenges.”
She said many Nigerians are sceptical and hold a negative perception of the insurance industry. “The claims ratio in our industry (i.e. ratio of payouts to total premiums received) is one of the lowest at about 25 percent.
Compare this to Kenya and South Africa where the claims ratio is about 60 percent, or the UK where it is 90 percent. So clearly, there are many insurers in our industry who are eager to take premiums, but not ready to pay when genuine claims are submitted. This practice must stop.”
She also mentioned low enforcement of compulsory insurance as the second challenge to remove and so challenged NICOM and most government agencies to work harder. “If you take the case of compulsory motor vehicle insurance (third-party liability), only 1 in 8 Nigerian cars (13 percent) have genuine insurance. Compare this to Ghana, where the compliance rate is reportedly about 60 percent.
Or take the case of mandatory group life insurance for large businesses and organizations; again only a few large corporates in the oil and gas sector, the Federal Civil Service and the Police Service are compliant. Many of our CAC-registered businesses do not comply with the law.”
Concerning shortage of skilled professionals, the minister lamented for instance that Nigeria currently have less than 10 professional actuaries in the country, declaring that this is grossly inadequate for the type of insurance industry we want to build in Africa’s largest economy.
She observed that in Europe, one of their largest insurers Allianz, is a major shareholder of Commerzbank in Germany, and also the owner of PIMCO, one of the largest investment management firms in the world with nearly $2 trillion in assets under management.
In the US, some of their largest insurers such as Allstate Insurance have large investment portfolios in real estate, in infrastructure and in private equity funds valued at about $85 billion. And in the Asia-Pacific region, we have insurers such as the Great Eastern Life Assurance (of Malaysia) which employs more than 21,000 agents in Malaysia alone, and also has operations in Singapore, Brunei, Indonesia, China and Vietnam.
She noted that “our insurance sector has grown steadily in the past decade, thanks to work which has been done by NAICOM and various stakeholders gathered in this room, total premiums have quadrupled in the past 10 years:
growing from N75 billion in 2005 to more than N300 billion today and attributed this to the strong external interest in the sector with the entry of foreign investors such as Old Mutual and Sanlam from South Africa.”
However, in spite of the investor interest, she expressed belief that as Africa’s largest economy, “our insurance sector must be growing even faster. In fact, when we benchmark ourselves against other emerging markets, we realize that we still have a lot of work to do. The current insurance penetration (i.e. the ratio of premiums to GDP) is only 0.4 percent in Nigeria, compared with 1.1 percent in Ghana; 3 percent in Kenya; and for the BRICS (Brazil 4 percent; Russia 1.3 percent; India 4 percent; China 3 percent; and South Africa 15 percent).”
Revealing her 3-part vision for the industry, the minister said the first part would be to grow gross written premiums (GWP) of N300 billion today, to N1 trillion in the next three years, and to N5 trillion within the next decade. “So we should be attaining gross premiums of about $30 billion in a decade from today. Let us focus on that prize ahead and work towards that goal.
“The second objective of our vision would be to grow the number of direct jobs created in this industry from the current 30,000 people to 100,000 people in the next three years, and to more than 300,000 people in the next decade.
“The third part of our vision would be to widen access by growing the number of insurance policyholders in the country.
We are a country of 170 million people, but with only 3 million policyholders! Knowledge, awareness and patronage of insurance products are low across the country.
So let us also work to achieve a minimum of 10 million policyholders in the next three years, and 30 million policyholders in the next decade. To achieve this goal, this industry will need to think about new distribution channels for selling insurance policies – for example using mobile platforms, and also working with the CBN to identify appropriate bancassurance regulations. We will also need to think about how to extend micro-insurance and takaful insurance (Islamic-compliant insurance) to rural parts of the country especially to Nigerian farmers who are exposed to various climate risks.