Harnessing Nigeria’s Natural Resources for Growth

Insurers’ roles in the development of Nigeria’s abundant natural resources for economic development dominated discussions at the second edition of the annual national insurance conference, which held in Abuja recently. Ebere Nwoji reports

The insurance industry, has no doubt realised its long standing dream of fostering cooperation, collaboration among the various arms of the industry and pulling resources together to engender the growth and development of the sector and the economy in general.

The operators achieved this last week at the second edition of the National Insurance conference organised by the Insurance Industry Consultative Council (IICC), a body comprising all the arms of the industry namely Nigeria Insurers Association (NIA), Nigeria Council of Registered Insurance Brokers(NCRIB), Chartered Insurance Institute of Nigeria(CIIN),Institute of Loss Adjusters of Nigeria(ILAN) and Association of Registered Insurance Agents of Nigeria (ARIAN).

These arms of the industry, have been existing as fragmented entities speaking with diverse voices and having their annual conferences over the years without achieving their overall desired result of growing the industry to contribute significantly to the national economy.

But through the second edition of the conference held in Abuja recently, the operators have been able to collaborate to chart the way forward for the industry’s growth especially in the area of channelling their thoughts towards harnessing the opportunities in various sectors of the economy for national economic growth.

This year’s edition of the conference, which has the theme Expanding National Resources and Infrastructure in Challenging Times, assembled experts from the various sectors of the economy, such as Agriculture, Mining, Construction among others to X-ray the opportunities in these sectors as well as how insurance can collaborate with them to enhance the growth of the industry and expand the economy.

At the conference, which took place at the Transcorp Hilton Abuja, the industry operators, after two days of serious brainstorming sessions, agreed that in its years of existence as part of the financial service sector of the economy, insurance contribution to the national economy has remained insignificant.

Till date, the industry’s contribution to the Nation’s GDP is still as low as 0.6 percent and the industry ranks third in Africa in terms of market size whereas South Africa, which ranks first contributes close to 6 percent to the country’s GDP.

The operators, after listening to paper presenters selected from the various sectors of the economy, agreed that more concrete steps should be taken to enable it position itself for the enormous potentials available in the economy. This includes human capital development for competencies and capabilities, increased penetration and contribution to GDP.

They also agreed that the insurance industry should invest in data for decision making and embrace share services for seamless growth at cost effectiveness.

They resolved that the existing laws should be reviewed to enable the industry take advantage of emerging opportunities including areas of infrastructure development.

The conference noted the challenging environment, which the nation’s economy has found itself due to decline in crude oil prices and the need for development and growth of non oil sectors as alternative sources of income for the economy.

The insurers at the conference agreed that Agriculture, Mining and Industry including SMES should be seen and recognised as sectors that need to be critically developed to move Nigeria forward.

They were also of the view that insurance has critical role to play not only as investor but in the risking bearing aspect of the sector by understanding the value chain, develop appropriate product and deploy relevant technology for flow of funds to these sectors.
They also agreed that specific insurance products should be developed along the value chain to enable them perform in those sectors.

The conference also concluded that though mining is difficult to develop, it posses tremendous investment opportunity therefore insurance industry should collaborate with operators and become one of the important partners in the industry.

On the role of insurance in infrastructural development, the conference agreed that insurance is germane to conception, creation and maintenance of infrastructure in the country. The operators noted that there is a strong connection between infrastructure and insurance hence insurance industry should reposition itself to take advantage of huge potential in this area.

The communiqué also stated: “The industry should embrace innovation, research and development, entrepreneurial skills and creation of value adding products on existing and emerging risks in order to tap into these huge potential.
“The industry should improve in the area of customer engagement and public advocacy.

The operators also agreed that a lobby group should be engaged to protect the interest of the industry especially in blocking various leakages and curtailing unhealthy competition against the industry from local and foreign institutions.

The Conference noted that there should be an improvement in the collaboration with federal agencies such as federal fire services, and Federal Road Safety Commission to ensure effective implement of compulsory insurances in addition to what the industry is already doing and a structure should be put in place by the commission for implementation of its current initiative of re-launching compulsory Insurances.

They also noted that the issue of inappropriate pricing of premium was inimical to the growth of the industry and resolved to encourage pooling in the area of public sector insurance.
The communique also recommended that Micro insurance for low income earners should be encouraged for premium growth and development of the industry.

Speaking at the conference, the Minister of Finance, Mrs. Kemi Adeosun, said government was determined to lead in the reforms of a more vibrant Nigeria insurance market.

The minister in her opening remarks at the conference, explained that a developed and active insurance market would bring about increase in GDP, accumulation of long-term funds for infrastructural financing, job creation, and an improved standard of living. She added that the development would also attract foreign investment in the country.

Speaking on the ongoing efforts of industry stakeholders to reposition the insurance industry for growth, Adeosun said the federal government was ready to lend its support, adding, “there is a need to immediately address the decline in the Nigerian insurance industry as it is lagging behind global and African peers. ’’Despite being the largest economy in Africa, the Nigerian insurance industry remains largely underdeveloped. The industry has under-performed the banking sector and even the recently established pensions sector.”

Emphasising the resolve of the federal government to stimulate extra-ordinary growth and unleash the potential of the insurance industry in Nigeria, the minister listed some factors necessary for the change as recognising the true stage of development- we have an industry that despite its age remains in its infancy. This means that the government must act as a nurturer and incubator of the industry.

“We have also seen the success of the pension fund industry as a text book example of where government policy set clear parameters for participation, led by example and enforced legal obligations. If we are to use the Pension fund success story as a template for the Insurance Industry, then we can jointly identify the required road map.
She also stressed the need to strengthen the capital base of insurance companies.

Speaking on the existing opportunities for insurers in infrastructural development, Kunle Elebute, Partner and Head of KPMG Advisory Services Nigeria and Head of Infrastructure, Government and Health Practice, noted that infrastructure projects such as electricity, roads, airports, water systems and telecommunications are the foundations of modern economies.

He said investment in infrastructure not only generates direct employment in construction and operation of the various projects but also improves efficiency and productivity levels thereby increasing competitive advantage.
According to him, while investment in infrastructure is not the only factor for economic growth, higher investment in infrastructure in China appears to support a faster economic growth.

On the private sector role in infrastructural development, Elebute said based on Nigeria’s National Integrated Infrastructure Master Plan, annual investment of US$33billion is required between 2014 and 2018, which is significantly higher than government capital expenditure allocation in the period.
“Consequently, as witnessed in major developed and emerging economies, private sector financing is required to bridge the financing gap,” he stated.

He listed typical providers of private financing as Pension funds Insurance funds, Private investors (local and foreign).
He viewed that since Life insurers seek investment options that offer high yields and long maturities to back long-duration life insurance obligations, one such option involves investments in infrastructure, such as transportation, communication, water, sewer and the generation and distribution of electric power.

He recommended that insurers should collectively establish an infrastructure Investment Fund with contributions from industry players over the next 10 year; appoint infrastructure Fund Manager, which will determine infrastructure assets to invest in either directly or via project finance bonds; Fund investment committee that will ultimately be responsible for making final investment decisions

He listed benefits of investing in infrastructure as stable returns, reliable cash flow and low volatility, as well as portfolio diversification among others.
On their part, insurers said they can only invest in infrastructural development and mining within the ambit of insurance law guiding their premium investment in other sectors.

Discussions at the conference point to the fact that there is insurance element in virtually every economic activity in every sector of the economy both in investment and risk -bearing areas but insurers have not spread their tentacles wider thereby limiting their premium generation chances.

The insurers were encouraged to put their long term investible funds into use.
This was confirmed by the Group Managing Director of Custodian and Allied Insurance Mr. Wole Oshin, who admitted that the insurers have over the years, concentrated attention on premium generation and little attention to the other side of their business which is investment of the generated premium for further yields.